Wednesday, June 29, 2011

Process Wednesday: details, details of outsourcing

Th'Gaussling talks about the difficulties of outsourcing a process and finding a good partner:
The trouble with outsourcing a raw material is that the supplier’s price is your cost which must be passed along to your customer. You may or may not have the margin to play with to do much outsourcing.  If you suddenly need to outsource a raw material, you will have to find a shop that will make the stuff.  Preliminaries include doing a secrecy agreement, a disclosure of the desired material, and possibly disclosing a technology package.  After the disclosures it might transpire that the vendor isn’t interested, they can’t do the job in the desired time frame, or they want too high of a price. Lots of things can go wrong.  Meanwhile, you’re relentlessly screaming down the timeline towards you’re own delivery date. You should be planning your outsourcing 6 to 12 months in advance. Or even 18 months.  Outsourcing always involves the discovery of new failure modes. 
Let’s say that they agree to work up a quote. There is the matter of specifications. They’ll need to know some specifications even before they quote a price.  What kind of purity are you needing? Be reasonable now. There is what you want and what you can get by with. OK, you can live with “97 % purity”. What does that mean? Does it include solvent residuals? What about color and haze or mesh size and appearance? If it comes in at 96.8 %, are you sure you want to reject it?  If it can be easily reworked, and you have the time to spare, rejecting the material might be the best choice. But if they are late and you are late, you may have to take the material on waiver. [snip] 
Asking a company to develop a new product for you requires good communication, person to person relationships, and lots of patience.  Your custom vendor may be smaller than you are and may have considerable resources tied up in your order. They’re taking some risks as well. Shoot for win-win.
I think it's interesting how many little details are required in the process of outsourcing. It's easy to explain to folks that you meet that "We're a custom chemical manufacturing firm. They tell us what they want, how much and when, and we tell them how much it will cost." While that's true, it elides many of the details that a business relationship can get hung up upon.

Part of the good communication that th'Gaussling is referring to is the laying out of those little details in an organized fashion. Pitfalls, detailed purity specifications and no-don't-you-dare-go-there chemistry tidbits are all terribly important for both sides in a business relationship to be aware of. Do it well, and both sides walk away happy. The opposite situation is just too ugly to think about.

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