Innovative Outsourcing Model Saves Company Millions

Manufacturing process outsourcing brings outsourcing in-house.

By Jim Holland, President and CEO, The Holland Group

April 25, 2007 -- It is no secret that the manufacturing industry is constantly looking for innovative ways to cut costs. Pressures from OEM's to their suppliers are constant. This struggle to save money is taking a toll on manufacturing throughout the country.

While manufacturers continue to search for an answer, one global manufacturer found an innovative concept. It provided them not only substantial cost savings, but solved their concern with co-employment issues while improving their processes. They took a concept, called Manufacturing Process Outsourcing (MPO), and spread it throughout seven manufacturing facilities in the U.S. Their ability to save money, maintain quality, avoid co-employment issues and utilize focused resources was obtained by outsourcing inside their facilities.

Manufacturing Process Outsourcing may surprise many who are familiar with the term, 'outsourcing.' The concept is quite different. While most would assume outsourcing company functions involve an outside vendor operating in a different location, the intent of MPO is to 'run a business within a business.' It involves outsourcing manufacturing functions to a vendor who actually operates inside the company's facility, while guaranteeing the quality and cost of output." What makes this manufacturer's success story so unique is that not only was MPO and the production of their product under their own roofs, but MPO was flexible enough to adapt to each facility's unique needs.

Implementation In An Entire Facility

In one facility, the manufacturer had successfully produced a prototype product and was ready to begin full production. Since the assembly production was self-contained in a single facility, the company outsourced the entire process to the MPO provider. From the planning and ordering of materials to shipment of the finished product, the process was in the hands of the outsourced provider. This included labor, supervision, management and technical support. The billing was based on shipments instead of an hourly bill rate, allowing the outsourced provider to be efficiency and quality driven.

Multiple Facilities On A Campus With Multiple Vendors

Another way MPO was incorporated involved multiple plants in one location. Looking to avoid co-employment issues, cut costs and reduce the number of vendors, one MPO provider manufactured and managed product in both plants. While the two plants' operations varied greatly from different shifts to size of workforce, MPO was able to leverage shared management and resources while maintaining quality.

Ensured Transfer Of Knowledge To Outsourced Employees

At another facility, the manufacturer selected a very large plant with over 2000 employees and designated approximately 15 processes involving over 200 employees for MPO. However, the manufacturer was concerned about loss of production skills and tribal knowledge if the processes were outsourced. To eliminate this concern the MPO provider developed standardized and certified work instructions which were implemented and monitored by MPO trainers. The manufacturer and MPO provider instituted periodic audits of training records to ensure all employees received the same quality throughout.

With change at this magnitude comes obvious hesitation and concern. Will the manufacturer's product maintain its high quality standards? What influences a manufacturer's willingness to allow another company to manage and produce its product?

After evaluating the risks associated with outsourcing versus the rewards MPO provided, the decision for this manufacturer became clear. Not only did MPO allow total visibility by being in-house, but it guaranteed product standards while improving processes. The decision allowed them increased focus on core competencies so efforts could be spent on growing the company.

The results that that manufacturing process outsourcing brought to this manufacturer were as follows:

* Savings of 40% in labor costs

* An In-house outsourcing model

* Continuous process improvements

* Avoidance of co-employment issues

* Maintained quality of output

* Flexibility of implementation in several locations

* The ability to focus on core competencies