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The Outsourcing of Accountability

America, and indeed the first-first world, once had an expertise in manufacturing. From Henry Ford onward, a study was made of productivity, machinery and information technology. An expertise was built around industrial engineering, manufacturing engineering, component engineering, procurement, material planning, production control, inventory management, ERP systems and customer order fulfillment.

But beginning in the 1980s, things began to change. As low-cost regions developed their own manufacturing expertise, and even trumped the first-world economies in quality and process (JIT/Lean/Kanban); the first-world economies began the march toward outsourced manufacturing. But not only is manufacturing itself outsourced, but the expertise to manage and control it goes away; as it is no longer cost-justified to retain it in house.

First, the buyers and planners from separate silos became buyer/planners. Planning lost this round of management control, and “ordering” was performed by purchasing.  Buyers with minimal planning expertise now ordered off of raw MRP output with little technical support to fix problems. Master Scheduling went next, as “demand management” and “order scheduling” migrated to “sales order administration” or such. This left the  vp of operations or manufacturing manager to either plan capacity themselves or to never be quite sure of the legitimacy and politics of accepting customer orders inside of stated order fulfillment leadtime.

And with minimal internal manufacturing, production control and material planning become lost technical arts. How many people are left in the United States that actually understand gross to net calculations, time fences, leadtime, where-used, make/buy coding, phantom assemblies, inventory control, etc.?

As outsourced manufacturing became the hot executive objective in the magazine rack;, purchasing administered and expedited outsourced manufacturers using purchase orders and contracts as their comfort-zone controls. Manufacturing engineering & component engineering were the next professions to go and purchasing lost even more resources in controlling outsourced manufacturers and resolving product technical, quality and shortage issues.

From the 1990s and into the 2000s, “program management” took over for the failed attempt to manage outsourced manufacturing relationships as purchase order reschedules. Excel, MS Project, PowerPoint and meetings rose to the top of a system that one generation ago was managed by master scheduling, production control and material planning.  With the gutting of these professions, corporate management began to waffle between purchasing half-million dollar ERP systems that they didn’t have the wherewithal to staff or expertise to pilot; or placing the operations burden on project managers, commodity managers and such.  Project/Program managers would manage outsourced manufacturers as milestones and deliveries; status meetings and quarterly reviews. Commodity managers would manage outsourced manufacturers as service-level contracts and statistical cost take-downs. When things inevitably went wrong; there was typically minimal headcount in “lean operations” to address the problems and ultimately design engineering would be pulled into problems that a decade before had been managed and controlled by operations.

Without the expertise to manage complex operations or the core tool set; operations lost leverage on selecting business operation systems such as ERP. In today’s world; finance and IT typically select the business system with operations acquiescing and having no real understanding of the problems a finance-centric tool will cause.

Many of the tools selected by finance and IT (i.e.; Oracle, SAP) generate spiffy financial reports and consolidated world-wide role-ups; but are “clunky” on the operations side. By this I mean that they take more headcount to run operationally than anyone would ever hire. Therefore, the potential of these systems remains largely dormant and operations VPs turn to more “cost effective” ways to control the outsourced manufacturing environment.

Companies continued to make the strategic mistake of selecting systems that prioritize financial reporting over the underlying data quality of the business processes being reported on. Sometimes this environment degenerated into “the finance police” continually criticizing and politically marginalizing operations; or even hiring their own personnel to work alongside operations; filling the information and control gap.

So operations management had a problem: with either non-existent or sub-sets of their tool set in place,  (MRP logic, etc.) few technical pilots for the tools, or analytics of their own;  they were left with using what suppliers had the willingness to share. Often this supplier provided data was “cleansed” and provided after the fact, at the time of their choosing. In response, a proliferation of bolt-on products flooded the market in an attempt to fill the information gap.

But, as mentioned previously, “MRP” logic was only part of the puzzle. Operations management had evolved into a world of JIT, Lean and Six Sigma. While these methods require an MRP infrastructure for long-range material planning, capacity analysis and simulation, we instead neglected its foundational role. We layered JIT, Lean, Six Sigma and such on top of our broken and missing data, information, forecasting, predicting and simulation systems… the much maligned “Legacy” ERP system. We started calling these systems “legacy” because most anyone capable of understanding what they do operationally has been right-sized. The remaining management team often lacks the conceptual understanding to even know how MRP enables their slick black-belt programs; and continues to do so in the best performing companies.

So, despite these trendy must-haves from the HBR, outsourced deliveries faltered for many companies and liabilities escalated. Managers report back to their executive team that they were “working on it”. And they were working on it… with the tool set of complaining, warning, meeting, action items hind-site analytics and contractual chest-pounding.

As the situation worsens between OEM and EMS to the point of job security for operations management; we see some managers terminating their outsourced manufacturing partner and bringing in the next. Repeat this process every 3 years or so, and you have a long term career as a tough-minded manager.


We have outsourced our brain trust and eliminated entire professions:  the people most capable of proactively managing many of the complexities of worldwide operations and supply chain management. Some companies are now reduced to looking at over-the-shoulder KPIs and wondering what to do different when that wiggly line-thing on the management dashboard moves into the red zone. Other companies see what is going on now and DO something different.

We have outsourced accountability. Where is the mutual in the success of these outsourcing relationships? Where are the combined talents, root-cause identification, brilliant solutions, real-time interactions and impeccable execution? The problem is not the CEM. The problem is not the ERP. The root-causes exist in partial education, process limitations, data & transaction minutia, managerial ambivalence and missing foundational controls. Enough of this: on these pages I hope to bring you examples of the best that operations and supply chain management has to offer; and how to get there.

Obviously, there are excellent examples of individual well-run processes and entire end-to-end solutions. There are however many processes, systems and companies held up as examples; but they should be examples of what to do within a subset of business constraints. Geopolitics and economics also come to bare on this too; the “rules of the game” we all play by. These rules are constantly evolving and can be changed to the advantage of both business and society; the greater good. For this to happen, we must become the change agents of that critical mass.

© David Ginsberg 2005-2009
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