When it comes to outsourcing, walk (around the block) before you run
One of the most common mistakes companies make when deciding to outsource is jumping over the edge and trying to do it quickly and to the lowest cost geography in an effort to see immediate savings. The problem with most companies who have not outsourced before is that their process won’t easily allow it to happen. I am not talking about ERP systems-I am talking about building and testing the products.Not too long ago I worked with a company that wanted to jump off the edge and send a product to be manufactured overseas. But once we took a close look at the bill of materials (BOM) structure we found multiple errors/issues. For example, they had a BOM of roughly 1,800 part numbers with about 10 cable/harness structures on it. What we came to find out is that those 10 cable part numbers actually represented about 100 different cables.
Now the only difference was the length of the cable and when I asked how they knew which one to use, the answer was they just know. Now I will tell you, if you send this BOM to anywhere on the globe, people will be confused and build it wrong, mainly because they don’t have the tribal knowledge this team developed over the years.
The other major issue we found was testing, there was no documentation and no trouble shooting guide. (The tech kept a notebook with this information in it, but refused to give it up, saying that it was his personal notes.)
In short-you need a clean BOM to be able to train a new supplier on build and testing, and at the very least have a document that clearly defines expectations of the finished product. Now this is the bare minimum, if you don’t provide this, expect to pay for product that does not meet expectations.
Now to the subject line, domestic or local sources can help you jump off the edge. Think of them as training wheels for outsourcing. You will work out your bugs, get the documentation clean (in the same language and be close to your time zone) and start exercising your supply chain capabilities. A couple of caveats, though: you should always save money when outsourcing either through soft or hard cost savings, and you should expect them to try to nickel and dime you. If you are asking for them to document everything, make sure the agreement shows you own it afterwards. You don’t want them to claim this is their IP, I have always taken the stance that if I paid for it, I own it (even if it’s a buck). And note, these caveats are a worldwide issue, not just a domestic issue.
With the economy the way it is, most domestic and local companies need absorption for the heads they are carrying, so they should be very competitive. If not find someone who is hungry, they are out there. The big contract manufactures (CMs) may not be the most cost competitive, but they would be the best training wheels, vs. the smaller shops. The smaller shops will be more competitive and you will be more important to them, but it’s your business. Below are the some of the top CMs.
The largest CMs
Foxconn - Taiwan-based, but global
Flextronics - Singapore/U.S.-based but global
Benchmark - U.S. based, but global
Sanmina - U.S.-based, but global
Jabil - U.S.-based, but global
Good luck out there and please make any comments or questions below.
Elmo Pinard commented:
Michael,
I believe that your message is the wisest advise anyone has offered since outsourcing became popular. I am the Purchasing Manager for a small CM in California that devotes much time and unintended cost to correcting BOMs and obtaining Change Notices to make the correction a permanent part of our customer's documentation. So many companies try to issue a quotation for services that they have yet to define with a partial list of identifiable components.
I hope your message reaches the many thousands of companies still thinking of outsourcing their manufucturing.
Thank You,
Elmo Pinard
Mer-Mar, Inc
"Here 2 Serve" commented:
Wow! you have described a dilemma that has become a criticality for many. The worst thing a organization can do is to not be specific. Not knowing exactly what it is that you want and not being able to Kanban it will always provide a high dollar end result. It’s not always that the supplier is trying to rob you. NRE (non recurring engineering) hours will continue to rack up if you cant specify what it is that you want. It is key to be elementary. As a buyer I find that it is never easy to put a mechanism in place tht fosters a change in the way business has been done over many years. As they say, change “can be compared 2 a large ocean liner changing its course” So the question is, having this knowledge, how do you implement it?
