What does outsourcing REALLY cost?
July 27, 2007

1. Total cost of outsourcing: In light of the recent problems with toothpaste, toy trains and pet food manufactured in China, a story online at CNN Money is worth noting. It details how some U.S. manufacturers outsourced their product manufacturing to take advantage of lower salaries, only to find problems with quality and procurement were costing more than any perceived savings in salaries. There is this quote from the story that includes our friends at the Aberdeen Group: “Suddenly, outsourcing to China-standard procedure for thousands of entrepreneurs-looks a lot more complicated. Now businesses must factor in the true cost of obtaining their products at the world-beating ‘China price. After the recalls, says Andrew Bartolini, an expert on global sourcing at Aberdeen Group, a research firm in Boston "there's an understanding that low costs come with risks." If that wasn’t understood prior to these recalls, it’s starting to become more apparent. Outsourcing jobs only works if you can maintain quality and lower the total cost of manufacturing – and in emerging economies, that isn’t a sure thing yet.

2. Is this outsourcing?: According to PC World, China’s Lenovo Group Ltd., the world’s third largest manufacturers of personal computers, will spend $30 million on two new manufacturing and fulfillment plants in Mexico and India. The company is also said to be scouting sites in central and eastern Europe. To get cheap labor? No, to get closer to their prospective customers. The Monterray, Mexico facility will be capable of manufacturing five million PCs a year. The India facility is expected to deliver two million PCs annually. Last month, Lenovo announced the opening of a new fulfillment center in Whitsett, NC. Increasingly, outsourcing looks a lot like getting closer to your new customers.

3. Seeking collaboration on workforce issues: Plant Engineering is interested in working with government, education and industry leaders on a collaborative approach to finding and developing the next generation of manufacturing workers at all skill levels. It will take continued collaboration on everyone’s part to develop the kind of broad-based, grass roots effort necessary to make a change. One such organization is the National Center for Manufacturing Sciences in Ann Arbor, MI. Their goal is just such a consortioum on research projects that bring manufacturing issues from the real world to academia and back. The organization just named  Rick Jarman as its new president and CEO, succeeding long-time president Richard Pearson. Jarman was the director of technology partnerships for Eastman Kodak, and his role was to create industry alliances with government. NCMS board chairman Richard Morley said, "Rick Jarman has the vision and drive to make NCMS the premier resource for the North American manufacturing community. His career is a testament to the power of collaboration."

4. More on workforce development: Carol D’Amico of Conexus Indiana wrote an op-ed piece in the Indianapolis Star this week that talked more about Indiana’s efforts to develop that state’s manufacturing work force. Indiana just recently created a Dream It. Do It. branch, which bfrings together government, education and manufacturing leaders. D’Amico understands the hard work ahead. “Manufacturers have been forced by globalization to do more with less, relying on advanced technologies,” she writes. “We've lost low-skill assembly-line jobs to automation and cheap labor markets. But the manufacturing jobs that are being created demand more education and technical skills -- and pay accordingly. Indiana's manufacturing workers earn 40% above the state's median wage.”

5. Collaboration begins at home: Attendees at this week’s Maximo World event in Orlando got a preview of Plant Engineering’s exclusive survey, “The Changing Role of the Plant Engineer”. One of the more interesting survey findings is that plant managers see the process of managing automation functions as a shared process with IT, and that role will likely stay the same or increase in the coming three years. That’s not a universally held belief, as one attendee at the presentation shared with me afterward. Collaboration within a manufacturing facility isn’t just nice – it is essential to overcome our challenges and grow our manufacturing base in the coming years. If you haven’t taken your IT manager to lunch lately, do it today. He might learn something – and you might as well.

Posted by Wolseley on July 27, 2007 | Comments (2)