The relocation of production is nothing new. Nevertheless, each such endeavour is a small adventure.
Without going into specifics, I would like to present an example: the production of a traditional machine, which requires several value-adding steps – from traditional machining (turning, milling, grinding) to further processing (chrome-plating) to mounting and electrical installation.
Outsourcing did not result in cost savings
In preparation for the relocation, the company produced item lists, procedure manuals, detailed drawings, production procedure analyses and calculations of potential savings. Following a critical review and initial supplier selection (including a first article inspection and quality control) the prototypes were mounted locally and examined closely. Based on these experiences, the suppliers presented their reviewed price lists and local controllers calculated the cost.
To everyone’s surprise, the expected potential savings were nil – the product was just as expensive as before. Diligent controllers and project managers reviewed all necessary specifications once again, only to find no material deviations.
Solution: Involve local specialists
That would have been the end of the relocation plans. However, the management had already gained considerable experience with international, cross-cultural cooperation. A second review of the item list, which focused on expected expenses for each component and actual costs, showed quickly that the core unit was the main cost driver.
Instead of analysing the problem at his desk, the responsible project manager spoke directly to the supplier and found out where the problem was. The high costs were not caused by the machining procedures, as initially assumed, but by the chrome-plating. Unsurprisingly, a supplier who does not understand how the components are supposed to work and which specifications they have to meet, cannot optimize his production procedures accordingly.
In this case, the problem was that the whole component was chrome-plated, and not just the functional surfaces. The additional, “useless” chrome-plating caused extremely high costs for the supplier. This simple clarification ensured that the relocation was, in the end, a “brilliant” solution.