Offshoring and outsourcing

What's the difference between offshoring and outsourcing? Typically, offshoring is when a company moves a business process, such as manufacturing, to another country. Outsourcing, on the other hand, normally occurs when a particular function, such as maintenance, is contracted out by an organization.

Both terms often carry negative connotations, so much so that some companies don't dare even speak them. Franklin Electric (www.franklin-electric.com), for example, which manufactures and markets water and automotive-fuel movement components and systems, recently announced a plan to close its manufacturing facility in Oklahoma City and transfer about 260,000 annual man-hours of manufacturing activity mostly to its facility in Linares, Mexico facility, with a small portion of the transfer going to another Oklahoma City-based facility. The transfers should be completed in 2012.

Franklin, of course, is not moving people or jobs; it’s moving man-hours, or "hombre-horas" in the local vernacular. I made that up. It’s not really the local vernacular. And actually, I didn’t even make it up. I stole it from an old Marquette University hockey goalie. And we all know how quick-witted hockey goalies are.

At any rate, Franklin is offshoring a manufacturing process, even though the route from Oklahoma to Linares doesn't necessarily need to depart from any shore either. Maybe there’s a made-up Spanish term for that, as well.

Outsourcing, or "subcontratación," typically involves specific tasks, but the decision to do it can be just as ominous. There are a few basic reasons why companies contract MRO services. If a function is not one of your core competencies, it's absolutely a candidate for outsourcing. If there are skill sets you need, but not often enough to hire an employee, outsourcing is an option for acquiring them. If your available man hours fall short of your planned maintenance hours, who's going to do that? And if you find yourself firefighting or performing reactive maintenance, rather than executing a PdM program, then you're definitely in need of some help.

But what do you outsource? When? And how much? Some companies contract out the entire maintenance function. Others contract certain aspects or segments. Is it better to have a technical specialist on staff to manage the contracted maintenance work or to let the contractor do what it does best?