Along with all the potential for savings, outsourcing also presents challenges and pitfalls. A leaner supply chain can only be achieved when both parties are inten-tionally driving for the same goal. Exchanging performance feedback and creative ideas to improve processes is necessary for both companies to grow and improve.
Experts also insist that becoming Lean through outsourcing requires constant communication and realistic expectations.
Constant improvement of focused goals is the best way for a company to create an ongoing culture of Lean manufacturing, and the effects always trickle down.
Micromanaging is an important trap to avoid. Whilst collaboration is essential, dictating a process without fully understanding its implications will only lengthen and exacerbate the supply chain. If an outsourcing company has been qualified, trust it to understand the best way to meet your requirements. In so many cases, a marketing company feels it understands manufacturing better than the manufac-turer. This is a huge mistake. Allow the experts to work for you and you will get great results. Be wary of any company claiming it can do everything, and do not insist that outsourcing companies perform tasks for which they are unsuited. The ideal supply chain is one in which every participant understands its contribution and focuses on doing its specific part to the best of its ability.
When it works, nothing can make a company more efficient and successful.
Outsourcing is a standing tradition in many industries. Like many long-standing traditions, it includes many dated ideas and concepts. If businesses must become Lean to compete in the current marketplace, it stands to reason that busi-ness relationships must also become Lean in order to survive and thrive. The world
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is changing. Business is changing. Luckily, outsourcing is also changing and providing opportunities for companies to improve more than just the bottom line.
With the right outsourcing partnerships, companies can improve their products and themselves;
• Developing the Scope of Work—Planning and creating clear expectations are the key to successful outsourcing. Milestones are critical during the supplier planning/approval phase, launch phase, and during production. Developing the initial contract is the most important step in the outsourcing process, although it is not the only critical step.
• Values and Culture—Subcontractors may not necessarily share your values, or they may not have a culture that is conducive to continuous improvement. Your supplier evaluation should include a review of the subcontractor’s philosophy, employee moral, housekeeping, teamwork, and its commitment to continuous improvement. Underutilised human potential is essential to a successful out-sourced project. This is often overlooked, and it encompasses the greatest opportunity for achieving production cost, quality, and delivery objectives.
• Managing the Scope of Work—Buyers who have their own set of require-ments/needs may negotiate your production contract. Whilst the production, sales and quality teams may all have different expectations or needs from that of the buyer, this is a recipe for a very difficult customer/supplier relationship. This is the time to focus on common goals to ensure that all the needs of the affected teams are met. An experienced programme manager will ensure the scope of work is clear to all parties, from the negotiation stage to completion. A com-petent programme manager will also ensure the scope of work is met whilst educating customers and suppliers to the documented agreement. You should get what you agreed to pay for! Defining that in the beginning and managing those expectations is crucial to a successful outsourced product. A RACI (responsibility, accountability, consultation, and information) matrix is an effective tool for clarifying and ultimately managing the scope of work. RACI defines who is responsible for which deliverables such as planning, set-up, reporting, delivery, and transportation.
• Supply Chain Management—The scope of work needs to define responsi-bilities for not only your supplier, but also for your supplier’s responsibility to manage their supply base. For example, you do not want an ingredient substi-tuted for in your finished tablet, not be told and not have it identified on the product’s label. Substitutions are not uncommon, and many times occur somewhere in the supply chain.
• Lean Manufacturing Principles—Specific expectations should be spelled out in the scope of work for continuous improvement, in adherence to the Lean manufacturing principles.
• Assessing Lean Capabilities—The easiest and most telling place to start assessing a supplier’s Lean capabilities is in housekeeping. This area is critical to eliminating waste and to the overall quality of your manufactured tablet! The supplier’s work areas, warehouse, and office should be organised, labelled, and
in showroom condition. The supplier should ensure that only those things required for the work area are present there. Everything in the area should be labelled, have a home, a purpose, and always be accessible to the operator.
Your outsourcing system should evaluate the supplier’s level of empowerment, participative decision-making, gain sharing, and continuous improvement initia-tives. You should determine whether the supplier has a formal programme to solicit employee ideas. Employees can identify waste in an operation better than any other source. They will tell you if asked, and if they feel it is their best interest to do so.
Suppliers should involve their employees and everyone should feel a sense of ownership for housekeeping and organisation. If the supplier does not have effec-tive leadership, teamwork, and high morale, you should find another supplier.
