The latest edition of IndustryWeek’s Manufacturing Business Challenge has been published.
This month’s challenge discusses a growing kitchen appliance company with an increasing number of outsourcing partners. While the company has seen good growth and profitability to-date, there are warning signs of potential problems with lost visibility, increasing costs and lack of operational control.
I took part in providing one of the solutions, as did Christian Verstraete, CTO for HP’s Manufacturing and Distributions Industries Worldwide.
Tell us what you think of our responses to the challenge as described below:
Over the past dozen years I have increased the outsourcing of Glaask Appliance kitchen products, an extensive line of powered utensils for restaurant, commercial, and consumer kitchens. Many of the firms providing my products are now located overseas, either by intent at the time of the agreement or because of partnering relationships that have gradually crept abroad. Glaask still makes about 45% of our finished goods in the U.S. — and I want to always maintain a domestic base — but much of that now is assembly only, with components and materials also coming from overseas.
Glaask has grown fourfold during this outsourcing period and remained profitable, but I’d be foolish not to recognize warning signs coming from our customers and from our assembly operations: Our warranty costs have risen steadily over the last five years, and we’ve lost a few institutional accounts because of faulty products. We frequently get notice of quality problems coming out of our supply chain, but only after a large batch of products has shipped. We’ve gradually lost visibility into the facilities of some processes, especially those now occurring overseas. And even where visibility exists because we’ve got EDI and other electronic data-exchange mechanisms with partners, the decision-making process remains fragmented, so we’re slow to get warnings and react to quality, volume, or priority issues.
In some corners of manufacturing, outsourcing is not as popular as it once was. But I’m not calling for eliminating our outsourcing relationships. I think these firms can still be productive arms of Glaask — provided we can share information with these suppliers, monitor and react to their performance today rather than weeks from now, and manage their activities and processes as if they were located under our roof. Am I being naïve? Can this be done?
See our advice here. What advice would you give?
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Tags: Outsourcing, Supply chain, Supply chain management, Supply management
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Mr. Verstraete and Miles state express their solutions quite well and I would pretty much agree with their advice.
The one other item that I could suggest, would be to insure that the same collaboration that takes place externally also takes place internally at Glaask. Undoubtedly, over a period of time with extreme corporate growth many other departments, i.e. Engineering, Quality, Manufacturing, and even Sales may have taken ownership of parts of the supply chain as they have tried to develop and manage their piece of the pie leaving the supply manager with all the control responsibility for a fractal supply chain and little ability to control it. Hence it is very important for internal partners to understand what you are trying to do and why and as well, for them to agree and take some ownership in the clean up process.
Ron, you are absolute correct. Without good internal collaboration between the internal partners, external collaboration will bring little added benefit. Our experience is that as companies have outsourced, in other words they are doing less internally, they have treated the outsourced process very much as one would treat a supplier of commodity items, at arms length. Clearly there needs to be some seperation between organizations, but close ties with key suppliers is crucial from an operational perspective.
Regards
Trevor Miles
Kinaxis
I agree with a lot of your points. I think that companies should be given the responsibility to oversee outsourcing operations; it is, after all, their head on the chopping block if something goes wrong. I do, however, think that it is also necessary to allow outsourcing companies to be free to incorporate some of their practices to the ones that you teach them. If this happens, employees may feel more comfortable, and their performance will improve.