A small story about outsourcing

A true story about why it isn’t always cheaper to produce more cost-effective. And a story about a process that wasn’t tailored around human requirements.

Let me tell you a story about human labor and automization, cost efficiency and the result of local optimization. The story itself is true, but nearly all details are changed to protect the innocent.

An opportunity

Once, there was a company that produced sensoric equipment with a large portion of electronic circuitry. The whole device was manufactured at the company’s main factory and admired for its outstanding rigidity. Then, one day, the opportunity offered itself to outsource the assembly of the electronics to a country in the asian region. The company boss immediately recognized the business value in this change: The same parts would be produced by the company, shipped to the asian contract manufacturerer, assembled and promptly returned. Then, the company’s engineers will provide the firmware and software for the final product. By outsourcing the most generic step in the production line, the production costs could be lowered significantly.

A detail

There is one little detail that needs to be told: The sensors relied on some very specific and fragile parts only the company itself could produce. These parts were especially sensible to the atmosphere they were assembled in. A very important aspect of the production process was a special purpose machine that could assemble the parts while sustaining the necessary gas mixture and pressure. Upon closer inspection, one could say that the essence of this product’s secret ingredience weren’t the parts itself, but the specifically tailored production process.

The special purpose machine had to be transferred to the contract manufacturer in asia, otherwise, the sensors could not be assembled. This was a minor inconvenience compared to the large profits that could be realized once the outsourcing was completed.

A success

The machine was transported to the contractor, installed and tested. A special crew of workers of the contractor’s staff was trained to operate the machine properly and within the necessary conditions. After a while, the production line began its work. The first sensors assembled offshore returned home. They all worked as intended. The local engineers couldn’t tell the difference but by looking at the serial number. The company management was pleased, the profitability was increased.

A failure

Everything went well for a while. Then, the local engineers noticed a slightly higher number of faulty sensors. Not long after, the quality assurance reported decreasing performance numbers of the devices. The rigidity of the device, the unique selling point, slowly deteriorated. The company management was worried and established a task force to indentify the root cause for this change to the worse.

A mystery

The task force inspected the reported problems and couldn’t make much sense of the numbers. It wasn’t a problem of whole faulty batches (indicating incidents like transport damage), but also not of individual faulty pieces. Instead, they found that if a piece was faulty, the next few pieces from that series were also faulty. Then, there were long intervals with perfectly good pieces until another group of clearly faulty pieces occurred. Something had to go wrong during the assembly process at the contractor.

A revelation

When the task force arrived in the contractor’s factory and inspected the special purpose machine, they found that the atmosphere regulator was damaged. This automatic part of the machine takes care of the mixture and pressure of the gas in the machine during operation and keeps it in the necessary range by applying or draining specific gas. The contractor didn’t bother to replace the rather expensive part when cheap human labor is readily available. They had hired a worker to perform the atmosphere regulation manually. Some lowly paid worker had to watch the pressure numbers and provide more or less gas, just as needed. This was nearly as good as the automatic regulation and still good enough to produce quality devices.

An explanation

But, the contractor only hired one worker per shift. This worker had to go to the toilet sometimes during the work day. When he was away from the machine, it went along unregulated, soon to be misadjusted to the point of only producing junk. Once the worker returned, he would balance the numbers and bring the machine in the OK state again. This situation occurred periodically, but not too often to taint whole batches. Only during his absence, the series of faulty devices would be produced.

A conclusion

I don’t want to add much moral to this story. Perhaps one thing should be considered when recapitulating: Both the company and the contractor “optimized” their costs locally by making cost efficient decisions that turned out to be expensive in the long run. The company chose between expensive, but controlled local production and cheap outsourced assembly, arguably the most delicate step in the whole production process. The contractor chose between a high one-time investment in an automatism and the low ongoing cost of cheap human labor. Both decisions are comprehensible on their own, but lead to a situation that would never have occurred in the original setting.

3 thoughts on “A small story about outsourcing”

  1. Given that workers are more cost-effective than the automatical unit, it is a right decision to employ them. Creating a single point of failure by employing only one or not having a replacement unit is doubtless a sign of bad risk management.

  2. The outsourcing provider would have done things as they should have been done if the equipment was maintained by the organization. The organization should have at least performed an inspection more often to ensure that all was running as defined in the procedure.

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