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March 15, 2013

When Global Outsourcing Includes Your Home Market

Posted by Sanjay Jalona (View Profile | View All Posts) at 5:18 AM


The assembly line in action at the Rouge Plant ,1934 [Source: http://www.autolife.umd.umich.edu/Labor/L_Overview/Rouge_Plant2.htm]

At the beginning of the 20th century, the world was fixated for a few months on a tiny farming community outside Dearborn, Michigan. It was in the hamlet of River Rouge that Henry Ford had decided to build a factory the likes of which had never been seen. It was a grand manufacturing experiment - un-forged metal and other raw resources would go in one end and a shiny new car would come out the other.

River Rouge was a soup-to-nuts operation that defined most of 20th century manufacturing practices - as well as the philosophy around it. That is, if you wanted something done right, you did it yourself. But in recent decades, most global enterprises have shown it's not exactly the best approach to micromanage your business. They have broken down their processes smartly and identified right partners for each stage of value chain. And these partners are often located thousands of miles away. As many as 45 big companies are involved in building the main components of Boeing's Dreamliner.

Yet it seems what was old is new again. There was an interesting report in the Wall Street Journal couple weeks ago about how another venerable American company, General Electric, is deciding that many of its operations would be cheaper and more efficient if it controlled them itself. GE makes everything from light bulbs to jet engines. Of its many subsidiaries, GE's jet engine business is one of its largest. GE decided it would acquire American companies and use their talent to make many of its jet engine components that it was buying from suppliers. For instance, GE bought a Cincinnati-based company, Morris Technologies that makes additives. According to the Journal report, GE plans to use 3-D printing machines at Morris to fashion a fuel nozzle that it uses on its jet engines. As it stands now, a supplier manufactures the nozzles. It must meld the part GE needs out of 21 tiny pieces. Technology advances like these are helping many western companies move manufacturing closer to their headquarters.

Also, American companies are realizing the benefits of cheaper, more reliable and abundant energy sources in their own country. Today, any company that relies heavily on energy would consider basing significant manufacturing operations in the United States. After all, the U.S. can be part of any global delivery model!

Then there's talent. The human equation. I watched President Obama's recent State of the Union address with interest because he mentioned how important it is for people who have studied for advanced degrees in the United States to be able to remain in the U.S.  should they wish. Isn't a country whose universities provide a first-rate education to a graduate student better off if it's able to retain him or her after graduation? 

So, if you ever get to see the enormous River Rouge plant that Henry Ford built in 1915, take a minute to think about how his soup-to-nuts manufacturing philosophy was not only innovative back then - in a new form it's gaining traction once again.

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