Outsourcing

You hear a lot of static about "outsourcing". The first thoughts that comes to your mind are probably shipping a product design to China for manufacturing. While this is usually what happens, it is only one small aspect of outsourcing, and China is not the only place that gets our business. There is plenty of domestic (inter and intra-state) outsourcing going on as well. Toy companies for years have been shipping simple design artwork overseas, and allowing those molders to design the toy for manufacturability while still retaining the look of the original artwork. Of course you have probably noticed that some of these overseas companies are better than others due to the quality you see on our store shelves. As you can see, not only manufacturing but also design has been (and will continue to be) outsourced beyond our national boarders.

I'm not writing to praise or pounce on the virtues of outsourcing, foreign or domestic. I can't claim to know enough about the subject to make my mind up whether is it "good or bad" for America. I would rather discuss the finer details that one needs to be aware of when weighing the decision to outsource, speaking from a mechanical engineering perspective.

Outsourcing makes sense for a lot of companies. It allows a company to tap into specialties that do not reside in-house, or frees important resources for more critical actions. Have you ever hired a designer to make a business logo for you? Ever drove into one of those oil change shacks to get your oil changed? You've just committed "outsourcing" because you didn't have the required skills or didn't want to waste your time doing it yourself. Take this a step further, you are a manufacturer that makes a widget that uses hydraulic cylinders. The design of these cylinders are unique to your business (your IP (intellectual property)), and contrary to popular belief, business is doing great. You have reached capacity with your own manufacturing, and astute research by others in your organization have revealed that outsourcing the manufacturing of these cylinders makes financial sense. Outsourcing, great! Now what?

First you need to fully define your product requirements. I don't mean take a photo and email it, or crate up a cylinder and ship it off, asking your outsourcer to make "this" for you. You will need to quantifiably define the technical standards and performance requirements. Having measurable standards from which to inspect from will reduce the need to hand-hold your supplier in the long run.

Understand that internal personnel need to take on new responsibilities, or you need to hire people with these new skills if you want outsourcing to work. Your existing engineers will become project managers, system integrators, and specification writers. Your contract lawyers will become an important part of The Team. Your CAD jockeys will become the go-to people for file translation and database management. Discuss these changing roles, identify your weaknesses and plan accordingly.

Before your outsourcer gets started, have a Requirements Review meeting (or two or three) so both of you are on the same page and talking the same language about your product and expectations. Just because you specify a red coupe with shiny rims does not mean you will get a Lamborghini. Chances are you will get what was easiest for your outsourcer to deliver, a Kia (or worse yet, a used Yugo).

Hammer out a realistic Project Plan or Schedule. If you are outsourcing from overseas, don't forget to include time for boat transit time, customs, etc. Don't enter "1 day" for your internal inspection, it may take longer. Be sure to include/schedule internal review meetings. The sooner you identify where your supplier is lacking or where cost can be taken out of your product the better. Be sure to include/schedule teleconferences after you receive a deliverable so you can discuss with your supplier what they have done and what you are looking at.

Have a technical design review (preliminary, critical, etc) if your outsourced product warrants it. Double check those tolerance stack-ups, calculations, and margin analyses. Make sure your supplier conducted the proper studies and they are not over confident in their approach. Also, make sure they weren't too conservative, if they were, you just found an area of potential cost savings.

Look at the nuts and bolts, do this as a Product Readiness or Production Plan review. Are the facilities, equipment, material and labor force available to achieve this Plan? Is every adequately trained? In what quantities are you going to receive your product? A palletized gross makes no sense if your company is Lean and working one piece flow correctly. On the other hand it might make sense if your parts are small, and it makes financial sense if it came across the ocean in a shipping container. Then you should be asking who will warehouse this item, you or your supplier?