Developing an outsource program.

The concept of value-added has proven to be a sound manufacturing and marketing strategy because it offers a producer the ability to differentiate himself from other producers of the same or similar products. When price is not the bottom line customer requirement, the ability to provide an additional service that the customer considers valuable" can result in added business in both the long and short-term.

In the case of metal castings, value added services can range from just-in time delivery to a variety of secondary treatments such as anodizing, cleaning, painting, polishing, hot isostatic pressing, etc. Heat treating has been utilized by foundries for many years not only as a method of adding value but as a way to maintain control and responsibility for final casting quality. More recently, rough and/or finish machining has been adopted by some foundries as a means to provide finished ready to assemble components. Many of the pros and cons of foundries operating their own machining facilities were the focus of an earlier modem casting article (see Jan 1988, pp 24-27).

While the capability of offering a machined complete casting presents some distinct advantages in the competitive world of foundries, the investment required to implement this strategy, in terms of both equipment and technical expertise, may make it prohibitive for many organizations. An effective alternate to the sizable investment needed in machining facilities and human resources may be to join forces with one or more machine shops or others who can offer value-added services.

While "out sourcing" of such services in not new to the foundry industry, a longterm partnership between the foundry and service provider can allow the foundry to sell the service without actually having the facilities in-house. Such a program has and can work with positive results for both the foundry and service provider. The key to making such a program work is that both parties must have a thorough understanding of each other's business and operations, and a commitment to customer satisfaction.

Developing the Program

The initial step in developing an effective machining outsource program is to have a well defined business plan and a thorough understanding of your customers and competition. Secondly, at least a basic understanding of the value-added processes you plan to outsource is a must. A knowledge of the secondary process, in this case, finish machining, is invaluable. This information is available through a variety of sources including technically competent suppliers, customers, equipment manufacturers, colleges and universities, conferences and industry publications.

A good starting point when instituting this program is to survey all potential suppliers. This can be done by developing a fairly simple general survey form. Table 1 features a sample survey form that can easily be adapted to your own foundry's needs. The survey should be designed so that the completed form gives you a thorough understanding of the supplier's technical expertise and business stability. A potential partner who is unwilling to share some basic business may not be a good candidate for a close, personal relationship. True supplier relationships are built on trust and a basic knowledge of each others business.

The survey should inquire into financial areas that would indicate long-term economic stability; what were the average sales figures for the past few years? What type of new equipment investments have they made in the past few years? Are their machine tools manual or CNC oriented?

As with your own organization, people are important. The same is true with potential partners. Look for suppliers with positive, enthusiastic and knowledgeable people. Often, problems arise in simply not knowing the correct contact person at your supplier. Engineers, quality, production and maintenance personnel are key employees who will be valuable for immediate answers once a project is running. Each of them should be involved from the onset of a project.

It is also important to know what are the ratios of quality personnel to total employees? Is there adequate manpower to handle production needs? The overall need is to feel comfortable enough with your suppliers to trust them with your customers.

Certain machine shops, for example, are suited to specific volumes, tolerances, etc, and are not cost effective when asked to run parts they are not suited to handle. What size and volume of parts do they normally run? What kind of lead times are involved when transferring an existing project or beginning a new project?

Once a suitable supplier is located, it would be ideal to run a trial lot as a learning experience before leaping in and trying to supply a production run.

These are all questions that need to be answered up front. What is the supplier's in-house capacity? Are machines dedicated to specific customers or are they easily interchanged? Which machine tools will process your castings? Is backup equipment available in an emergency? What type of metal composition do they have experience in machining? This information would be of importance especially to foundries pouring special grades of castings or exotic metals.

Are fixtures built and repairs performed in-house? This is a time saver as deadlines approach. What priority will your work hold? Are these priorities adequate for the amount of work you will be placing with this supplier?

Quality Assurance

It goes without saying that a main requirement when choosing a supplier should be quality. If your suppliers fail to meet specifications, you lose business and damage your reputation. Are the supplier's quality personnel involved in the review of purchase orders, drawings, specifications, tolerances, revisions, etc, before production begins? All of these matters should be attended to prior to project start-up.

A published quality control manual, for example, is evidence that the supplier has a commitment to quality. What type of inspection equipment is used? Are inspection documents available and traceable? Are reworks re-inspected completely? Are tools calibrated to industry standards? These are all questions that should be addressed during the survey period. Coordinate measuring machines are becoming the standard in most machining firms. Does your potential supplier utilize these newer techniques in inspection or are there future plans to acquire this type of equipment?

