Saturday, January 29, 2005
Out Sourcing
Often you see articles on the net and ponder from what knowledge or experience the author has to write such drivel. So, keeping that in mind, just let me give a few aspects of my daily life which may or may not provide a moderate level of knowledge in the situation I am about to ramble about.
I am a Machinist. Note, I did not say a Machine Tool Operator. Only computers in my shop are in the office for billing and such. For nearly three years now I have been the Shop Manager of a Production Screw Machine Shop and was Assistant Manager for seven years before that. Our primary machine is a Brown & Sharpe #2G Single Spindle Automatic Screw machine. Which means we make a lot of small parts for various customers ranging from items we have on the Space Shuttles to Aircraft Carriers to the New York Subway System to the Electrical Panels in both residential and commercial buildings and in nearly every major oil field in the world.
Our newest production machine was built in 1951 and the oldest was made in 1922 and is still under power. Considering the average length of thread we produce per part is five eights (5/8) of an inch per part, we have produced over three hundred thousand inches of thread this year alone. This ranging from a 10-32 thread to 1“-8.
Ok. Now we have established I have a little experience in the field of manufacturing.
Out Sourcing. A newer version of the term; to farm out work. This is done for one or more of three basic reasons. Ability, Cost and Time. You can wrangle these specifics all day long and still come up with the same answer. That is a manufacture has the requirement for a specific part and has to go to an outside vendor to have it produced.
A good example is that approximately twelve percent of our work is for what is best known as CNC Machine Shops. You know the ones. The shops that use those very expensive computer driven machines which is touted to manufacture parts faster and cheaper. Ok, I know I was a tad snide there, but considering most of those machines become obsolete within five years and maintenance on them almost requires an engineering degree, what more can I say?
Anyway, the work we do for those shops are usually because the part is smaller then they can reasonably handle without major difficulty. Now I am serious in that there is not a single part we make that cannot be made on a CNC machine, but it is just not cost effective. And as odd as this may sound to those not familiar with screw machines, we usually can make the parts faster per part. We certainly can make them cheaper. And there are parts our customers need we often farm out to CNC shops due to size of the material. Everyone makes money and the bankers are happy.
Example, go look in your home fuse panel at the set screws which hold the wires to their terminals. If they use a hex wrench to loosen or tighten them, I can and do make those parts at an average of twenty four (24) seconds each. Commercial size set screws take a bit longer. An average of forty five (45) seconds. We produced 50,000 of the half inch diameter set screws in a single run this past year.
Confuse anyone yet? Well, don’t feel alone. I’ll get to the point here soon. Come to think on it, how about now.
Out Sourcing is finding a vendor that has the Ability to produce a specific part, at a Cost which the customer can tolerate and be delivered in Time for it to fill their needs. Ability is the simplest part. Either a vendor can make the part or not. This also transfers back to the customer, in that they may manufacture parts in house, but do not have the ability to do so. Time is also a factor here, in that a customer may have the ability but due to current work loads does not have the time to produce a specific part. And to answer the question, why doesn’t the customer just hire more workers and buy the machines needed? Cost. It makes no sense to spend hundreds of thousands of dollars to produce maybe five thousand dollars in parts. Then have to lay off the workers and let the machine set idle for a year or until the next requirement for those or like parts.
Common here is that often a CNC shop has a good customer who they do a lot of work for that needs a minor part which they want the CNC shop to do for them. The CNC shop knowing it is outside their Ability, then turns to us for the production of the part. This also holds the part price down in many cases. But I am also aware that some prices are higher because the customer thinks the CNC shop is producing the part and not an old, antique screw machine shop. And the consumer pays the final bill.
Ok, let us consider Cost even further. First, material costs. We buy steel by the pound. We need to first know how many feet of bar stock we need to fill an order. Once determined, we then figure out that amount of material weights. Bar lengths in our industry are usually ten to thirteen foot random lengths, normally stable at twelve foot bars. We determine how much a bar weights and the cost of that bar. Then we determine how many parts we can produce from a single bar of material. Actually, parts per bar is done early in the bidding process to determine how much material we actually need. But once we know the price per bar, we can determine material cost for each part produced. Understand this, if we know we need fifteen bars to produce two thousand parts and we buy enough material to produce twenty-two hundred parts, the customer is going to pay for the extra material. This is all factored into the bid.
