Understanding the sourcing and industrial sub-contracting
Understanding industrial sourcing
Industrial employment in Germany and the North of Europe has been maintained at an excellent level since the 80’s, and for the most part, German industrial companies are showing a stable and continuous development.
How do they do it?
One of the driving factors of this success resides in an offensive and structured sub-contracting strategy in Eastern Europe. This sub-contracting is carried out principally in all the activities which don’t put at risk the strategical integrity of the company, for example mechanical welding, manufacturing, pre-assembly, assembly, testing and commissioning. Take the example of France, where all activities are sought to be kept ‘on-shore’. The strategy put in place by the management seems to be more defensive, they are underestimating a big strategic added value.
We can, and should, source materials and activities in low cost countries for 3 reasons: competitive pricing, their capacity to produce large quantities and great quality. Often these three advantages are grouped and are the reason behind the growth of those specific companies.
It makes complete sense; gains can be within the range of 0 to 40% depending on the type of product. Do not overthink the hourly rates displayed by countries for several reasons:
- The productivity is not the same
- Qualified operators are often paid 5 times the official minimum salary
- Be sure to consider the company margins, and the transport
Large volume sourcing:
In some cases, one project represents 50% of your annual volume of a customer of ours. Using these companies can penalise their usual workflow and can mean that other established clients could be treated badly. Therefore, a situation that at first may have looked attractive becomes a burden on these companies. Does this sort of opportunity need to be declined? No!
Sourcing permits us to find other suitable factories sometimes 1, 2, or 3 at the same time, based on your production and control requirements set out in the specification documents. All made possible by our local teams. You will designate one full time employee to spend ¼ of his time on the project. As an example, for the latest Olympic Games, we managed to get 7 factories on board simultaneously, with one inspector full time in each factory. This lasted for two and a half months, finishing with a total production of 400T of precise mechanical welding certified EN 190 exc3, with 320 references, ahead of time.
In Eastern and Southern Europe:
- Metallurgy is considered highly respectable work,
- The operators are very competent,
- The equipment is the most advanced in Europe,
- All factories are in good financial positions and continuously developing.
Clearly this makes for a very high level of quality. The only weaknesses are visible in their project management capabilities, project control, and communication. This is where we intervene.