The source of success

Sub-contracting is playing an ever-important role in company strategy to ensure effective global competition. But proper management is essential, says Mark Venables.


The constant drive for supply chain consolidation and lean sourcing means that it has never been more important to have the right sub-contractors on board. At Subcon 2007, at the NEC from 1-3 May, companies can meet and assess hundreds of sub-contractors, both national and international.

A high-profile example of how major companies use the strategy as a tool to improve business performance is Airbus. Half of all work on its future programmes is to be outsourced as part of a radical restructuring of the aircraft maker — meaning 10,000 job losses across Europe, 1,600 of them in the UK.

The long-awaited Power 8 recovery plan will also result in the partial or complete sale of six of Airbus’s 16 plants. Starting with the A350 wide-bodied jet, the company said that the proportion of aerostructure work carried out by outside firms would double to 50 per cent.

It estimated that this could result in £1.7bn (€2.4bn)) of the £6.8bn programme being financed by risk-sharing partners. The programme is designed to generate £3.4bn of cash savings by 2010 and annual cost savings of £1.4bn after that.

Having made the decision to outsource to achieve the maximum benefits, a company needs to be managed properly. Better management of outsourcing providers would save UK firms £55m a year, according to research by interaction management software provider Exony.

‘In an increasingly competitive global marketplace, delivering the finest customer service efficiently is a key business goal for organisations of all sizes,’ said Exony chief executive Ian Ashby. ‘Managed correctly, outsourcing provides the agility and skills to achieve this. However, our analysis shows that a lack of control is fuelling a £55m black hole that is costing UK companies dear.

‘Already, around 50 per cent of companies that outsource are dissatisfied, and our research shows that UK firms are spending too much on such contracts. Improved ability to measure and manage is needed to plug these gaps and deliver on the outsourcing promise.’

Among the companies on show at the NEC will be West Yorkshire’s CCP International. ‘Outsourcing has been recognised for many years as an important part in the strategy that large corporations have developed to ensure they are able to compete globally,’ said CCP’s sales director Christopher Laycock. ‘Now it’s becoming a serious consideration for small and medium enterprises.

‘Many SMEs see their traditional business going offshore, and consequently need to be able to develop their own success strategies — often demanding significant reductions in component costs.

‘Outsourcing is frequently presented as a labour cost benefit, but that’s far from the full story. The erosion of manufacturing infrastructure within Europe over the last two decades has undermined the responsiveness and competitive ability of many established manufacturing companies.’

Anyone who has visited established Asian manufacturing centres in China, India, Korea and Taiwan will have a lasting impression of the myriad micro-businesses, with the family living over the shop. These businesses provide a vast array of specialist services, built on a mix of skill and selective capital investment.

They frequently demonstrate the virtues of flexibility, low costs and high-asset utilisation, and ensure that the larger specialist exporting companies are surrounded by a responsive, skilled customer-focused infrastructure.

‘Frequently, Asian exporters employ as few as 20 to 100 people, outsourcing many of their non-core needs,’ said Laycock. ‘By benefiting from the leverage that the network of mom-and-pop operations provides, they eliminate a large part of the traditional European-style overheads and are often capable of trading at a level well above their apparent size.

‘It’s the often-ignored structural factors, combined with lower labour costs, that provides the basis for genuine cost savings from outsourcing.’

Another exhibitor, Dynamic Manufacturing Services, offers companies a supply chain and procurement service. ‘Using industry best practice, we are committed to helping organisations identify suppliers with the quality and reliability to deliver ongoing value and sustainable savings, and overcome the risks associated with switching sources,’ said sales manager Karl Evans. ‘Whether you are an inter- national organisation looking to augment your current outsourcing facility, or a small business that does not have a dedicated procurement specialist, we can make the difference.

‘With over 15 years’ experience of outsourcing complex, custom-made components within a manufacturing environment, we have an extensive sub-contract database to cover all manufactured outsourced components or assembly needs. This covers the full spectrum of manufacturing processes, from machining, sheet metal fabrication and heavy fabrication, to casting and specialist coatings.’

Exhibition director Jon Hughes explained: ‘Subcon is firmly established as an annual event and reflects the dynamic demands of what is a truly global market.

‘Buyers need to constantly update their sourcing strategies by revisiting their make/buy decisions and developing manufacturing partnerships. Subcon is the only UK event that allows them to do this on a regional, national and international basis.’

Reflecting its importance to UK manufacturing, the show has the support of many leading trade bodies and institutes in the sector.

As well as the Confederation of British Metalforming, these include the Surface Engineering Association, the Institute of Cast Metal Engineers, the British Engineering Manufacturers Association and the Association of Industrial Laser Users. The event is sponsored by the global manufacturing marketplace MFG.com

This year also sees the return of the highly-regarded free seminar programme. The presentations are themed around four strands: best practice in sub-contract sourcing; management issues in procurement; technology and materials; and global sourcing. Some of the highlights include presentations of supply chain performance challenges for UK Aerospace and Defence, successful sourcing from China, the rapid manufacturing revolution, the impact of environmental legislation on relationships with suppliers and lean strategies in far and near sourcing.