Friday, August 26, 2005
Outsourcing, Insourcing, Onshoring, Offshoring
Well, the person who asked to hear more of my opinions is sure getting them today :-)
I did some more thinking about this. You have to understand *we* are an outsourcing company. But there are outsourcing companies and there are outsourcing companies.
Our company manufactures small metal parts using a special process called slideforming and a special type of machine called fourslides (actually, we don't have many "real" fourslides any more, we mostly have vertislides, but the idea is the same at this level).
We exist in an economic niche. We are very specialized in doing exactly this, slideform work on thin metal parts. Even other metal stampers come to us, because they recognize that our specialization in small and thin metal parts makes us more able to do a good job than their own people. Toolmaking for thin material is totally different than toolmaking for thick material. Different skills, different tools, different training. Machine setup for thin, small parts is different than press setup for big parts. Smaller dies, smaller die lifting and moving equipment, smaller measuring instruments, different accuracy requirements, etc.
So our advantages are quality and cost - organic cost - that come from using the right process for the part.
A cost advantage that comes from using the right tool for the job (in this case, slideforming and people trained specifically in slideforming) is fundamentally different than a cost advantage that comes solely from moving a process to a place where labour cost is low.
Using the right tool (and the right outsource) for the job will pay off, year after year, in higher quality, lower cost, few customer complaints, etc.
Moving a process to an area with a lower labour cost is temporary at best. Macroeconomics says that the workers there will, in time, improve their standards of living and demand (and receive) more salary, removing the advantage. And that's assuming there are no quality issues and the parts are made just as well in the "other" location, that the supply line length doesn't hurt company responsiveness or cashflow, etc.
So basically there is outsourcing for good reasons and outsourcing for poor reasons, and they're as different as night and day. That's not to say that an overseas outsource might not be the right thing - we buy tools from Germany and Japan every month, because those specific tools are made best by that specific company over there. But sometimes the advantages of a low labour cost are outweighed by all the other stuff that comes along with long supply chains.
I did some more thinking about this. You have to understand *we* are an outsourcing company. But there are outsourcing companies and there are outsourcing companies.
Our company manufactures small metal parts using a special process called slideforming and a special type of machine called fourslides (actually, we don't have many "real" fourslides any more, we mostly have vertislides, but the idea is the same at this level).
We exist in an economic niche. We are very specialized in doing exactly this, slideform work on thin metal parts. Even other metal stampers come to us, because they recognize that our specialization in small and thin metal parts makes us more able to do a good job than their own people. Toolmaking for thin material is totally different than toolmaking for thick material. Different skills, different tools, different training. Machine setup for thin, small parts is different than press setup for big parts. Smaller dies, smaller die lifting and moving equipment, smaller measuring instruments, different accuracy requirements, etc.
So our advantages are quality and cost - organic cost - that come from using the right process for the part.
A cost advantage that comes from using the right tool for the job (in this case, slideforming and people trained specifically in slideforming) is fundamentally different than a cost advantage that comes solely from moving a process to a place where labour cost is low.
Using the right tool (and the right outsource) for the job will pay off, year after year, in higher quality, lower cost, few customer complaints, etc.
Moving a process to an area with a lower labour cost is temporary at best. Macroeconomics says that the workers there will, in time, improve their standards of living and demand (and receive) more salary, removing the advantage. And that's assuming there are no quality issues and the parts are made just as well in the "other" location, that the supply line length doesn't hurt company responsiveness or cashflow, etc.
So basically there is outsourcing for good reasons and outsourcing for poor reasons, and they're as different as night and day. That's not to say that an overseas outsource might not be the right thing - we buy tools from Germany and Japan every month, because those specific tools are made best by that specific company over there. But sometimes the advantages of a low labour cost are outweighed by all the other stuff that comes along with long supply chains.
