A Welcome and Honest New Book on Outsourcing the Supply Chain

Pamela Gordon Posted by Pamela Gordon, CEO, Technology Forecasters Inc..

Pamela J. Gordon is CEO of Technology Forecasters Inc., keynoter on profitable sustainability, and co-developer of ProductDesign21.

A Welcome and Honest New Book on Outsourcing the Supply Chain

Professor Andy A. Tsay, author of Designing and Controlling the Outsourced Supply Chain

Blog Post by Pamela J. Gordon

TFI’s long-time colleague Professor Andy Tsay (chair of the Operations Management and Information Systems department in the business school at Santa Clara University) told me about his new book, Designing and Controlling the Outsourced Supply Chain, from NOW Publishers. In my enthusiasm about it — given Andy’s Stanford roots and my experience of his Supply Chain Outsourcing course (from guest lecturing there) — I implored him to tell me which industry problems he most wants the book to solve.

Industry Problems to Solve
Pamela J. Gordon (PJG): You wrote that this book “targets scholars and practitioners at once, guided by a belief that both communities will benefit from a treatment of outsourcing that ties together ideas from theory and extensive industrial evidence.” What are your highest hopes for how this book will positively change the world?

Andy A. Tsay, Ph.D. (AAT): Outsourcing is ubiquitous and the impact is tremendous. Mistakes are bad for the companies, and often bad for society as well.

Practitioners and academics each have something to contribute, but each lacks part of the picture. Practitioners tend not to look enough at history, or outside their own industries and business functions, which means effort is wasted on reinventing the wheel. Academics tend to be disconnected from the details of the real problems. This book tries to address each shortcoming.

For practitioners the book introduces the broad body of relevant knowledge, including some theory, in an accessible way. For academics it serves as an easy way to bring deep industry details into their classrooms and research projects.

Why this Book? Why Now?
PJG: I haven’t seen many books dedicated to outsourcing manufacturing and supply chain* (as opposed to IT and business processes) since TFI’s 1999 World-Class Outsourcing for Electronics Manufacturing (which I wrote with Robert Wyckoff). Have you?

AAT: I could never find a suitable textbook for my MBA course “Supply Chain Outsourcing” at Santa Clara University’s business school. So decided to write my own.

PJG: You mentioned that you started researching this topic since your Ph.D. work in the 1990s. What has changed since then?

*The proliferation of options offered by third-party logistics (3PLs) providers, Electronics Manufacturing Services (EMS) companies, and Original Design Manufacturers (ODMs) has increased their customers’ difficulty of choosing correctly from among ever more permutations of supply-chain structures. And if the result is that more processes are outsourced to a larger portfolio of independent players, then coordination of the extended enterprise becomes even harder.

*Global telecommunications and logistics networks have matured to a point that outsourcing (on- and offshore) is a real possibility for small companies just as much as for large ones. At the same time, consumers have become more sensitive to where and by whom their products are made.

*China has further emerged. This has presented many challenges of managing long supply chains that reflect both geographic and cultural distance.

*The business community has become much more aware of how supply-chain excellence can drive competitive advantage.

PJG: Your book frequently addresses social and environmental responsibility in global manufacturing outsourcing. What are your main concerns and hopes?

AAT: I am concerned that many of the same problems continue to recur. Consumers get outraged, but their memories are short.

But there is hope. For example, the re-shoring / near-shoring movement achieves a green objective, but is happening because it makes business sense — which is better than relying on businesses to have a conscience.

Regarding bad behavior by players in the supply chain, I believe that sunshine is the best disinfectant. And the rise of social media lets the sunshine in. We have partially crowd-sourced the monitoring of supply chains for CSR violations. Anybody with a smartphone and access to Youtube is potentially an investigative reporter. This is more comprehensive than private or governmental monitoring can ever be.

An Honest Look at an Imperfect Industry
PJG: I appreciate the topics you broach that seldom appear in trade press or academic papers. In your chapter, “Lifecycle of the Outsourcing Decision,” for example, you convey this story: “…in a personal communication, a Vice President of the electronics contractor manufacturer Flextronics mused that the most common catalyst for his clients’ outsourcing programs is the desire of a new COO or Operations VP to make a mark or shake things up. This presents another motive for outsourcing (or insourcing), albeit one of questionable defensibility: to serve as a ‘signature’ strategic initiative.”

I have seen this as well. What are examples of other topics in your book not typically addressed elsewhere?

* How outsourcing alters the day-to-day jobs of those involved. Success in outsourcing depends on the states-of-mind of the people in charge of implementation and execution (and fighting the fires). Yet, high-level decisions often overlook the human factor.

* How the outsourcing of manufacturing makes the procurement of materials more complicated. Key ideas from my published papers about how HP and others have dealt with this problem appear in this book.

* That BOM errors and the part-numbering problem are significant barriers to successful outsourcing. I have never seen any academic paper properly acknowledge these. I learned about them firsthand in 2000, when I worked with a company whose goal was to address these problems in the electronics supply chain. These occupy several pages of my book (see p.78).

PJG: What is refreshing about your angle on outsourcing within the framework of supply-chain decisions?

AAT: This book went through an academic peer-review process, handled by an editor who is a distinguished full-time professor at UCLA Anderson School of Business. University researchers tend to be pretty hard on each other about demanding that a piece of work is making an original contribution — if you don’t meet that standard, you don’t get published. And the burden of proof is on you. Likewise, assertions that lack evidence tend to get shot down.

Even though my book has been deeply researched and vetted (it cites more than 400 references from trade-press and academic research), the writing style is geared mainly to practitioners. My goal was to structure the ideas in a way that would really stick in each reader’s memory.

MBA students at Santa Clara University are mostly Silicon Valley working professionals, around 30 years old with 5-10 years of experience. Past attendees of my course on this topic typically signed up because of their supply-chain duties in their “day jobs” (e.g. at Apple, Cisco, HP, Flextronics, Genentech, Safeway, and all sorts of start-ups). They served as my test audience, and kept me honest.

PJG: During your research and writing of this book, what findings and/or elements surprised you the most, and why?

* That hidden costs of outsourcing continue to be overlooked, even though warnings have appeared in print for a long, long time. Outsourcing does not necessarily reduce your work; it might just change the nature of that work. You still need to invest in due diligence, ongoing monitoring, and relationship-building. Companies often mishandle these since their accounting systems don’t know how to track the associated costs and benefits. All that said, even though outsourcing might not reduce your costs at all, it might still be a great idea anyway.

* The ongoing belief that IT is the cure-all. IT doesn’t magically fix bad processes. It may just hard-wire them in. Also, IT makes communication and monitoring easier, but won’t be enough if the problems are due to intrinsic conflicts of interest.

Join Our Discussion
Start reading the book (free PDF with publisher’s permission or paperback) and chime in on the discussion. Post your comment below.

*Other books focused on manufacturing outsourcing in the past ten years include one from The Economist, another from James Thompkins, and e-books by Charlie Barnhart.