Guest Commentary 4-20-98

April 20, 1998 Design News

GUEST COMMENTARY Exclusive interviews with technology leaders

Outsourcing expands company's core competencies

Martin Kellogg, President UFE Inc. Stillwater, MN

While companies have relied on outside vendors for basic components in their products for years, today many are finding that contracting out entire manufacturing processes to an "outsourcing partner" frees them to focus on their basic product and market franchise. Concentrating their energies and resources on product innovation, market growth, customer service, and doing what they do best, says Kellogg, they are reversing a trend towards vertical integration.

Design News: What are the forces driving the trend away from vertical integration within corporations?

Kellogg: First of all, in today's rapidly changing markets and technologies, vertical integration is generally not a sufficiently flexible strategy. Since a particular manufacturing process may not be needed in a company's next product, it becomes more effective to invest in product development rather than in process development. The market is beginning to penalize vertically integrated companies due to their inherent inflexibility, and their tendency to design products for the manufacturing process rather than for the market.

Q: What kinds of outsourcing services does UFE provide?

A: We provide a completely seamless resource of product engineering and manufacturing services to companies in the automotive, appliance, lawn and garden, and office products industries. Our typical customer wants to free product development from being closely tied to its manufacturing capacity. It calls on UFE to manage the manufacturing process. Projects typically involve mechanical or electromechanical products often requiring precision-molded plastic parts, as well as challenging subsystem or complete product assemblies.

Q: What do you mean when you say that outsourcing allows companies to concentrate on their core competencies?

A: Companies have found that increases in internal manufacturing capacity often lead to a refocusing of business objectives away from production to utilization of capacity. Over time, this restricts a company's flexibility and slows its response time to changing market forces. By using outside manufacturing and product engineering resources when they are needed, companies are free to invest their financial resources and people in new-product development, customer service, and other growth strategies.

Q: Besides freeing the company's manufacturing capacity, what are other benefits?

A: A big secondary advantage occurs when there is a good fit between the company's capabilities and the outsourcing partner. For example, UFE's core competencies are in product engineering, mold making, precision large-volume injection molding, contract assembly, and project management. This favors projects that include several or all of these challenges. With our flexible labor environment and 24-hr, seven-day operation, throughput time and inventory investment are reduced, while delivery and customer response are improved.

Q: What should companies consider in partnering with an outsourcing manufacturer?

A: Companies should look for an outsourcing partner who can offer a spectrum of capabilities. They include: project management, product and manufacturing engineering, documentation control, materials management and procurement, production scheduling systems, and quality plans. Also, look for responsive problem-solving disciplines, and a record of delivering to schedule and cost reductions.

Q: How does the increased use of outsourcing partners affect a customer's engineering organizations?

A: When outside services are used to augment manufacturing capacity, they add a dimension of versatility to the customer's engineering capabilities, allowing them to focus on meeting the needs of the marketplace--which they know best. It also allows the organization to avoid investing in manufacturing technologies, which though critical to a particular product design, may not be central in the company's long-term growth strategy. The outsourcing of product engineering services,tool making, contract manufacturing, and assembly will continue to grow as large and small companies learn to concentrate their energies on what they must do best--building their product and market franchise.