Forbes Gets it Wrong in Article on Outsourcing

We lean advocates don’t like outsourcing, particularly overseas outsourcing. The cost savings are often much less than the outsourcing company expects because of transportation and other costs, lead times are longer and quality control is reduced. More importantly, the U.S. manufacturer might do just as well by embracing a lean strategy that will make its processes more efficient and less expensive.

That is why I was disturbed by a recent article in Forbes about Doug Smith, whose Ohio-based company, SmithCNC-USA, is a middleman that helps U.S. manufacturers find low-cost overseas suppliers.

It’s not Smith or his company that bother me – he is just seizing a market opportunity that stems from demand for outsourcing (however misguided that demand may be).

The problem is the attitude of the article (by Christopher Steiner), which carries the headline “One Way to Save U.S. Manufacturing Jobs.”

The way to save U.S. manufacturing jobs is to export some of them. That seeming illogic lies behind the business model of SmithCNC-USA, a North Lawrence, Ohio firm that helps midwestern manufacturers get components and raw materials abroad. By leaning on cheap Chinese suppliers, they keep at least some value-added work in the hands of domestic factories. Absent the partial outsourcing, these American goods producers might be so uncompetitive that they'd be out of business.

The article quotes some of Smith’s clients, who agree with that view.

Take Derek Lidderdale, vice president of Omni Die Casting in Massillon, Ohio. Omni sells metal parts like the aluminum housings that go into lighting fixtures in factories. These are made by injecting molten aluminum into 3,000-pound molds made out of steel. Tooling up these custom-made molds, which wear out after 100,000 injections, is a big part of Omni's cost structure. "We were getting killed by foreign tooling," he says. "We were looking for a source but didn't want somebody who wasn't going to go over there and examine the process and the product in person."

Smith found a Chinese outfit in Ningbo in Zhejiang Province to make the molds for $40,000, a third what they cost when Omni used U.S. tool-and-die workers. Since signing up with Smith 18 months ago, Omni has made 45 new kinds of parts, all requiring separate molds or tools. In that time Omni hasn't had to eliminate any production jobs.

To focus on that example, the problem is that Omni assumes there is no way to improve (and reduce the cost of) the processes by which the molds are made. That kind of assumption is not uncommon, and the folks at Omni (like so many others) may simply be ignorant of what lean can do.

But I wish the folks at Forbes weren’t so ignorant. They report on a wide range of businesses, and they have surely heard of lean manufacturing. They ought to know better.