Who does what best?
By Kevin R. Fitzgerald -- Purchasing, 5/20/1999
This issue's cover story on page 34 provides readers with our annual look at the electronics industry, followed by our annual rankings of the Top 100 electronics distributors. One highlight: More than one-third of electronics distributors' sales revenues last year came from providing value-added services to customers.How electronics purchasers are using distributors illustrates what has been happening in virtually every industry over the past several years. Companies are realizing that many tasks they traditionally performed in-house are done better outside, by experts in specific areas, and they are outsourcing the work to those experts.
Opportunities for outsourcing abound. Here are just a few:
* Inventory management. Most companies are good at using inventory, not storing and handling it. Distributors of all products have been asked by customers to take on additional inventory responsibility, including inventory management, automatic replenishment, delivery to point-of-use, etc. Many large distributors, and other suppliers as well, now place personnel inside customer's plants to facilitate ordering and overall inventory management.
* Basic manufacturing steps. Simple processing steps for a variety of materials and products--cutting and slitting metals; blending chemicals; basic programming of electronic components and even assembly of printed circuit boards--often can be done more quickly and at lower cost by suppliers, especially distributors.
* Services. Purchasers have been outsourcing a slew of services--janitorial, security, travel, accounts payable, payroll, to name a few. It's rare that a company can perform these tasks more effectively than companies that make their living performing them.
* Indirect manufacturing. Some manufacturers have outsourced tasks that are very closely related to products, but are not part of the product itself--creation of part prototypes, for example.
* Specialized manufacturing. In certain industries--primarily high-tech industries and pharmaceuticals--companies have been very successful by specializing in a limited number of manufacturing processes--sometimes only one. Other manufacturers in the same industry--often competitors--have determined that these steps are done better by the specialist and have outsourced those manufacturing steps.
Purchasing professionals in all industries would be well advised to continually examine all the tasks their company does internally and ask themselves and their colleagues a basic question: "Do we do these better than anyone else?" If the answer is "no," then those tasks are prime candidates for outsourcing.
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