Many manufacturers produce products using a family of machined parts manufactured by outside vendors. As the success of a product grows, manufacturers are often faced with the decision should they start machining the parts in-house to save costs. There are many considerations when determining if it is the right time to produce a family of parts in-house or to out-source to a third part components manufacturer. Let’s take a look at some of the challenges and key considerations when heading down this path.
Cost. Cost. Cost. Too often, supply partners, across commodities, are chosen based on cost alone as a result of corporate procurement team cost reduction initiatives that focus on and reward cost reductions above all other KPIs.
While cost remains critical in any sourcing activity, we would argue that overall capabilities, experience, and quality are as important and should be weighted equally as part of the decision criteria. Before moving forward with a machining supply partner, a procurement professional must have a stringent supplier development process that ensures the following considerations are met and the results meet company goals: capabilities, experience, quality, and costs.
Machining Companies at a Glance
Machining capabilities vary from region to region. While there are many capable suitors in North America, Europe (most notably Germany) is known for their precision machining capabilities and many of these companies and machining processes are making their way to North America.
Modern machining companies are no longer just machining companies, most provide some form of value-added services such as assembly, welding, plating, heat treating, painting, etc. It is extremely rare for a supply partner to only provide machining services. This is why it is so critical for a procurement professional to find the right machining partner and for procurement teams to enter into a sourcing decision with a supply partner mentality, and not a supplier mindset.
In-House vs. Outsourced Machined Parts? 8 Questions to Ask Yourself
1) What is the anticipated number of parts to be machined over the life of the product or project?
2) What size inventory levels do you currently maintain to meet your deliveries?
3) Do you have the proper equipment to efficiently produce the parts?
4) What kind of upfront investment on tooling, materials and set-up costs will be required?
5) What is the importance of having parts completed on time and having the parts meet your quality standards?
6) What is the possibility of design changes during the life of the product?
7) Do you have the capacity including floor space and labor to machine the parts in-house?
8) Do you have the in-house skill level required to produce the parts effectively?
Let’s discuss a few of these considerations in more detail.
When considering the capabilities of a potential machining supply partner, a procurement professional must analyze and evaluate every offering that partner provides or has the capacity to provide. One must ask, “Is this potential supply partner capable of meeting all of my business needs, and beyond, without the risk of problems during production?” Other questions you should ask include:
- What type of machining services do they offer?
- What materials does the potential supply partner work with and what can they suggest?
- What tolerances and precision can the potential supply partner machine?
- What production services are offered by the potential supply partner?
- What design capability does the potential supply partner have?
Manufacturing, especially automotive manufacturing, is an industry where experience matters at both the individual level and at the company level. A procurement professional must be assured that the potential machining supply partner has sufficient experience in order to avoid future costly mistakes.
Quality reduces total cost of ownership and saves valuable program time. Ask potential supply partners about their knowledge as it relates to industry codes and regulations. For automotive companies, being knowledgeable, experienced, and certified in various ISO/TS quality standards is recommended, and in many cases required, for certain OEMs.
As a rule of thumb, it is always recommended to attain at least three quotes from highly-qualified potential supply partners. Once attained, compare costs across the board as it relates to the program, keeping in mind that attaining an apples-to-apples comparison amongst machining companies is not always easy. One company might use a higher quality material or more precise cutting tools, meaning you can expect fewer costly mistakes in the long term. Some are priced higher because they are smaller shops that offer more customized services or less common machining processes.
There are many items a sourcing professional should be cognizant of and consider before choosing a machining supply partner. There must be full awareness of the bigger picture and not just the short-term cost savings or avoidances. Too often supply partners are chosen for the wrong reasons or for short-term gains. Key considerations include their capabilities, experience, quality, and costs that will put you and your company in the best position to win in the long term.
We hope this post provided you helpful information when it comes to considering to outsource your component manufacturing. Krenz Precision Machining is a leading full service, turn-key machine shop offering design, prototyping, components manufacturing all the way through Assembly. To speak with one of our technical experts, please call 1-440-237-1800. And thank you for reading our post.