The Paradox of Lean Outsourcing

"Lean Outsourcing"  Now there's a term you don't hear every day.  Most of us have been focusing on lean as a way to avoid outsourcing and even out-compete companies that embrace it.  So when I came across an article in EMSNow by Eric Olsen and Mark Zetter that touted the benefits of "lean outsourcing" I prepared myself for battle, with all kinds of appropriate blog zingers coming to mind as I started reading.

But this wasn't your usual article pushing the benefits of outsourcing.  This was a well thought out analysis of how lean and outsourcing could fit together.  I'll immediately say I don't agree with all of it, but it did make me think.  To begin with, there's an extensive discussion of what it means to be "truly lean", and how that is reflected in how you perceive value.  We've blogged about this quite a bit in the past... especially how some companies focus on tools without understanding the requirements for "real lean".  One of those requirements is a true understanding of value from the customer's perspective.

One of the more intriguing visual concepts was this:

Toyota defines "value" in terms of time, quality, and cost.  This graphic shows a "waste triangle", with the "traditional" manufacturer establishing the baseline.  Now map various improvement possibilities against it. 

Starting from the bottom: a full "real lean" program improves (reduces waste) quality, time, and cost, and is clearly better in all aspects to the traditional manufacturer.  A full outsourcing program will dramatically reduce cost, but can increase the waste of time and the waste of quality.  Usually cycle times increase and longer feedback loops create more quality issues.  The authors then propose that lean outsourcing could be the best of all worlds... the dramatically reduced cost of pure outsourcing with the lean impacts reducing the waste of quality and time.

The authors recognize some of the potential problems that came to my mind by saying:

The thought by many in the lean community is if all of these costs are accounted for, lean would also be the winner in the cost category.  One misleading aspect of a typical outsourcing cost analysis is that the various 'direct' costs of outsourcing are just so low.

Very true.  When lean is implemented deep into an organization, the reduction in cost waste can completely offset and even surpass the traditional labor-related (and regulatory, energy, etc etc if you are a NAM type) savings from pure outsourcing.  Similarly the extraneous or less tangible costs of outsourcing, such as communication headaches, are not properly accounted for.  I also believe that the reduction in time and quality waste from pure lean is significantly greater than could be achieved by lean outsourcing.  Pure lean wins.  But I still give kudos to the authors for an interesting and relatively balanced analysis.

Now let's wait and see which consultant is first to trademark "lean outsourcing"...

Comments

[Eric H]

Gosh, Kevin, I seem to recall having seen that notion somewhere before ...

http://www.zianet.com/ehusman/weblog/2005/11/lean-and-project-triangle.html

[Kevin]

Hey you're right... you were close. But are you going to trademark it?!

[Eric H]

Nope. The Cheap-Fast-Good triangle is old as the hills; they just slightly altered the labeling to make it seem more academic (Cost-Time-Quality). And since I'm not a consultant, I'm just happy to provide more reasons for people to jump onto the lean bandwagon.

[Mike]

When we think "outsourcing" we usually think about trimming staff from already overworked support departments or laying off line employees. We should begin to think about outsourcing as moving products and services to a supplier. For example, most small and medium-sized companies can economically outsource their payroll administration to a "supplier." The price is usually reasonable and the service good. However, it becomes our responsibility to give other value-added work to the people in our organization who used to perform the newly outsourced tasks--not let them go. If we approach outsourcing in this way, we have actually created jobs, not reduced jobs--and potentially taken some drudgery out of one or more of our employee's workday and replaced it with something more rewarding.

If we don't follow this outsourcing model, we are just chasing the cheap labor percentage and not truly embracing lean.