The Value of Outsourcing

Presenter: Nathan Klomp

My background

• Worked in trades through college• BS Business administration: Management • Installed Custom Closets for a small company• Designed closets for California Closets • Managed a sales staff• Sales and Marketing manager at JB Cutting• Completing MBA/MSF• In a completely other world: Elected councilman

for the City of Rochester Hills, MI

• 40 year history

• Thermoforming components

• Cutting, machining and edging

• In a growth phase

• 50% of our business comes from closets

• Healthcare and store fixtures

“Stay committed to your decisions, but stay flexible in your approach.”

Tony Robbins

The Hook

The Value of Outsourcing

• The strategic advantage of outsourcing.

• The environmental conditions and how they should effect the decision to outsource.

• 2 case studies analyses where real life examples help explain the potential advantages of outsourcing.

• When outsourcing could be the wrong decision

• How outsourcing affects our industry and our businesses today.

How is the economy effecting your businesses?

– lean operations• Six Sigma• Lean workforce• Focused on value added

– Highly competitive • Not amateurs• Competing on price

– Holding steady• Not making many acquisitions.• Not hiring handfuls of people

•  

My inspiration for this session

• “Before we sit down, I have to tell you both that I’ve never been a huge fan of outsourcing. I usually try to do as much as I can in-house”

The Value of Outsourcing

Outsourcing

“The procuring of services or products, such as the parts used in manufacturing a motor vehicle, from an outside supplier or manufacturer in order to cut costs.”

The history of outsourcing

– The industrial– The Industrial Revolution marks a

period

History of outsourcing

• Scientific Management

– Fredrick Taylor: (1856-1915)

• - Highly analytical look at labor management

• -Time and motion study

History of outsourcing

Nothing new

• Humanity: We’ve always outsourced

• Fur trade• Jeremiah Johnson• Early civilization

Outsourcing in the modern world

• In the late 80s before outsourcing is recognized as a business strategy.

• Suppliers start becoming bigger than the companies that they supply.

Look inside a manufacturing company

• Shop video

Why do companies outsource?

1. To reduce risk

2. Economic advantage

3. Flexibility

4. Capital investment constraints

Reason to NOT outsource

1. Risk reward trade off

2. False belief of

3. To keep workers busy

4. Long term strategy

Favorable environment

– Economic uncertainty – Fluctuating labor market – Limited resources-

Unfavorable environment

– Economic sustainability

– Steady labor market

– Available resources

– Tax incentives-

Core competency

– What’s your culture like?• For example is it high process function or is

it a technical custom function?• How do your line workers feel about the

new function?

What to outsource

– Non core competency

– Products or services that require specialization

• Granite-

• Tradesmen

• Accountants• Commodity, high volume

• Shelves, partitions, hardware

– Services or products that require large investments

• TFM

• Thermoforming

Relates to our industry

– We can purchase machinery- CNC equipment– Hire employees- Designers, Installers– Designate an internal marketing position – Is the workload consistent? Will it stay

consistent?

Suppliers and forms of outsourcing in closets

– Hardware– RTF– Components – Labor

2 Scenarios and Comparisons

– Cabinet and drawer manufacturing

– Make vs. buy

How do we know we’ve made a mistake by choosing NOT to outsource.

– We’re over staffed – Our workers are overstretched – Our liabilities

How do we know we’ve made a mistake by

choosing to outsource.

We find after some investigation that, all things considered, we could be doing it cheaper in-house– Lost profits or loss revenue at crucial

times – Lost opportunity

Conclusion

• The decision to outsource depends on:• How it affects your business. • Environmental conditions• Opportunity costs

• Know the environment that your working in and strategize accordingly

Questions ?