Got this so far? Well, a good example on the rising cost of manufacturing in this country is last week I ordered material for a job we do from time to time. In December of 2003, we paid $1.10 a pound for the material. The material we ordered last week for this job will cost us $1.83 a pound. The part price just went up.
Shall I get into labor costs? The increase in insurance. The increase is heating and providing electricity for the shop? Even the increase in the cost of the water in the toilet. Everyone knows the cost of living has been on a steady increase for the past ten years.
Time. Well, it takes the time it takes to make a part. Date of production and delivery is based on who is already on the schedule by a first come, first served method. And we work on an average of four weeks from the date we receive the purchase order to delivery.
Let me state here. Whom ever it was that developed the concept of Just In Time manufacturing knows nothing about base level manufacturing. The concept is based on a company ordering a product to be delivered just as it is being needed in order not to have to stock said items in a warehouse and pay the cost of warehouse employees and the building overhead. Great idea, if this was a perfect world. The only people that really make out is folks like FedEx and UPS who charge real money to make a delivery of parts from point A to point B.
What is not taken into consideration is the problems at base level where material is out of stock or delivery times on it takes one to two weeks. Then you have production time, add in any additional outside vendors such as heat treating or cosmetic/protective plating.
Prime example is that in December 2003, we received a yearly order from a customer for parts. Nothing fancy here, but still one we have been making for this customer over the past fifteen years. The order was for two thousand parts. After three days of searching, we bought the only fourteen bars of the specified material in the country. We needed twenty bars minimum. The next mill run for this material in the specified configuration was four months away. Next the plating requirement is not longer being done locally and we have to send said parts out of state for plating. Now this usually is not too bad a deal. Customer is up North, we are in the Southwest and the plater is in between. Send the parts to the plater and they send them on to customer once completed. This order became a minor nightmare.
The material being transported out of the Chicago area was delayed due to a traffic mishap.
This caused us to received the material two weeks late. I could not wait for the material as I needed the machine for another job and then had to wait for its completion before changing out and doing the specified part. The heat treater did a wonderful job of turning the parts around in 24 hours. But the plater really fouled it up. For some reason, once completed, they sent the parts back to us using the funds we provided to send them on to the customer. So instead of paying shipping from us to plater then to customer, we paid from us to plater to us then to customer. And these were not light weight parts.
Customer received less parts then originally ordered nearly a month late. But this shows how Time can be a real problem when Out Sourcing any type of manufacturing.
Now here is where I get a real laugh thinking about Out Sourcing. We do a lot of work for Union Based shops that have no idea we are doing the work. And I know for a fact if they did know, the Union would have fits, considering we are a Non-Union shop. So Non-Union, the owner will close the doors before allowing the Union in the door. And I will take great pleasure locking the doors myself.
But how it happens we are doing this kind of work is simple. We not only make parts, we specialize in modifying existing over the counter bolts, nuts and screws. A manufacture needs a common bolt modified but their operation does not have the Ability to do it. So they go out to a Fastener Company and order existing parts with a slight modification. We do the modification and the customer is happy. But I know from experience, many of those parts are made either in Canada or in Asia. And I’m fairly certain when the end user receives the final product it arrives at their dock with a label, Made in Taiwan on the side of the box. So here is a situation where Cost and Ability merges once again.
In the fifteen years I have worked at this shop, we have had only one job Out Sourced to Asia. And to be honest, the quantity requirement went from four thousand a year to fifty thousand a year and the manufacturing process for this part in those quantities would have been headache to deal with. Besides, we have made this part on a couple occasions since due to Time limitations overseas. And the customer paid a premium for such service.
During this past election year, while a certain candidate spoke of a slack economy and the Out Sourcing of work, we have managed to more then double last years gross income and next year looks as good if not better at this time.
Next time you hear a random statement about Out Sourcing, maybe give this Blog a thought. There are a lot of shops like the one I manage, and we do a lot of work that some think is going overseas. Maybe we are doing the work the speaker is crying about loosing.
And in closing, I must also say that we also ship to two foreign addresses. In fact, nearly forty-five (45) percent of our income comes from those addresses. Things are not always as they seem. Or are they?