The main question is, can the supplier inspect what he machines? Are in-process worksheets and drawings posted at each workstation? Are inspection stamps used and controlled? Are parts tagged with regard to part number, lot, date, heat number, etc?

What type of outsource work is available to your supplier? Do they in turn have a good working relationship with their sources? In the case of corrective action, are rejects analyzed as to cause and prevention? How are scrap rates managed? Auditing and inventory procedures will need to be in place to monitor scrap levels. All of these factors may seem simplistic in the pre-survey stage but need to be addressed prior to project startup. Answers to these questions will help avoid unpleasant disputes over quality. In any case it is imperative that these matters be resolved before a part is shipped to the customer. Some type of mechanism should be in place to resolve disagreements between the foundry and machine shop so the shipments aren't unnecessarily delayed.

Other areas to investigate include shipping/receiving and materials handling. Are incoming shipments checked against purchase orders? Are certifications and test results included with the shipment? Are inspected items segregated from non-inspected? In order to avoid confusion when tracing castings, this type of system should be in place prior to your order placement.

Adequate protection of the castings before they get to the final destination point is vital. Machined steel castings, for example, should not be shipped in an open trailer. Many of these points can be determined with a plant visit.

An area of hidden costs is in shipping partial and rush orders to customers. Is the first material in, the first material out? Is good housekeeping maintained throughout all areas of the plant? (e.g. machine tools, fluids, tooling, fixtures, etc)? An efficiently run supplier should be expected to yield quality parts with timely deliveries.

Evaluating Supplier Performance

Once a project is underway, supplier performance needs to be evaluated. Items that should be covered in this stage of the evaluation are: overall supplier and customer satisfaction, quality of the components, timeliness of deliveries, etc. Were your expectations met in these areas?

The communication between you and your supplier does not end once he has supplied services successfully. This is the time to make any adjustments. Monitor areas for cost savings and improved quality. This can be done through time studies, decreased or increased feeds and speeds, alternate tooling, new cutting fluids and changes in tolerances.

If there is a possibility of performing rough machining or other value-added operations in-house, it would be timely to evaluate this option now. Rough machining in-house will flag many problem areas by exposing subsurface defects, porosity and other potential problems. This will reduce the number of defective parts shipped and provide cost savings.

Communication

The overall success of any outsource program is dependent on effective communication. Too often there is little or no communication between the foundry and machine shop until problems occur. The better the communication at all levels, the better chance your foundry will have at a successful outsourcing program.

Only the foundry can take the steps needed to survive. A whole new mindset will be required to "get the job done effectively." Additional personnel, skilled in machining, will be required to assist in the outsource program, in the following areas: estimating, evaluating suppliers, understanding the tighter machining tolerances and inspection procedures. These individuals must coordinate the development of qualified sources.

Suppliers must have staff capable of supplying sufficient project support, quality machine tools capable of producing acceptable parts, a working quality assurance program and response capabilities in quoting and production.

Appoint a project coordinator to interface with the foundry production floor, machine shop and the customer's engineering department. This person also should participate in surveying the shop prior to project startup. Set meetings to discuss such ideas as parting lines, locating points, gate locations, revisions, engineering change orders, tooling, inspection reports, etc.

Outsourcing will affect your production control and scheduling departments in many ways. Considerable scheduling and tracking will be necessary to allow sufficient lead times for the machine shop to meet predetermined delivery dates. Quality assurance reporting, as well as tracking procedures, will need to be developed to assure that only quality machined castings are shipped.

All outsourcing requires cooperation between management and production personnel. Since most smaller foundries often lack the technical expertise and capital to add value in-house they are joining forces with one or more machine shops. A successful program may even require cooperation between competitors who may find it more effective to join forces to jointly improve their lot rather than go it alone.

There is help available from colleges through special training programs, joint R & D studies or your customers may provide start-up capital and include your foundry in project planning.

The bottom line is that customers want value-added castings and to satisfy this need, foundries need to develop these relationships between suppliers. If a true long-term relationship is to be developed it is imperative that you know and understand your supplier's capabilities. Just as you cannot offer services that your own foundry does not have, mistakenly pitching a service that your value-added partner cannot fulfill is equally dangerous. There is opportunity for added business and profits by adding value but the responsibilities and risks are high.