Last week we began a discussion on how foreign ownership of some of our key industries in industrial heating technologies is jeopardizing much of this capability. We left the discussion with much of the manufacturing base being subcontracted to outside vendors to reduce costs.
Now, with no in-house manufacturing capability and tightly controlled inventories (supposedly, money invested in inventories can generate more money elsewhere for these owners), customer deliveries are always at risk. Production schedules can’t be adjusted in house to meet suddenly changed customer demands. Design engineering can no longer work with the production process-engineering people who no longer exist in house. Long term, that can become a significant detriment to good product design, but that assumes one is in it for the long term, which many of these investors are not.
Not to mention the impact of mother nature – snow storms, hurricanes, volcanic eruptions, etc. – on the ability for airlines and trucking to make on-time deliveries. As a result, a whole new division of labor has been generated called “Managing the Supply Chain.” But that’s another whole discussion that we will take up next.
When field problems arise (something that will always be with us), quick solutions can’t be generated using in-house resources for making new parts or reworking complex control systems since the company no longer has control over these shop-type resources. Using the supply vendor for this work puts the situation in jeopardy to that vendor's own priorities for people and schedule.
I have an economist friend who says that outsourcing is the natural progression of manufacturing. He uses the analogy of the American farmer. Years ago, the farmer raised his own horses for work, saved his own seeds for planting, and in general provided all the goods and services he needed to plant and harvest his crops. Today, another outsourced manufacturer provides the tractor and the seeds and the fertilizer. Harvesting may even be done using high-cost machinery rented from the local supplier of equipment. It's called focusing on your core business.
But is that the same analogy? I say it is not. The farmer had no need for any of the technologies required to produce a tractor, and everyone uses the same seeds and fertilizer. The farmer had no competitive edge using his own resources. That is not true about a competitive manufacturing company. The competitive edge is gained by how a product is produced as well as by what it does. Outsource and you will slowly lose any connection to how your product is produced and any advantage that could come from that technology.