22 December 2004
Indian Territory, USA
(Reviewed, Edited and Posted on 29 Jan 05)
I am a Machinist. Note, I did not say a Machine Tool Operator. Only computers in my shop are in the office for billing and such. For nearly three years now I have been the Shop Manager of a Production Screw Machine Shop and was Assistant Manager for seven years before that. Our primary machine is a Brown & Sharpe #2G Single Spindle Automatic Screw machine. Which means we make a lot of small parts for various customers ranging from items we have on the Space Shuttles to Aircraft Carriers to the New York Subway System to the Electrical Panels in both residential and commercial buildings and in nearly every major oil field in the world.
Our newest production machine was built in 1951 and the oldest was made in 1922 and is still under power. Considering the average length of thread we produce per part is five eights (5/8) of an inch per part, we have produced over three hundred thousand inches of thread this year alone. This ranging from a 10-32 thread to 1“-8.
Ok. Now we have established I have a little experience in the field of manufacturing.
Out Sourcing. A newer version of the term; to farm out work. This is done for one or more of three basic reasons. Ability, Cost and Time. You can wrangle these specifics all day long and still come up with the same answer. That is a manufacture has the requirement for a specific part and has to go to an outside vendor to have it produced.
A good example is that approximately twelve percent of our work is for what is best known as CNC Machine Shops. You know the ones. The shops that use those very expensive computer driven machines which is touted to manufacture parts faster and cheaper. Ok, I know I was a tad snide there, but considering most of those machines become obsolete within five years and maintenance on them almost requires an engineering degree, what more can I say?
Anyway, the work we do for those shops are usually because the part is smaller then they can reasonably handle without major difficulty. Now I am serious in that there is not a single part we make that cannot be made on a CNC machine, but it is just not cost effective. And as odd as this may sound to those not familiar with screw machines, we usually can make the parts faster per part. We certainly can make them cheaper. And there are parts our customers need we often farm out to CNC shops due to size of the material. Everyone makes money and the bankers are happy.
Example, go look in your home fuse panel at the set screws which hold the wires to their terminals. If they use a hex wrench to loosen or tighten them, I can and do make those parts at an average of twenty four (24) seconds each. Commercial size set screws take a bit longer. An average of forty five (45) seconds. We produced 50,000 of the half inch diameter set screws in a single run this past year.
Confuse anyone yet? Well, don’t feel alone. I’ll get to the point here soon. Come to think on it, how about now.
Out Sourcing is finding a vendor that has the Ability to produce a specific part, at a Cost which the customer can tolerate and be delivered in Time for it to fill their needs. Ability is the simplest part. Either a vendor can make the part or not. This also transfers back to the customer, in that they may manufacture parts in house, but do not have the ability to do so. Time is also a factor here, in that a customer may have the ability but due to current work loads does not have the time to produce a specific part. And to answer the question, why doesn’t the customer just hire more workers and buy the machines needed? Cost. It makes no sense to spend hundreds of thousands of dollars to produce maybe five thousand dollars in parts. Then have to lay off the workers and let the machine set idle for a year or until the next requirement for those or like parts.
Common here is that often a CNC shop has a good customer who they do a lot of work for that needs a minor part which they want the CNC shop to do for them. The CNC shop knowing it is outside their Ability, then turns to us for the production of the part. This also holds the part price down in many cases. But I am also aware that some prices are higher because the customer thinks the CNC shop is producing the part and not an old, antique screw machine shop. And the consumer pays the final bill.
Ok, let us consider Cost even further. First, material costs. We buy steel by the pound. We need to first know how many feet of bar stock we need to fill an order. Once determined, we then figure out that amount of material weights. Bar lengths in our industry are usually ten to thirteen foot random lengths, normally stable at twelve foot bars. We determine how much a bar weights and the cost of that bar. Then we determine how many parts we can produce from a single bar of material. Actually, parts per bar is done early in the bidding process to determine how much material we actually need. But once we know the price per bar, we can determine material cost for each part produced. Understand this, if we know we need fifteen bars to produce two thousand parts and we buy enough material to produce twenty-two hundred parts, the customer is going to pay for the extra material. This is all factored into the bid.
