W&WP April 2004

 

Getting Out Of Your Manufacturing Box

Part 2 - Is Work Share for You?

By Tom Dossenbach

 

Editor's note: This is the second of a three-part series intended to stimulate readers to make the changes necessary to compete in today's global market.

Last month I discussed the importance of getting out of your manufacturing box and abandoning the notion that you have to operate with large backlogs. In fact, I stated that backlogs could be poisonous to your company if they grow to the point that a customer's wait for delivery approached that of lower-cost products manufactured in Asia.

Every day an increasing number of U.S. manufacturers are looking at outsourcing or offshoring their manufacturing operations to lower cost manufacturing centers in China, Vietnam, Brazil, and a long list of other developing countries to lower the price of their products and still maintain respectable margins. But is this the best strategy for every company? Is this really going to make them all competitive?

Conventional wisdom says that offshoring is a good strategy because it lowers cost and thus allows a company to better compete with less expensive products of similar design and function. However, as we mentioned last month, price is not the only issue for the manufacturer, the customer or the consumer. Those who think price is the only competitive advantage, and thus primarily focus on it, will wake up one day facing new challenges. These challenges will open doors of opportunity for other manufacturers who have climbed out of their boxes and are best poised to recognize and seize on these weaknesses.

Some typical challenges for many companies that are offshoring finished furniture include:

* Extended delivery times

* Extended time-to-market for new products

* Inferior finishes

* Inferior packaging

* Moisture content issues

* Inconsistent quality

* Slow response to customer service issues

Boeing 7E7 Work Share Example

I think the example of Boeing's new 7E7 Dreamliner initiative should get some readers thinking out of their boxes regarding the concept of work sharing. Competition in the aircraft industry has become intensely competitive for Boeing from Airbus in Europe and others.

According to Boeing, it will perform a significant amount of the manufacturing work required for the 7E7 in its own facilities in Washington; Tulsa, OK; Wichita, KS; Winnipeg, MB; and at Hawker de Havilland in Australia. However, other work of significant proportion has been assigned to Japan's Fuji Heavy Industries, Kawasaki Heavy Industries, Vought Aircraft Industries Inc of Dallas and Italy's Alenia Aeronautica.

The amazing thing about this strategy is that Boeing is not only outsourcing Dreamliner parts, it is also outsourcing entire assemblies. While Boeing will manufacture the fixed and moveable leading edges of the wing in Tulsa, Mitsubishi will manufacture the wing box and Fuji will focus on the center wing box with the main landing gear wheel well. These large assemblies will be flown to the final assembly plant in the United States by 747 aircraft specially modified to transport these subassemblies. Meanwhile, Vought and Alenia are forming a work share team of their own to build the 7E7 horizontal stabilizer and the center and aft fuselage.

I am not suggesting that the Boeing 7E7 work share plan is a model that will work for your company. However, I believe it is an interesting idea to study if for no other reason than to stimulate your thinking to come up with new ideas to solve some of your own manufacturing challenges or perhaps to reassess your current outsourcing programs. This kind of fresh thinking is essential today and will be the topic of next month's column.

Boeing is not alone in its recognition that three elements (offshoring, homesourcing and in-housing) can be used in a unique mix for a company to manufacture each of its products. Every manufacturer has outsourced parts to some degree for years, but maybe it is time to look at it again from a new perspective.

Offshoring

International trade has been around since ancient civilizations recognized the commercial gains to be made by selling foreign materials and products. Egypt has always imported timber from countries that had an abundance of this essential resource. Our woodworking plants have gone off shore to obtain raw materials since well before any of us were born. Honduras mahogany and other tropical species of lumber and veneer are just one example.

In the last 50 years or so, offshoring hardware and parts has become more common. Entire distribution channels were created to bring products from all over the world into our industry. Today, we find that offshoring completely finished and cartoned furniture from around the world is the norm. U.S. furniture manufacturers have seen an alarming trend in which their retail customers have created their own offshoring supply chain and now go directly to China to buy their products.

While this trend is more prolific today, it is hardly new. It is rooted in the centuries-old trade between nations.

Offshoring is a manufacturing alternative that offers many advantages to a diversity of companies. The unique challenge each company that goes the offshore route is to determine to what degree and how offshoring will make them more competitive in the long term. The reasons Boeing is offshoring in Japan may be entirely different from the reasons you have for deciding to embark on work share in Brazil, for example.

