A True Story

The company designed and manufactured precision engineering products for the defence and aerospace markets.  It had a large machine shop, fitted with a wide range of manually operated machine tools run by highly skilled operators. 

The lack of automation and the low utilisation of the machines meant that the work carried out in-house could be done more cheaply and effectively by specialised sub-contractors. 

A make-buy analysis concluded that the business should outsource most of its general machining work to a specialist supplier. 

Previous suppliers

The company was already using many small suppliers to cope with fluctuations in workload.  

However, the quality of the work sub-contracted was often poor, deadlines were missed regularly and relationships with the suppliers were rather adversarial. 

This is because: -

• The required accuracy of the work sub-contracted was often at the limit of what the suppliers could achieve.
• The quality of the work carried out was not checked rigorously. 
• The amount of work sub-contracted to each supplier was relatively small and therefore not perceived as significant by the supplier.
• The required delivery dates generated by the company’s internal MRP system kept changing, resulting in frequent amendments to purchase orders without agreement with the suppliers.

It was therefore decided to follow a new approach to implement the conclusions of the make-buy exercise. 

Supplier selection and management

Instead of working with several suppliers, it was decided to look for a single company capable of taking on most of the sub-contracted work.  This would then make it worthwhile for both parties to invest time and effort to set up a specific supplier agreement and work closely together. 

A search for suppliers was initiated.  Potential companies were identified and asked to fill-in a questionnaire to assess: - 

• Their technical capabilities
• Their capacity to take on the work to be sub-contracted
• The effectiveness of their production control system
• Their track record with other customers
• Their financial viability
• The logistics (transporting parts, arranging meetings, etc.).

Based on the responses received a small number of suppliers were short listed and visits arranged to meet their team and gather any missing information. 

This resulted in the selection of two potential suppliers. 

Sub-contracting most of the work previously carried out in-house required a close and open relationship with the new supplier. 

To this end a fair and simple supplier agreement was drafted in plain English to protect the interests of both parties and set up an open and transparent process to manage the work without the need for unnecessary paperwork and numerous purchase orders. 

In the end the supplier agreement was signed with one supplier and arrangements were made to transfer the work progressively.

The company provided the supplier with all the required technical information including its own detailed manufacturing instructions. 

Meetings were arranged between the technical teams to ensure a smooth transfer of all the learnings accumulated during the manufacture of these precision parts over the years. 

Skilled operators were offered the opportunity to work for the new supplier.

Outcome

The make-buy project was a success and the outsourcing of most of the general machining work to the new supplier contributed to a return of the business to profitability. 

Nowadays I work with overstretched leaders of engineering SMEs to help them prepare their business so they can achieve profitable growth.

If you would like to explore how I could help you, please use the link below to book a free 30-minute conversation.

http://tinyurl.com/HerveJardonCalendar