Blogger Themes

Friday, 7 October 2011

Like Hobos On The Outsourcing Train
Oct 07, 2011

Outsourcing has been an enormously popular trend in manufacturing for the U.S. However, as popular as it is, and as much as it might make sense on paper, it doesn’t always produce the business benefit we seek. Consider the change that outsourcing means to your business before you jump on the train with everyone else.

I’m afraid that the title of this post is a little impolite, with a derogatory slant for each of us participating in outsourcing our manufacturing and production. I do intend to draw a simile between hobos jumping on a moving train for no other reason than to go somewhere else, and businesses that decide to outsource without a plan for how to deal with the change that such a decision implies.

I’m not a logistical expert, but I do know very, very well what it means to change processes, skill sets, and behaviors suddenly. Often, when we make business decisions that impose major changes, we neglect to consider the impact that the sudden change and the learning curve will have on our business and its performance.

This week I read about the delivery of Boeing’s 787 Dreamliner, three years late. Boeing’s explanation to the press for why the 787 was so late is that it was the first aircraft that Boeing had generally outsourced (other issues such as a 58-day labor strike also contributed). According to The Seattle Times, the 787 development cost more than twice what typical new jet developments cost, because of delays.1

Boeing isn’t the only business to struggle with on-time delivery after outsourcing production. Another business, coincidentally also in the airline business, and one where some of my friends and colleagues work, is also struggling. I won’t name it for the sake of respect to my colleagues’ confidences

This business, several years ago, boasted repeated on-time delivery numbers in the upper 90’s, some of the best numbers in the corporation. It needed to expand its production in order to meet demands and leaders decided, rather than expanding the operations, to begin outsourcing production and to use the existing facility only for final assembly.
Unfortunately, today the on-time delivery numbers are embarrassing enough that my contacts in the business don’t know what they really are. Suffice to say, some deliveries are more than 90-days late and they went an entire month recently without a single delivery.

My contacts in the business have discussed many of their challenges with me in recent months, either seeking advice, or just sharing insights back and forth. From those discussions, it’s apparent that the root of the on-time delivery problem is that parts are not available to complete the assemblies. In other words, the outsourced production is not producing.

A related, contributing cause is the introduction of an Enterprise Resource Planning (ERP) system that has resulted in logistics systems challenges. I say it’s related for two reasons. First, figuring out how to make the system work for the business led to some of the ordering and delivery mishaps. Second, the phenomenon surrounding the ERP system’s failure to produce better efficiency is the same as the one surrounding outsourcing’s failure to produce better efficiency; change happened.
To read more click here...


Post a Comment