When does outsourcing make sense? 10578

At a time when slashing costs and speeding up lead times is paramount to gaining and maintaining business, molders and moldmakers often outsource some components of the work. However, many do this in a haphazard way, outsourcing a specific task when their own shops get into a time crunch or some other "emergency" situation.

That's the wrong reason, says Jeff Mengel, CPA and consultant with Plante & Moran LLP (Auburn Hills, MI). "Outsourcing is a strategy," says Mengel. "Outsourcing should be the result of proactive planning, not reactive to a specific situation."

Reactive outsourcing often happens when a molder or moldmaker takes on a job for which it lacks skills, capabilities, or machine time. Sometimes it's a moldmaker taking a mold job for a cheaper price, and then deciding there's absolutely no way he can do it for that and subs it to a smaller shop down the street. However, says Mengel, "If it's a question of keeping people busy, I won't outsource."

Proactive outsourcing as a long-term strategy is done as a way to expand business, reduce personnel, or acquire new technology or skill sets that a molder or moldmaker doesn't have in-house. "You can't have all the skill sets necessary," says Mengel. "Do what you do best, then outsource the rest."

Current outsourcing strategies fall into three primary categories. The first covers some types of commodity activities that are best outsourced. For example, many mold shops outsource their mold base requirements. Which is the better use of machine time—cutting details or hogging out steel for a mold base? If your machine utilization is low, and Mengel says some shops have been hovering around 30 percent utilization, then it might make sense to make mold bases. However, if a shop is busy, it makes more sense to buy a mold base from a company that specializes in it.

There are also unique activities that can be outsourced. For molders, this might include services such as EMI/RFI shielding, painting, coatings, or even silk screening or other decorative processes. For moldmakers, a unique activity would be texturing or etching cores and cavities, or electroless nickel or teflon plating.

Third, there are what Mengel calls "unique assets." These are processes more difficult to duplicate than machining or molding. "Anyone can buy a machine, but some processes require an expertise," he says, "such as rapid prototyping."

Outsourcing Issues
There are several things to consider when developing an outsourcing strategy: