We’ve been discussing how outsourcing manufacturing capability is a cost saving because it permits the owners to focus on “core businesses.” This completely ignores that how you manufacture and how you service your customers with delivery schedules and correction of problems in the fieldISpart of your core business.
But in today’s economy it can be even worse. The next in-house capability to be “downsized” will likely be the R&D department. Previously, we have argued that an active R&D project is a key operation to be fully funded during a recession. Being able to introduce this new technology to your markets when the recession is over is an excellent way to jump-start your own recovery and get a leg up on the competition.
We know that many of the products used in the industrial heating market have a working life of many decades before they are rendered obsolete by newer technology. If your plans don’t look out that far, why spend money on projects that will take many months to develop and many more months (sometimes years) before the market will accept the technology, if that is beyond your time horizon?
But you don’t just eliminate the R&D group because that would send a terrible message to the rest of the company. You pare their budget, and you present high hurdles for any proposed project to clear before funding is approved. The department putts along working on minor upgrades that give the illusion of a fully funded program. But it is deceptive if there is no long-term goal.
At some point in time, after all the savings can be taken from this outsourcing and downsizing, the leftover bones of the original company can also be sold off at a steeply discounted price. The new owners will integrate whatever technology is left from the remains, and another piece of our U.S.-based manufacturing is lost forever.
Maybe from the perspective of maximizing your cash flow as an owner, all of this may make sense. But that imperative is not the goal that drove many of the entrepreneurs of U.S. industry, particularly those industries with which we are associated. Some of their names are still part of this world, but the spirit that drove them to produce the technology that put the U.S. in the forefront of this industry is gone in many instances. This is particularly true with some of those companies that are now part of a big international conglomerate run by a bunch of numbers guys.
Somehow I don’t think we are better off as a nation as a result of this.
More Owner Betrayals
By Jack Marino