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Manufacture or buy-in precision engineered parts?

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“Make or buy” is a decision regularly faced by all OEMs and tier one / tier two sub-assembly manufacturing businesses. Although outwardly simple in concept, the decision actually relies on multiple variables, all of which must be considered before any meaningful conclusions can be made, especially when dealing with precision engineered components. Terry Grubb, MD from Aerospace subcontract engineering company Micro Precision looks at the decision-making process and the main considerations

One sector where this decision plays a crucial role in deciding business competitiveness on a daily basis is the aerospace industry, where Engineers and Purchasing departments already face the challenge of manufacturing on time, to the required certificated quality levels, and in variable quantities that are often difficult to judge in terms of investment payback.

Precision manufacturing is a key part of the aerospace engineering industry; the machines and consumables needed to produce parts to the correct tolerance and quality levels – often from exotic materials – usually require significant capital investment. In this instance capital outlay is obviously a major factor, but it must not be considered in isolation in what is effectively a strategic decision, which requires the consideration of many more variables.

Knowing where to start is always a problem. As well as time schedules, skills, space and spend, companies also have to consider their own core competencies, what gives them a competitive advantage, and whether they want to subcontract elements containing their own IP investment.

Modern manufacturing practices such as lean manufacturing also effectively dictate that some level of outsourcing is a foregone conclusion, as most OEMs simply do not have the necessary assets in place to make in-house manufacturing a viable and commercial proposition for every single part they require.

Looking at the basics, these questions should be addressed in the decision making process:

Schedule: Do you have the capacity to be able to produce the parts on time and to the correct quality levels, without impacting on other projects?

Skills: Do you have the personnel who possess the right skill set to manufacture the parts, potentially on new machines and from unfamiliar materials?

Space: Do you have spare floor space in which to site a new production cell?

Spend: Do you have the capital to buy in new machines and skills, and can the payback be justified? Can you also justify all the other cost elements that make up the whole, such as inventory, quality inspection / testing and maintenance?

Demonstrating what a ‘minefield’ of issues this decision throws up, we can also add advice from the academic world. The book ‘World Class Supply Management’ offers a rule of thumb for outsourcing. It suggests that a firm outsource all items that do not fit the following three categories:

  1. The item is critical to the success of the product, including customer perception of important product attributes
  2. The item requires specialised design and manufacturing skills or equipment, and the number of capable and reliable suppliers is extremely limited
  3. The item fits well within the firm’s core competencies, or within those the firm must develop to fulfil future plans

The conclusion is that items that fit in one or more of these three categories are considered strategic in nature and should be produced internally if at all possible. However, this is by no means a ‘be-all-and-end-all’ rationale. Sometimes it is just not best practice to manufacture certain components when a competent third party that shares your ideals and mindset is available as a commercially viable alternative.

When a third party is being actively considered, academia wades in again with multiple caveats, such as: the need to exert direct control over production and/or quality, design secrecy, avoiding unreliable/not competent suppliers and quantity levels that are too small to interest a supplier.

However, there are multiple compelling positives that must also be considered. These include the supplier’s expertise and know-how being greater than that in-house, the fact that it might overall be far less expensive to buy than to make, suppliers may be more suited to lower-volume production runs and the supplier’s capacity and capabilities exceed those of the in-house offering.

Quality standards

If, by the numerous contributing factors, the decision has been made to employ the services of an external subcontractor, further work is still required. In the instance of the aerospace industry – and indeed many other industries – national, international and company-specific quality standards must also be investigated.

Look for subcontractors who already have these systems in place and can demonstrate a level of quality and supply that matches those in-house. And look for companies that already have a pedigree in your industry; chances are, they have all the systems and certification in place to immediately take up and run with your requirements.

It can be a tough decision, mired with multiple pitfalls and hundreds of variables, but if looked at in a systematic manner it should become apparent fairly quickly which way your decision is likely to go.

There is no loss of face when employing external expertise; indeed, in many circumstances it will work to your advantage. Not only will it free up your schedules and personnel, but there is also an inherent level of innovation and market knowledge within the most successful subcontractors. Most can be seen as a centre of excellence because of their specialisation in what they do and the markets they serve, often passing on unique retained knowledge from one job to another. Indeed, it is not unheard of for third parties to significantly undercut your initial cost estimates because of their skills and expertise.

A very simplistic way of looking at it would be to ask yourself: “Would this company, its employees, its technology, its ethos and its capabilities look out of place if it was my machine shop?” If your answer is no, then most of the hard work has already been done.

To find out about precision engineered subcontract components from Micro Precision, go to www.microprecision.co.uk.

03 August 2012

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