Got this so far? Well, a good example on the rising cost of manufacturing in this country is last week I ordered material for a job we do from time to time. In December of 2003, we paid $1.10 a pound for the material. The material we ordered last week for this job will cost us $1.83 a pound. The part price just went up.
Shall I get into labor costs? The increase in insurance. The increase is heating and providing electricity for the shop? Even the increase in the cost of the water in the toilet. Everyone knows the cost of living has been on a steady increase for the past ten years.
Time. Well, it takes the time it takes to make a part. Date of production and delivery is based on who is already on the schedule by a first come, first served method. And we work on an average of four weeks from the date we receive the purchase order to delivery.
Let me state here. Whom ever it was that developed the concept of Just In Time manufacturing knows nothing about base level manufacturing. The concept is based on a company ordering a product to be delivered just as it is being needed in order not to have to stock said items in a warehouse and pay the cost of warehouse employees and the building overhead. Great idea, if this was a perfect world. The only people that really make out is folks like FedEx and UPS who charge real money to make a delivery of parts from point A to point B.
What is not taken into consideration is the problems at base level where material is out of stock or delivery times on it takes one to two weeks. Then you have production time, add in any additional outside vendors such as heat treating or cosmetic/protective plating.
Prime example is that in December 2003, we received a yearly order from a customer for parts. Nothing fancy here, but still one we have been making for this customer over the past fifteen years. The order was for two thousand parts. After three days of searching, we bought the only fourteen bars of the specified material in the country. We needed twenty bars minimum. The next mill run for this material in the specified configuration was four months away. Next the plating requirement is not longer being done locally and we have to send said parts out of state for plating. Now this usually is not too bad a deal. Customer is up North, we are in the Southwest and the plater is in between. Send the parts to the plater and they send them on to customer once completed. This order became a minor nightmare.
The material being transported out of the Chicago area was delayed due to a traffic mishap.
This caused us to received the material two weeks late. I could not wait for the material as I needed the machine for another job and then had to wait for its completion before changing out and doing the specified part. The heat treater did a wonderful job of turning the parts around in 24 hours. But the plater really fouled it up. For some reason, once completed, they sent the parts back to us using the funds we provided to send them on to the customer. So instead of paying shipping from us to plater then to customer, we paid from us to plater to us then to customer. And these were not light weight parts.
Customer received less parts then originally ordered nearly a month late. But this shows how Time can be a real problem when Out Sourcing any type of manufacturing.
Now here is where I get a real laugh thinking about Out Sourcing. We do a lot of work for Union Based shops that have no idea we are doing the work. And I know for a fact if they did know, the Union would have fits, considering we are a Non-Union shop. So Non-Union, the owner will close the doors before allowing the Union in the door. And I will take great pleasure locking the doors myself.
But how it happens we are doing this kind of work is simple. We not only make parts, we specialize in modifying existing over the counter bolts, nuts and screws. A manufacture needs a common bolt modified but their operation does not have the Ability to do it. So they go out to a Fastener Company and order existing parts with a slight modification. We do the modification and the customer is happy. But I know from experience, many of those parts are made either in Canada or in Asia. And I’m fairly certain when the end user receives the final product it arrives at their dock with a label, Made in Taiwan on the side of the box. So here is a situation where Cost and Ability merges once again.
In the fifteen years I have worked at this shop, we have had only one job Out Sourced to Asia. And to be honest, the quantity requirement went from four thousand a year to fifty thousand a year and the manufacturing process for this part in those quantities would have been headache to deal with. Besides, we have made this part on a couple occasions since due to Time limitations overseas. And the customer paid a premium for such service.
During this past election year, while a certain candidate spoke of a slack economy and the Out Sourcing of work, we have managed to more then double last years gross income and next year looks as good if not better at this time.
Next time you hear a random statement about Out Sourcing, maybe give this Blog a thought. There are a lot of shops like the one I manage, and we do a lot of work that some think is going overseas. Maybe we are doing the work the speaker is crying about loosing.
And in closing, I must also say that we also ship to two foreign addresses. In fact, nearly forty-five (45) percent of our income comes from those addresses. Things are not always as they seem. Or are they?
22 December 2004
Indian Territory, USA
(Reviewed, Edited and Posted on 29 Jan 05)
