The Consulting Playbook, Edition #28
Welcome to our new series, the Consulting Playbook, a collection of posts designed to offer insights into how businesses and their executives can utilize consulting as a strategic lever to boost performance. Each Consulting Playbook post is broken down into a few elements: Case Study, Additional Information regarding the technical application, and Additional Links related to the topic.
Creating a Framework for On-shoring Export Controlled Work Lowered the Cost for an American Company
An engineering company had engaged in a massive cost reduction exercise. The Executives of the company had identified weaknesses in the management of off shored work packages. This led to delay, inefficiencies and the costs were far beyond expectations. The company decided to on-shore the management of the workflow in its domestic center. They opted to bring a consultant in to facilitate the process.
Optimizing the Workflow
The consultant first moved to acquire an understanding of the remote and domestic center capabilities and the current utilization of those capabilities (indirect charging). It turned out the quality of the production of the off shored center was in line with expectations and but project management from specification to workflows management was presenting major flaws.
Afterwards they began collaborating with the senior leadership on site, to create local workflow focal points accountable for sending work to the domestic center, establishing a series of receiving counterpart focal points at the domestic center responsible for tracking and ensuring the execution of work packages.
The next task was creating buy-in at leadership level on the new scheme, by demonstrating to them on a pilot the quality of the end products, as well as showcasing signed plans designed right first time.
After the decision to generalize the solution, training the teams on how to use a workflow tracker.
Performance and Savings Followed the Adjustments Made
The project encountered a greater resistance to change than expected. However, thanks to a close collaboration with the HR function and leadership team, the implementation of the framework was finally delivered as per the plan and enabled the expected boost in performance and subsequent savings.
Additional Information –
As of make or buy decisions on-shoring or off-shoring decisions are not always black and white. The key is in finding the right balance to maximize performance and focusing on core activities. Shall you on-shore in full? Breakdown activities into smaller work packages and strengthen the management of those?
One of the tendencies of historically integrated companies likes aerospace or automotive ones has been to position themselves as architect / integrators. Putting in place strong program and project management teams working mostly at the functional level and leaving the design and manufacturing to specialized partners. Those partners deciding, or not, to subcontract part of the activities to tier 3 suppliers.
However, if you decide to onshore in full, here are a few thoughts about Manufacturing locally again.
Making Local Manufacturing Strong Again
With Globalization and outsourcing of all types of jobs, production facilities and activities, on a massive scale, we don’t see the ‘Made in Here’ label too often today.
But getting sentimental about it, won’t outweigh the economic reasons supporting the trend. Despite the fact that trend has continued for a few decades now, there is a new change taking place, the reverse version referred to as “reshoring”.
As many businesses took advantage of the lower labor costs in Asia, and other countries, logistics and transportation fees have steadily increased as well, making the overall cost less attractive. Another factor that is affecting the overall price accordingly is the increase in wages in China, India and other countries.
Labor unions are also more willing to negotiate and agree to reasonable wages, aiming at keeping jobs and provide steady employment.
Also Western companies are more willing to employ Western workers provided they are well trained and skilled, additionally there is a tendency of shifting to full-time from part-time employment.
Another Factor shaping up the job outsourcing is the stronger Chinese currency, and its increase in value.
The downside of offshore operations is also the extra expenses for inventory, potential waste, more risks, quality control problems, cash flow deficiency, etc.
All these factors and new developments made many Executives to reconsider moving manufacturing back.
The Biggest Benefits of Reshoring
- Manufacturers can ensure better quality products
- Smooth operations and less disruptive supply chains with lower working capital.
- Better efficiency of the overall production line
- Closer control over design, plans and execution of the final product
- Higher worker productivity compared to some countries.
- Shift in consumers’ mentality and willingness to pay higher price for goods and services produce locally.
- As Manufacturers base their operations close to consumers to lower logistics and transportation costs, big Metro areas will reap the best job-creation rewards.
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