Mary Anne Bitetto on Small Manufacturers using Outsourcing
Mary Anne Bitetto was assigned the following question in her management class: discuss why the manufacturing sector in the US has been losing jobs to other nations. Her answer, which I thought showed some insight, follows:So far, a lot of the focus in this discussion has been on medium-sized to larger companies. Some primary goals for these corporations have been established: cutting costs and avoiding strict US environmental policies. Small businesses, however, are left out of the picture. The increasingly globalized economy, particularly since the onset of the internet, creates an environment conducive to small businesses and specialized products. For many of these businesses, reasons for outsourcing may go beyond cutting costs. It is possible that the small-business owner wants to maintain only a certain aspect of the product development. Perhaps he doesn't have the means to set up a large manufacturing plant. Since a lot of small businesses sell products that are specialized, it may not behoove the business-owner to expand if only a small customer demographic is targeted. Increasing in size to accommodate for all of the manufacturing processes may force the company to compete with larger ones. This could cause a shift of focus that may go beyond the scope of the original business plan.I also added, for her edification and yours, first, that for some small manufacturers labor costs, including medical benefits, are a great burden, unless the manufacturer has what amounts to a constant flow of work. Small companies have a tough time maintaining that. So nobody gets replaced after attrition.
Many small businesses are turning to outsourcing as a viable means to produce a product. For example, I was reading a magazine article a few years ago about an entrepreneur who had decided to start an online business selling custom stuffed toys he had personally designed. As someone who was able to work from his home office using design software, it was in his best interest to look elsewhere for manufacturing. A company in China was able to interface with his designs, and would send him samples of his designs so he could modify the patterns to get the look he wanted. In this way, he was able to control the aspects of the business he wanted, without having to move away from his artistically creative focus. This is indicative that inexpensive manufacturing processes could be increasingly used by small-business owners in order to quickly produce a specialized product without having to expand their businesses.
Second, nobody is listening to W. Edwards Deming any more. (A great shame for the Western world.) In Out of the Crisis, one of Deming's 14 Points is stated this way:
End the practice of awarding business on the basis of a price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.And this is what we're not doing any more.
Labels: education, engineering
posted by Ron @ 10:28 PM
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