To offshore or not to offshore, that is the question. For most manufacturers and knowledge service providers, it's a perplexing one. You must cut costs to remain economically viable, but you're just not sure if moving offshore is right for you.
You've heard about the problems faced by your contemporaries: Send an operation overseas and you may well find that the move is not as cost-effective as you thought. Communication lapses, quality shortfalls, poor connection with customers — these problems and others plague manufacturers who have taken the offshoring leap. In the end, many companies discover that it would have paid to look a little closer before they leapt.
The McKinsey Global Institute estimates that the volume of offshore outsourcing will increase by 30% to 40% per year for the next five years. Forrester Research estimates that 3.3 million white-collar jobs will move overseas by 2015. But does your company need to be a statistic that proves these forecasts correct?
"There always will be situations in which offshoring is the most economically viable solution," says Tom Devane, author of “Integrating Lean Six Sigma and High-Performance Organizations: Leading the Charge toward Dramatic, Rapid and Sustainable Improvement.” Call centers, with their simple processes, few handoffs and short duration of transactions, are a prime example, he says. “But too many manufacturers are offshoring in a âknee-jerk’ fashion. What many of them are discovering the hard way is that for an operation to work smoothly overseas, the business process must be in tip-top shape so it can be executed well by locals. The irony is this: if a company gets the process into tip-top shape prior to moving it, it may find that it doesn't need to offshore after all.”
The answer, Devane says, is obvious: Before you commit to moving a segment of your corporation overseas, pour your energy into significantly improving it. You may find that your efforts make the operation so cost-effective and high-quality that you don't have to send it overseas. Either way, your improvement efforts will not have been wasted. Even if you do end up offshoring, you've created a process blueprint that will make the transition as quick, efficient and profitable as possible.
Devane recommends that you combine the best parts of the three most powerful improvement disciplines: Lean Enterprise, Six Sigma and High-Performance Organizations. This precisely balanced and focused combination allows manufacturers to quickly achieve profitable results that stay with them for the long haul.
"The solution consists of successfully leading the combination of three improvement disciplines that eliminate waste, strive to reduce process variation and reshape culture into one of execution and continuous improvement through the development of high-performance teams," Devane explains. "Improvements of great magnitude are not uncommon when these are implemented together, or even in phased segments."
He offers the following examples:
- In 1988, StorageTek's HDA production line organized into HPTs and used advanced statistical tools to dramatically improve quality and costs. Within two-and-a-half years, the product went from a mean-time-to-failure of 200 months to a mean-time-to-failure that exceeded 2,000 months — a 1,000% increase in product quality. Workmanship errors decreased by 90%. Scrap cost was reduced by 85%. Rework costs were reduced by 73%. Process yield improved by 80%. Manufacturing cost was reduced by 60%.
- The General Electric plant that manufactures airplane turbines in
, increased productivity by 250%. Durham, N.C.
- In 1995, a second LSS/HPO effort in a different StorageTek division from the HDA production line mentioned above, increased group productivity of four combined departments of knowledge workers by 60% and yielded $400,000 in cost savings in three months.
- The Land Bank of
(a quasi-governmental and financial institution) increased approved loans by 90% within 10 months. Eighteen months after the change effort, approved loans increased by 300% — with the same number of employees they had at the start of the HPO transformation. In addition, all the branch banks operated at a profit for the first time in three decades. South Africa
Devane says that the reason LSS/HPO implementations work so well is because they go beyond the magic bullet thinking that too many manufacturers and service companies fall victim to.
"LSS/HPO companies maximize their processes and their people," he explains. "They take the best of 'hard' and 'soft' improvement initiatives and combine them in a way that works for them. These companies know that they are unique and that what works for a different type of company may not work for them. Offshoring — and even domestic outsourcing — must be approached with the same mindset. Work hard to improve the efficiency of a process and to instill motivation in your people, and you may find that moving it is not only unnecessary, but undesirable. And for manufacturers who've just assumed they must move overseas, knowing that an alternative just might exist for them will come as a huge relief."
“Integrating Lean Six Sigma and High-Performance Organizations: Leading the Charge toward Dramatic, Rapid and Sustainable Improvement” (Pfeiffer/A Wiley Imprint, 2004, ISBN: 0-7879-6973-7, $45) is available in paperback and electronic formats. You can purchase it from all major online booksellers and at www.pfeiffer.com, or call (800) 956-7739. In