Business alert: costly incidents on the rise in manufacturing outsourcing; supplier communication compromised

Product life-cycle management vendor Arena Solutions recently conducted a survey in conjunction with Symphony Consulting concerning the challenges of manufacturing outsourcing, and best practices for addressing them.

09/13/2007


Product life-cycle management vendor Arena Solutions recently conducted a survey in conjunction with Symphony Consulting concerning the challenges of manufacturing outsourcing, and best practices for addressing them. While 85 percent of respondents outsource part or all of their manufacturing operations, nearly two-thirds risk the associated savings because they lack adequate control and processes. These manufacturers still use manual, time-consuming processes such as phone calls, faxes, and emails with spreadsheets. The high occurrence of errors that often result from these methods can lead to hard-dollar costs that eat up the very savings companies are trying to achieve by outsourcing manufacturing in the first place. In fact,
"While outsourcing offers significant financial merits and enables companies to focus on their core strengths, it is not free of challenges," said Bijan Dastmalchi, cofounder and senior consultant for Symphony. "Outsourcing manufacturing without the proper infrastructure and control is a recipe for failure."
The study found a majority of companies that outsourced manufacturing faced a number of significant challenges when working with their contact manufacturers (CM), including coordinating new product introductions, managing and communicating product changes, and communicating information across organizational and geographic boundaries. Perception among these manufacturers is that more effective collaboration with their CMs is critically important and will address these problems. For example, nearly eight out of 10 believe closer involvement and tighter control and processes with their CMs would reduce new product delays.
"Shepherding a product from design through manufacturing is difficult, but introducing outsourcing into the process pushes it to a significantly higher level of complexity. Despite the cost savings associated with outsourcing, the management task becomes even more difficult and carries greater risk," said Dastmalchi. "For manufacturers who are using manual, linear, error-prone, and complicated processes for managing their product record, I recommend they think strategically about the kind of infrastructure they need for support in managing the challenges that come with outsourcing, such as new product introduction, compliance, and change management, for example."
Only 32 percent of respondents currently use a product lifecycle management (PLM) system as a shared "information infrastructure" to manage product information and share it with their CMs. These companies that have a PLM system report experiencing fewer outsourcing problems compared to companies that rely on manual processes for communication regarding new product introduction, change order management and environmental compliance management issues. Three out of four of the respondents who currently use manual processes recognize improvements are needed, and are taking steps to improve their systems.
The research showed even greater advantages came from using on-demand PLM software (also known as software as a service or SaaS) versus traditional client/server systems. On-demand PLM software requires no special hardware or IT staff, is easier to deploy than client/server software and is accessible from anywhere in the world through an ordinary web browser and Internet connection. Specifically, respondents who use on-demand Arena PLM report 40 percent fewer hard-dollar incidents related to excess inventory and unplanned rework. Leading to these results is the fact that Arena PLM users who responded to the survey report significantly fewer outsourcing problems than those using traditional client/server PLM, including:
—32 percent fewer problems with new product introduction;
—29 percent fewer problems with environmental regulatory compliance; and
—26 percent fewer problems with product change management.

"With manufacturing dispersed around the globe, companies need a common infrastructure for sharing product information with their CMs to reduce hard-dollar incidents that can result from common outsourcing issues. Hard-dollar incidents can take their toll on manufacturers, especially those in the mid-market where margins are often tight and reducing time and costs is critical, and consume expected savings from outsourcing," said Michael Topolovac, CEO, Arena Solutions. "Underscoring the magnitude of the risk is the common belief that the cost of product changes increases ten-fold each time errors move into the next development cycle, from design through manufacturing. Having a PLM system—particularly one that is easy to use and deploy—that helps manufacturers reduce the incidents of late-stage changes is crucial."
The results of the study shed light on a very important trend in manufacturing and offer insight to what steps manufacturers must take to be successful with their outsourcing. More information can be found at www.arenasolutions.com/newsandevents/events/index.html .





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