By Pamela Wiseman, TFI Senior Operations and Supply Chain Consultant
Manufacturing out- and in-sourcing strategies are controversial and lively topics these days. Even people not directly involved in manufacturing discuss these themes in daily conversation, prompted in part by the media being quick to ensure that we all know that Whirlpool will move a portion of its manufacturing from Indiana to Mexico, and that Nokia , NCR, and LeCroy have all decided to reverse their outsourcing trends to bring some manufacturing back in house. The economic downturn has been a catalyst for change and adaptation, prompting executives to reassess and reposition manufacturing strategies.
A Google search for “Nokia outsourcing” yields a 5-year chronology of the company’s decisions. As the market forces ebb and flow, Nokia’s decisions have appeared to be frequent and seemingly fluid and reversible. This flexibility in manufacturing strategy has great value in volatile market environments, where demand — as well as energy and transportation costs — can fluctuate dramatically. Carbon footprint and protectionism are also becoming valid concerns when devising a manufacturing strategy. Both traditional and new variables must be considered, all of which seem to be more difficult to forecast than ever before.
The uncertainty in global economics and politics amplifies the fact that decisions made based on today’s lower demand for production volumes, current energy costs, and other influences will certainly need to be revisited — probably sooner than expected. The more flexible the manufacturing model, the more rapidly a company can respond to changing business dynamics. As global demand recovers it will be key to reassess our manufacturing strategies to build in more flexibility than ever.
Nokia appears to have skillfully devised a hybrid manufacturing strategy and capability that balances outsourcing with in-house manufacturing. Today’s volatile demand is presently associated with the downturn, but — in fact — this demand pattern is also true of products during a typical lifecycle. The hybrid model provides resiliency and options when business forces are changing.
Executives with the capability to outsource when economics are favorable while maintaining in-house proficiency are positioned to optimally respond to the varying cycles. This strategy also protects against the loss of leverage and skills resulting when giving up in-house manufacturing capability. Ultimately, executives will assess the changing forces and align capability to best meet customer demand.
Many questions remain (consider replying below). Do you think this degree of flexibility is practical, in light of possible trade offs for quality, supply chain, logistics? What additional costs come along with flexibility, and will they be offset by the value of potential market responsiveness? Has your company rapidly relocated manufacturing capability with minimal repercussions?
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It is clear that manufacturing strategy flexibilities are key to success and leaders such as Nokia (the example mentioned above) are demonstrating clearly that they apply as much innovation to their supply chain as they do to their products. Within the annual InForum supply chain predictions we stated that the need for supply chain design and optimization flexibility and more informed outsourcing decision making were clear competitive differentiators and also that “profitable proximity would be the new norm”. It seems we were right! Undoubtedly these trends will continue to put some pressure on the relationship between OEM’s and EMS companies where some of the contract manufacturing players will have to now ‘prove’ supply chain expertise beyond just leveraging procurement spend – instead of just paying it word service! Exciting times ahead. Why not attend the forthcoming InForum meeting in San Jose and see what the 5 year forecast for the industry predicts for the years ahead. At 95% accuracy levels for the forecast – its surely a meeting that deserves attendance.
http://www.inforuminc.com/show_page.php?id=64