Everyone has to be on board. Your outsourcing system should provide an evalu-ation of your supplier’s leadership effectiveness. Quality and Lean are synonymous.
To ensure system compliance, process audits should be a very important part of your system. If your supplier does not have documented systems and process audits, it does not have a repeatable process, and it is not manufacturing to specifications.
Key performance metrics and goal setting needs accommodating. Suppliers should track and post key performance metrics, so everyone knows how they are performing and what their goals should be. Ensure that each area of your business is driven by specific goals that drive continuous improvement, and that each goal ties into the company’s long-term goals, and that your organisation agrees with those goals. Ensure that your supplier focuses on first-time quality throughput for your tableting. Having to reprocess your product can affect tabletingflow ability, change particle morphology, and affect compaction behaviour. The cost of improving your supplier’s process should be the supplier’s responsibility, along with the costs associated with receiving defective material. You are expected to deliver quality products; your suppliers should have the same expectation. Remember, inspection does not assure quality; only a process that is in control will produce consistent quality. Your supplier telling its employees to work harder or to offer more sug-gestions may create a short-term improvement (the Hawthorne Effect). However, identifying the systemic inefficiencies within an organisation will provide sustain-able improvement and will help create the culture necessary to keep you compet-itive. Developing a culture where all employees have the skills needed to identify waste, take ownership for quality, solve problems, and the motivation to care about the long-term success of the company, are essential in today’s global market. You need to be able to evaluate your suppliers’ culture as it relates to Lean and con-tinuous improvement.
Evaluating processes for the elimination of waste through continuous improvement in your supplier’s production processes, material, work-in-progress, scrap, administration, quoting, systems, administrative policies, and rules is an effective way for you to ensure that you are receiving value. That will reduce the pressures on your bottom line. Outsourcing production can be very successful, but you cannot assume that any supplier will perform to your expectations, unless you
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have controls in place to ensure accountability. You will require a constantflow of information, a frequent presence, frequent milestone reviews, rewards and penal-ties, and a very clear initial document that clarifies all your requirements.
Outsourcing production can expand your production capabilities and help you grow, but you cannot outsource the responsibility for delivery and quality.
When a company outsources its services to some off shore providers, a customer might have to pay more than what he/she would have paid if on shore resource were used. Offshore outsourcing can have many more hidden costs. They can take costly and long process to choose a vendor. It may take four to twelve month or longer timeframes to finish the work handover to the offshore vendor. Costs related to severance packages due to layoffs of regional employees who cannot be reallocated globally. Finally, there can be costs associated with turnover, and extra costs related to adjusting to the cultural differences for instance language. In Lean manufacturing and just-in-time inventory, purchasing goods and services is really important, and hence, manufacturers keep low stock levels. Their job is to control the stock levels of sourced goods. Problem arises when raw materials do not arrive on time and it disrupts the supply chain. Also, if a company relies on just one source for a critical part for their product, and that source fails to deliver, the supply chain is again disrupted. Risk diversification plays an important role here. A company can try to diversify the risk from suppliers, thus eliminating the vulnerability arising from failure of one source. Adapting supply chain innovation strategies such as out-sourcing, just-in-time inventory, and Lean manufacturing can prove successful in saving costs if all the risks are well managed. All the costs with these methods should be accounted for and then a final call should be made regards whether
“Outsourcing a good option for us?”
Chen et al. (2010) suggest that Japanese car producers design and provide detailed drawings of only 30 % of the parts in their cars, the rest are distributed to itsfirst-tier suppliers, who usually have expertise in process engineering and plant operations. By focusing upon product design andfinal assembly whilst aggressively outsourcing parts, Lean companies are able to steadily decrease unit costs; however, as most projects are outsourced as a“turnkey” project to suppliers, the Lean pro-ducers are barely involved in manufacturing of most, and often key, components of their products. As a result, the organisation’s own ability to design, debug, and improve manufacturing systems or even large segments of their products could decrease. Toyota in Japan attempts to maintain long-term relationships with its suppliers and assists them to improve manufacturing by loaning/switching its engineers through the supplier companies. This approach promotes communication and knowledge sharing between producers and suppliers to a greater extent.
Likewise, another trade-off to distributed design occurs when the parts are mostly outsourced as the innovations from internal product research and development at a company mayflow out to competitors too quickly; often before the company has been able to fully benefit from it fully. Since most suppliers provide parts to multiple customers, to reduce cost, suppliers are likely to provide parts that are similar, if not the same, to each customer.