Daily Archives: November 25, 2010

Want to Kill Quality, Outsource!

It’s probably getting cliche by now, but it’s often true. And I enjoyed this recent article on how companies find outsourcing can backfire as quality, customer service suffer in the Journal Sentinel Online, especially when it said that outsourcing isn’t always the best solution and, in some cases, it’s laden with problems and disappointments.

According to the article, a new business survey from the ASQ (American Society for Quality), found that 55% of companies surveyed were substantially dissatisfied with their outsource provider in the areas of innovation and making process improvements. A mere 34% said outsourcing provided a good value and only 41% said outsourcing met performance metrics.

While outsourcing can be a quick fix to lower costs, in the long run it can backfire — sometimes badly. Communication problems, poor customer service, slow delivery times, and quality control are just some of the pitfalls. And the reality is that when quality, the cost of freight, delivery times and other factors are considered, sometimes it’s cost-neutral or cheaper to make products yourself, in U.S. factories, rather than outsource them overseas.

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Does Your Supply Chain [Still] Have [A] Manufacturing Myopia

Manufacturing Myopia can be defined as a narrow vision of future potential, [generally] leading to formulaic cost-cutting, layoffs, loss of competence, and decline. It’s a state of affairs that is becoming more and more common in North American manufacturers, but it doesn’t have to be in your future.

The fundamental problem, as pointed out in a now classic Strategy + Business article on Manufacturing Myopia is that manufacturing strategies — decisions related to siting, designing, and running factories — are often the same as they were 10 or 20 years ago. Despite all of the so-called program advancements — such as “TQM” (Total Quality Management), “lean production”, and “Six Sigma” — manufacturing, for the most part, has not kept up with the times. Strategies have been contained to the functional or plant level, disjoint from the enterprise-wide strategy and cut-off from the executive decision makers, and, as a result, the manufacturing focus has narrowed over time to the point where competence has atrophied with respect to the rest of the business. This has compelled many companies to focus on cost cutting to the point of irresponsibility instead of (fundamental) process innovation.

So how do you prevent manufacturing myopia? According to the authors, you start by building awareness as the only “cure” is 20/20 vision that ties together an understanding of manufacturing costs and means. Companies have to sharpen their own ability to see their operations more clearly and redesign them more flexibly as they need to acquire the ability to produce higher-quality goods at lower prices in a flexible manner as this is a key component of their long-term competitive strategy and a central, dependable part of their identify.

In order to build this awareness, a company needs to master the following four dimensions:

  • technological distinctiveness
    a company that relies on machine builders and other vendors to fill the gap is simply buying solutions that are available to the mass-market; this will not give them a distinctive advantage over their competition
  • network sophistication
    the company has to progress to a global, flexible supply chain network that can be reconfigured anywhere in the world as market conditions change; plants have to be designed with “flexible footprints” so that they can be enlarged, shrunk, or reconfigured based on the business landscape because it can take two years to close down a factory — and that’s typically after several years of wavering over the decision
  • in-plant transformation across-the-board
    in order for plant processes to truly be transformed, an initiative has to be initiated at the executive decision making level as part of an overall strategy; otherwise, adoption of new processes will be haphazard and results will be across the board (and even include a loss of efficiency in some cases)
  • labor modernization
    even the shop-floor technicians have to become modern knowledge-workers (using the best tools and techniques for the job) who take pride in their job and strive to produce the best product they can; hours of work and compensation must also be modernized so that people are not driven to overtime (where they work themselves sick and lose productivity instead of gaining it)

And, most importantly, as per the article, the company needs to have patience. While the benefits of a manufacturing transformation should start to materialize within eighteen (18) to twenty-four (24) months, as the article indicates, after production technology is replaced it could take two-to-three (2-3) years before the capital investment bears fruit in the the semiconductor sector, five (5) years in major manufacturing, and as much as twenty (20) years in process industries such as petrochemicals and electricity production. Additionally, to improve processes, companies have to train entire plant communities in dozens of different tools and techniques and completely different ways of working. All of that consumes time and resources.

It’s a tall order when you think back to the classic Ford production line that most plants still work on — one path, one job, and one product — but it’s what is needed if plants are to truly enter the 21st century. I highly recommend that you check out the Strategy + Business article [again] on Manufacturing Myopia. I bet your supply chain could use it.

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