Crisis Brings About Real Change – A Case for In-Sourcing

January 1, 2011
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For the past decade companies have spent considerable time and resources on strategically outsourcing their products and services. But maybe now, while our economy is in a real crunch, is the time to reconsider this strategy and put people back to work in this country.

According to the APICS Dictionary, 12th edition, in-sourcing is “using a firm’s internal resources to provide goods and services”. The opposite is out-sourcing; “the process of having suppliers provide goods and services that were previously provided internally”. In the old days we called this a “make or buy” decision and out-sourcing was called sub-contracting. The decision to make or buy a product or service was made by management based on factors such as technical or proprietary expertise of the firm, core competence, availability of capacity, and cost. But, in the 90’s when strategic sourcing became all the rage, we found companies out-sourcing their products, based strictly on reducing costs and in some cases, because it was the “thing to do”.

I once worked for a company that out-sourced its proprietary product to South Korea. The day that it was announced to the market, our stock went up 3 ½ points. Six months later we shut down the factory and put 1,500 employees on the street. The official reason given for out-sourcing was due to restrictive EPA regulations, yet, I still remember heated discussions in our staff meetings, stressing the urgency for out-sourcing simply, because “everyone else in our industry had already done it.” That is not a strategic initiative – it is nonsense. We had a highly competitive product, produced by highly skilled workforce, that used special processes and technology developed by us.

Often the stated rationale for out-sourcing is that “pacific rim” companies have better quality and technology than we have in the US (e.g. the auto, electronics, and appliance industries). Admittedly in the 80’s American productivity fell behind that of our “world class” competitors, whom we discovered were providing high quality products at a lower price. But all of that has changed. Today America’s companies are among the most productive in the world and excellent quality has become a commodity instead of a competitive strategy; witness our aerospace and defense industry. The “secret weapons” that the Japanese companies were using like Total Quality Management and Just-in-Time were first taught by Americans like W. Edwards Demming, Walter Shewart and Joseph Juran who simply showed them how to measure and control processes, to eliminate all form of waste, and to strive for continuous improvement in all things. Today we call this “Lean Manufacturing”, and “Lean” is revolutionizing American manufacturing.

So, maybe the rationale for out-sourcing today is not the same as it was in the 80′ and 90’s. Perhaps it is time to rethink our original “make or buy” decision considering the state of our economy and the number of people who are out of work in this country. At some point we must be prepared to produce product in this county once again, especially when some of our global suppliers are in countries that are political enemies of the USA. Granted, many of the products and services that we have out-sourced will never again be manufactured in the United States, but certainly many of them could be and it might make better business sense to do so. There is no better time to start to look at bringing work back to America. In the next Issue we will define the criteria for an in-sourcing strategy.

To discuss your sourcing needs, contact Jim Strong at js@theacagroup.com.

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