Thursday, November 15, 2007

Some Evils of Outsourcing

Source: Compositesworld

About 15 years ago, aircraft companies hired business school graduates (MBAs) to gain fresh insight into the best business practices taught in our American institutions of higher learning, such as Harvard, Wharton and Stanford. The then-current thinking was that the costs associated with operating and maintaining factories in the U.S. were excessive and that OEMs could save money and increase profits by jobbing out fabrication and assembly work. Because labor was a large part of the cost of production in U.S. facilities, a key part of the revised business plan involved moving production to Mexico or “offshore” to locations in Eastern Europe, China and India.

As U.S. shops closed, workers were laid off and equipment was sold off. The capabilities to build in-house diminished or vanished entirely, but outsourcing did reduce the OEM’s capital expenditures to modernize shops with new equipment and train replacement shop technicians. And in the short term, profits certainly increased.

What wasn’t factored into the outsourcing equation, however, was the inevitable loss of a critically important com-ponent of any manufacturing process — design expertise — the cost of which is not easily quantified. When engineers design and shops build products in-house, there is a feedback between the two departments that are generally located in the same facility. Designers can easily walk down to the fab shops whenever a problem arises to see the effects of their design and to immediately propose a corrective action to a problem. And the engineers receive a definite advantage in recognizing faults/weaknesses in their designs by seeing the tangible results of their ideas. During the fabrication and assembly of the DC-XA reusable rocket in 1996 during my tenure at McDonnell Douglas (Huntington Beach, Calif.), the designers actually were located on the shop floors to expedite immediate solutions to problems and to keep the work flowing. When a part interfered with another during assembly, the remedy involved a quick walk to the shop to see and redline a drawing for an immediate fix, followed by a design change the next day.

This system worked very well for 80 years, and the close rapport established with the shop technicians who physically built aircraft produced some of the best aerospace designs and products in the world. This exchange was absolutely necessary when doing development work on new programs where new technology was being generated each day.