Metrics drive success for major outsourcing project
William Atkinson -- Purchasing, 1/15/2004 2:00:00 AM
Two years ago, Stratex Networks made a major outsourcing decision. The San Jose, Calif.-based company, which develops, makes, and markets microwave radio products, had outsourced some of its manufacturing activities in the past, but realized it would need to go further in order to reduce its fixed costs and improve gross margins.
Supplier selection was the easy part. The company chose Taiwan-based Microelectronics Technology Inc. (MTI) for full-scale, turnkey production of a number of key products and components. "We have had a long-standing relationship with MTI," explains Robert J. Schlaefli, vice president, global operations for Stratex. "Over the years we have been in business, they have always been one of our key suppliers."
As part of the new five-year outsourcing agreement, Stratex shipped a number of its manufacturing assets, as well as some inventory, to MTI while retaining product design and R&D functions.
The move required a significant change in the way the two companies worked together. "A lot more was involved than just placing a purchase order," emphasizes Schlaefli. Stratex worked with PRTM, a consulting company, to create a set of metrics by which to gauge MTI's performance. The company then created cross-functional teams. "Internally, we worked with the planning manager, purchasing manager, and order fulfillment people from my group, as well as the engineering product technical support group," he reports. "We then matched up our people with their direct counterparts at MTI."
While the company had performance requirements and processes in place prior to this new arrangement, these needed to be formalized. "We defined what each objective was, what it meant, and who would be responsible for it," he says. Through this process, the teams developed a set of ongoing metrics to manage the transition. "We also used the metrics to manage the ongoing relationship once the transition was completed," adds Schlaefli.
The teams selected three metrics as the most critical. One is product first-pass yield for each of the product lines. This is a combination of process and technical capabilities. "We also have objectives for improvements in these yields," he notes. The second is on-time delivery—MTI's promise compared to Stratex's request. "We measure both of these, identify reasons for any failures, and then create a mechanism to close the gap on any root cause failures," he states. The third is MTI's capacity to support Stratex's forecast demand.
The differences in culture and time zones between California and Taiwan had always been challenges for the two companies, and the new formalized relationship only heightened the importance of these differences. "The metrics have helped to address these challenges, Schlaefli says, "because the numbers represent a common language that everyone understands."
Stratex uses a scorecard to measure performance to the metrics. The cross-functional teams are still in place. If and when problems occur in achieving certain metrics, the teams address the issues. The metrics, plus the scorecard, have been instrumental in allowing the company to continue to improve in terms of product quality and capacity management. "We have seen a number of percentage point improvements in product quality—performance of the product right off the production line," he says. "We have also seen a substantial reduction in our manufacturing costs. In fact, we were able to cut these costs in half." Efforts in the future will focus on continuous improvement in the areas where the metrics are in place.
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