Managing the Reality of Offshore Assembly: Five Questions to Answer Before Going Offshore
March 8, 2005
Manufacturers must understand the strategic implications of offshore production. Here are some key questions that should be answered before deciding to assemble products in China, India, Mexico or elsewhere:
- What will help my company extend the capabilities that differentiate it from the competition?
The best setting for a collaborative manufacturing relationship is a new, end-to-send supply chain that supports a coherent business strategy. Often, manufacturers skip the strategy stage and jump into a transactional model, bidding work out to the lowest-cost provider. That approach is more reactionary than forward-thinking. Asking this question can help your company avoid being short-sighted and avoid the risk of long-term repercussions.
- Do both sides possess the needed technology tools?
In-depth sharing of data between partners is vital but, unfortunately, a rare occurrence. Both parties should agree upon which data elements are key to the success of the offshore production arrangement. They should focus on enabling a mutual exchange of this information without clouding the picture with too much data or incompatible technologies. Each partner should also understand and respect the other's need to protect its own information, and limit the focus on information that directly impacts the performance of the arrangement. If either party lacks data-sharing technology or collaborative approaches to the effective sharing of information, the spirit of the relationship may be thwarted.
- Can my company's culture and internal politics adapt to offshore manufacturing?
Many manufacturers are surprised to learn that offshore production requires rigorous management. They expect managing the relationship to be a simple matter of holding the provider to the terms of the contract. However, offshore production requires more management--at a different and generally higher level--as well as different management skills. Managers must thoroughly understand the process of collaborative manufacturing, including sourcing techniques, inventory control and logistics. Offshore production can strain a manufacturer's corporate culture. Assets are often relinquished and many employees are either redeployed or laid off. Operations must be modified, sometimes dramatically. Letting go is never easy. Successful partners view outsourcing and offshore production as a merger, not a divestiture.
- Have we balanced the likely savings from offshore production with other financial objectives?
Cost savings alone are not enough to justify the risks and challenges of offshore production. Unexpected costs--including those involved in acquiring or building new capabilities and technologies--may cause those plans to go awry. Cost savings should be balanced with other financial goals, including increased cash flow, greater financial flexibility, asset divesture and avoidance of future asset-related investments.
- Will offshore manufacturing make my company faster?
Speed is one of the most essential capabilities in today's global business climate. Whether it's time to market, time to profit, or cycle time to implement engineering and design changes, speed is vital. Speed-based relationships require tight integration between manufacturers and their external partners. An offshore production arrangement based purely on cost savings is not likely to result in an increase in operational speed.