Manufacturing Outsourcing 

In the face of stiffening competition and an eroding order picture, our product line made the decision to close our internal metal fabrication shop and outsource all metal parts. Our organizational core competencies had evolved well beyond sheetmetal fabrication, and we needed increased flexibility with overhead expenses to retain our leadership position in the mar­ketplace. Management established the seemingly impossible goals of terminating all shop activity within six months and of turning the physical space over to another organization within eight months. At the time some 36 employees were working two shifts using 75 different machines to fabricate 1270 part numbers for our own internal consumption. These parts consisted of sheet aluminum or sheet steel chassis parts, vinylclad aluminum covers, painted and silk screened front panels, and extruded aluminum heat sink parts.

We were tasked with downsizing the organization and outsourcing the metal fabrication business without skipping a beat in providing metal parts to our final assembly customer.

Soon after the announcement of this decision was made, the metal fab shop manager and the manufacturing manager documented the process steps that would be necessary to achieve these goals. This definition of a process proved to be one of the key elements leading to a very smooth outsourcing. Nine process steps were outlined as follows:

Process Step 1. Evaluate the current situation.

Process Step 2. Establish future needs.

Process Step 3. Identify a list of potential suppliers.

Process Step 4. Match supplier's capabilities with customer needs. 

An important distinction was also made between short term objectives and long term objectives. Priorities were established very early in the game to focus on continuity of supply and piece part quality for the short term and to focus on piece part quality and piece part cost for the medium term. While the very short time frame for outsourcing drove the project team to make good decisions in a timely fashion, management knew it would have to absorb certain transition costs in the form of quality issues and cost issues as the new supplier learned how to build each new part.

A detailed segmentation matrix was made of all the part numbers into A, B, C, and support life categories by sheet metal chassis

type parts, decorated front panel type parts, and extruded alumi­num heat sink type parts. Of the total of 1270 part numbers, 482 were classified as support life parts; it was decided to deal with this group of parts on an as-needed basis. It was also decided to build ahead one year's inventory of each C part number while the metal fab shop was still intact. This move bought us time to focus our resources on the critical A and B parts; it also meant that this production would occur while all our specialized tooling was still in place.

The fab shop manager, lead the out-sourcing effort. A cross functional transition team was formed involving Purchasing, Production Control, Metals Engineering, R&D Engineering, Finance, and Personnel. This team broke the objectives into many small tasks, and managed each task to completion. Within seven months the transition team had termi­nated all internal metal fab operations, successfully outsourced all A and B parts with other suppliers, helped some employees to find new jobs, and sold the metal forming equipment.

To be Continued

Lean Six Sigma Training   Thinking Out of the Box   
Balanced Scorecards  Strategic Tactical Planning  
Supply Chain Inventory Management  Total Quality Management Principles
Lean Manufacturing Implementation  Lean Manufacturing Principles