April 20, 1998 Design News
Exclusive interviews with technology leaders
Outsourcing expands company's core
Martin Kellogg, President UFE
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.
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.