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Follow the 7P rule—"proper prior planning prevents piti­fully poor performance." Plan how to reliably meet mile­stones events for successful outsourcing; don't allow outsourcing to become open-ended with no closure. Document supplier tasks in a statement of work. Care­fully define first article requirements and agree on qual­ity measurements, testing, and test equipment. Carefully monitor any outstanding ECOs to the planned out­source assembly, and synchronize timing for ECO imple­mentation to avoid delay or disruption. Plan for customer spares, field support, and warranty processes early instead of after outsourcing completion.


Qualification of suppliers is critical; don't ignore any steps, however insignificant these appear. It is usually better work with suppliers geographically close to the production location. The supplier needs to be a good supplier manager and project manager. Allow sufficient time during outsourcing to enable suppliers to build up inventory. Authorize the supplier to contact the ex­isting approved vendor listing to assume liability for open purchase orders and inventory. Notify AVL ven­dors of the intent to outsource and set up supplier net­works between them and the outsourcing vendor to maintain preferential pricing and lead time. Meet with the outsourcing vendor during first article builds, conduct source inspections in the supplier facility, and monitor first pass yields. Does the outsourcing ven­dor have existing design capability to help downstream value engineering to improve quality, reliability, and lead time.


The following are potential disturbances to successful outsourcing and point of use delivery:

      Marketplace volume and timing changes (increasesand decreases)

      Redlines to drawing and specification (design errors)

      Supplier quality and delivery problems (defective and
late material)

      Supplier capacity changes that extend lead times (sup­
plier takes on other customers)

      Customer change orders

      ECOs that don't implement smoothly

      Warranty returns (unplanned demand)

      Spare parts sales (unplanned demand).

What happens when demand and usage for POU parts and outsourced assemblies drops off or become obsolete? The following are possibilities:

      Do nothing—hope that things return to "normal."

      Pull outsource work in house.

      Pay more for a lower quantity of parts, the savings in
overhead/indirect (inventory holding, floor space)
costs may more than offset the increase in direct costs.

      Renegotiate minimum and maximum levels for criti­
cal long lead parts.

      Renegotiate supplier keeping on-hand minimum in­
ventory levels.



Both point of use (POU) delivery and outsourcing are two strategic tools to improve lean manufacturing ca­pability, as well as to optimize marketplace competitive advantage.


Before POU or outsourcing projects are undertaken, careful sales and operations planning needs to occur to ensure that either strategy leads to competitive benefits such as reduced cycle time, improved inventory turn­over, and reduced indirect costs.


A planning bill of material analysis can better facili­tate the choice of parts and assemblies where POU deliv­ery and outsourcing are most effective. In either strategy, suppliers need to be carefully qualified and managed.

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 13


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