CONTROL & AUTOMATION ‘ MAKE VS BUY ’
PP CONTROL & AUTOMATION
Tony Hague , CEO of PP Control & Automation , delves into one of industry ’ s hottest topics and explains why investing the right amount of time and money is crucial to coming up with the right answer to the ‘ make vs buy ’ outsourcing debate
Take a snapshot of manufacturing 50 years ago .
Organisations were large , geographically concentrated and horizontal integration was ‘ king ’, with multiple activities in place across the entire value chain . Business models , nine times out of ten , were focused on volumes and efficiencies .
These companies thrived for many years until the impact of globalisation took hold and was exacerbated even further with the growing desire from clients for customisation of both parts and processes .
Some met the new challenge with vigour and innovation , resulting in rapid growth and success , whereas others decided to continue to fight a losing battle focused on annual cost reductions until the thin end of the wedge was duly reached . Where these proud businesses once stood , you will now sadly find a retail park or housing estate .
Manufacturing now comprises complex ecosystems and specialisms and vertical integration has taken its place at the top table , rewarding agility and responsiveness in place of ‘ lean at all costs ’. As a result , businesses are often smaller in size , albeit with multiple locations domestically and around the globe .
This paradigm shift has completely changed supply chain models within these ecosystems . The focus is now based around solutions not products , relationships are strategic , not transactional and suppliers are now partners sharing in the same outcomes , whether they are positive or negative .
With this in mind , the requirement for outsourcing and how businesses approach the ‘ make vs buy ’ decision has become of massive strategic importance , but what factors drive such decisions ?
• Lead time reduction
• Total cost reduction
• Reshoring / in-sourcing
• The need for additional capacity
• New skills or capabilities
• Logistics and carbon footprint reduction
• Business interruption / risk planning
• Tacit knowledge , intellectual property and patents
Whilst these are many of the common drivers , each business , within their own market , faces different challenges and opportunities and will need to carefully consider the ‘ make vs buy ’ decision against their own individual situation . They will no doubt have unique problems and questions pertinent to just them .
A number of tools and techniques are readily available to help support the decisionmaking process , the majority of which will focus on the strategic importance of a process , the suitability and effectiveness of a supplier ( based on available supply chain ) and the overall management of risk .
Ultimately , all models will point in the same general direction … organisations should invest , indeed invest significantly , in areas of competences / processes that absolutely ‘ need ’ to be at the centre of the business , where risks are too high to consider outsourcing .
Equally , competences and processes where supply chain effectiveness and capability are good , often better than what you have in-house , can make perfect operational and financial sense .
So , let ’ s assume that an organisation has identified a need to outsource a particular process or service . Two obvious questions then arise .
1 ) At what level do we outsource - component level , sub-assembly or total assembly ?
2 ) How do I select the right outsourcing partner ?
The first question again will have multiple factors associated with it . Often the level of risk is key , alongside required timelines for the desired outcome . On many occasions , the journey may commence at a perceived lower risk level ( component supply only ) whilst relationships are cultivated and trust is instilled between both parties . Then you can start moving up the value chain , but only if the right outsourcing partner is found .
If the optimum solution for outsourcing is at a high value add level , there is little point in spending time and effort bringing a new outsourcing partner on board that is limited to only ‘ component level ’. You need to look at the bigger picture .
Clearly many other factors affect partner selection , including :
• Size / capacity
• Experience in the chosen field - can they demonstrate historical competence ?
48 PECM Issue 50