ATS’ Vlad Bacalu sees globalization opportunities from a parking lot point of view.
Drive by any major manufacturer today and it’s hard not see the empty parking lots. Where are the people? What happened to the products they were making? Is this a global recession or has the world of manufacturing as we know it forever changed?
Quite possibly it is the end of manufacturing as we know it; and for good reason. Take away the current shut downs, the furloughing of workers and the economics of the current recession and there is a huge problem lurking. Manufacturing desperately needs help in three areas: competition, compliance and collaboration.
Central to this discussion is the role of core versus non-core activities. Today’s plant manager is constantly told to do more with less, to produce more product more efficiently and to add value to the customer. This is where the concept of shedding non-core activities leads one to closely examine areas that enable or detract from the production process – specifically maintenance.
But how often do you hear maintenance mentioned as a core competency in annual report? Never, I dare say. But in an increasingly globalized environment, driven to deliver shareholder value, the concept of lean often arises. Could it be that the real meat and potatoes of operational excellence is somehow connected to maintenance?
The current economic environment forces companies to re-think the word “productivity.” Today, productivity is no longer strictly a manufacturing issue, but it is a business issue. Companies look at the overall business processes.
According to the June United States Federal Reserve report, the manufacturing capacity utilization is at 62 percent, the lowest level ever measured. Executives are facing many questions: If I have excess capacity, I should be thinking of what else I can do; how do I leverage the excess capacity to make more of the products the market needs? What are the adjacent markets that I need to focus on?
Today’s highly competitive market makes it imperative to find ways to improve products, produce new products and get to the market faster. Manufacturers in North America embraced the principles of lean manufacturing with the following common characteristics:
- Waste reduction
- Integrated supply chain
- Enhanced customer value
- Focus on value creating organization
This is where lean manufacturing and its mission to drive out waste comes full circle to optimizing production asset performance – i.e. maintenance best practices. In other words, the concept of lean and total quality has given birth to the idea of “lean maintenance.” In addition, the notion of outsourcing non-core activities must be addressed to increase global competitiveness.
This leads us back to the reality of what manufacturing must wrestle with in order to compete in a global economy. When the outsourcing model was first introduced, companies saw it as a tool to reduce costs and eliminate unimportant activities not related to the manufacturing processes. The excitement for outsourcing was great and outsourcing was viewed as an important tool to increase manufacturing competitiveness. But very quickly it was discovered that using this outsourcing model strictly as a tool to reduce cost turned the outsourcing process into a commodity, driving the margins of the outsourcing companies lower, forcing them to sacrifice the quality of the services they deliver.
Rising globalization, the benefits of lower costs, and educated labor pools in other countries created the off-shoring model where companies moved entire operations outside the country, or across the globe. The confusion between outsourcing and off-shoring in the manufacturing community, and lumping these two terms together carries a negative connotation with the perception that both lead to job losses in USA.
We need to understand that outsourcing is not necessarily an international proposition:
- Outsourcing is almost always considered to be all domestic, as opposed to off-shoring, and the drives for each are fundamentally different. Progressive companies will look at what their competencies are, and what their platforms are for their success, and will want to maintain a high level of control over those elements of their business. These companies then will outsource activities that are peripheral to their core competencies and platforms.
- Outsourcing is a high-level, strategic relationship that is managed through service level agreements, which are designed to align the company’s business objectives with the processes and services of the outsource provider.
- Outsourcing can be viewed as a joint venture, where both companies invest in the partnership from a tactical and strategic executive level to optimize the relationship.
- Outsource providers help their customers compete in new ways. They provide a level of strategic and operational flexibility unattainable through other means.
Compliance offers its own opportunities for manufacturers to manage risk. The issues range from government regulation, to safety to quality to data and process systems. The issues continue with Greenfield manufacturing to forced environmental regulations.
Saving money through the outsourcing process is important but it is just one of the reasons customers outsource their non-core functions; other reasons to outsource include lower cost, access to talent, reliance on others that specialize in a particular area, increase business model flexibility and capability.
Along with the reasons to outsource come risks associated with the outsourcing process. This includes “people risks” that represent the risk of giving up and transitioning of skilled technicians to the outsource provider and relying on the outsource company to interview, recruit and train the necessary work force. “Process risks” are represented by safety compliance, good maintenance processes and systems to support these processes. There’s also technology risks, because technology plays an important role when evaluating and selecting an outsource provider for equipment maintenance. The type of technology used to evaluate the condition of the equipment, shared knowledge databases, and other analysis tools are key in delivering a good service.
Collaboration among CEOs, suppliers and outsource service providers is a way to reduce complexity and gain competitive advantage. While outsourcing agreements are more complex today than they were at the beginning of the trend, progressive companies and their leaders don’t fear this complexity. They see this as a mature business strategy. Companies that effectively master the new complexities of outsourcing and the innovations they make possible will benefit from this collaborative partnership. Outsource service providers need to be good collaborators as well. Together, the company and the outsource provider will develop best practices in the capabilities and processes used in the partnership.
Now that outsourcing has evolved to accommodate the customer’s business needs, instead of just focusing on cost reduction, progressive organizations are using it as an avenue to access talent, obtain capabilities, gain more flexibility and focus on their core processes to drive innovation. To be successful, the outsource provider needs to be open to exploring new approaches to govern and manage the partnership with the customer. More transparency, better communication and greater trust are required from both parties. In one word: collaboration.
Vlad Bacalu is manager, Advanced Technology Services, Inc., a company that improves productivity and profitability for many of the world’s most respected manufacturers through the managed services of production equipment maintenance, industrial parts services and innovative IT solutions. Visit: www.advancedtech.com.