To reach this decision, manufacturers must take into consideration all possible options including importing materials, parts, subassemblies, assemblies, unfinished products and fully assembled and finished products ready for shipment. There is no single formula that fits all. An upholstered manufacturer will not have reason to employ the same strategy used by a kitchen cabinet manufacturer, a store fixture manufacturer or a wood case goods manufacturer.

Homesourcing

Domestic outsourcing - or homesourcing - is another alternative for companies looking for ways to better serve their customers. No single manufacturer can be all things to all customers. Each manufacturer has its own core competency - those things it does best and most competitively. There are manufacturers in North America that need to consider the benefits of forming cooperative agreements with companies located nearby and become work share partners with them.

This arrangement can go beyond the typical outsourcing that has been utilized in the past such as purchasing mirrors, beds, tables, window sashes or cabinet doors from another company. There may be several strategic reasons, such as ease of transportation, reduced manufacturing time and convenience, to partner with a domestic manufacturer.

For example, a manufacturer may find it advantageous to move subassemblies or components to an automated finishing house for finishing and then returning them for final assembly, trimming, packing and shipping. Obviously it would make sense to homesource this operation to a company located nearby.

Homesourcing offers great opportunities for companies to engage a collaborative approach to serving customer needs while maximizing profits. Several small companies can compete with larger ones through this strategy and reduce working capital and inventories needed during the process. Such homesourcing alliances include two or more companies working together for the same goals and for the mutual benefit of each other.

This may not reduce initial costs to a level as low as if obtained from offshoring alliances with low-wage countries, but this strategy may offer more important competitive advantages for some companies. Again, super-quick product development and delivery of orders and rapid product customization are good examples.

In-Housing

Obviously, every company has its own core competency that propelled it into a successful business in the first place. Too many times, though, companies forget what this was and stray to the point of neglecting their core business. This is the business that needs to be kept in-house or, at the very least, controlled within.

In-housing is just one of the three sides of the work share triangle but it is an essential one. You know your products and the customers who use them best. You are closest to your customers and want to keep it that way by being responsive to their needs. These are compelling reasons for you to keep control of your manufacturing processes. As the work share formula becomes more complex, you need to exercise extreme control to assure maximum quality and service.

A company cannot keep manufacturing in-house just to provide jobs unless its to protect a unique job skill critical for its long-term survival. However, because our human resources are so valuable, we need to find ways to leverage them in providing products and services in ways that overseas competitors cannot match. This is the first priority in mapping out a work share strategy.

Every reader of this column should consider various combinations of offshoring, homesourcing and in-housing while thinking out of the box. The degree to which you do any or all three of these work share concepts will determine the shape of your company. Any shape is fine as long as it is the best one for your long-term survival (assuming that is your goal). The work share shape for one company could be represented by the figure at the top of the page. Each side of the triangle represents the relative degree to which a company utilizes each option.

A company exclusively set up to import and resell furniture could be represented by one straight in-housing line.

 

Beech Wood Chair by Ajax Chair Co.

Simple Example

Boeing is neither the first nor the only company to adopt work share. In fact, we all have 'outsourced' work at one time or another. The graphic on the right represents a very simple work share plan. In this plan, the Ajax Chair Co. located in Hometown, USA, makes beech wood chairs.

Ajax's niche market is providing library chairs of various sizes quickly and with custom finishes, but it has very limited capital resources and manufacturing capacity. To compensate, it has adopted a work share approach to its manufacturing. It has chosen to offshore steam-bent back rails and back post assemblies to Croatia and the solid wood seats from a company in Bosnia that produces nothing but solid beech wood panels.

Most of the time Ajax manufactures the rest of the parts in-house using low-cost alternative species. However, the company brings these parts in from their overseas collaborators at exceptional prices when they accumulate shorts. Ajax pulls parts from stock and assembles and finishes the chairs with robots for super-quick delivery.

This is an over-simplified example, but it should demonstrate that this kind of out-of-the-box strategic thinking may be one way you can gain a competitive advantage for your company.

A collaborative approach through work share and sourcing can allow small companies to work together to better compete with larger producers. Outsourcing alliances are options open for every company no matter what its size.

What advantages can a form of work share provide your company? Get out of your box and think about it!

Next month: Innovating Out of the Box.

                                                                                                                                                                                           

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