Fabrication: In-house or outsource?

Deciding whether or not to outsource fabrication is a task most OEMs inevitably face. There are cases where fabricating components in-house may be the best option, but they are increasingly rare. It’s easy to see why when you take a closer look at the many advantages of outsourcing.

“What’s most surprising to our customers is the unforeseen benefits that result from outsourcing,” says Andy Parsche, vice president of sales at Sanborn Tube & Fab. “They get more than they expected.”

For example, an OEM may outsource to alleviate labor worries – and be pleasantly surprised at the improvements in floor space, cash flow and scalability.

So what, specifically, are sound reasons to outsource your component production?

Resolve labor force issues

“The most common reason customers outsource fabrication is because of workforce issues,” Parsche explains. “There’s a lack of qualified labor available.”

Filling certain jobs is a challenge for manufacturers everywhere. But it’s particularly problematic in rural locations, where the supply of qualified workers tends to be the tightest. It’s difficult to find workers for tasks such as cutting, drilling, cleaning, welding and painting.

Sanborn’s advanced machinery tackles the work that entry-level employees once provided. “The labor shortage can be solved by outsourcing some of these steps,” Parsche offers.

Workers who once handled these tasks can be reallocated to other higher-value tasks, helping the manufacturer to increase its output. “There is an increase in overall production because it eliminates a slower way of doing that process,” he states.

Focus on your core competencies

Businesses can pick and choose what they outsource and what remains in-house. That enables them to focus on what they do best.

“Ideally, they can focus on their core competency and outsource the rest,” Parsche states. “Tubing fabrication is increasingly complex, with a great deal of expertise required.”

The capital investment in new fabrication machinery can also be difficult for a company to justify. “A machine will have to work close to 24 hours per day to recover the purchase cost,” he points out.

State-of-the-art equipment and processes

Sanborn uses fabrication machinery nearly every hour of the day, making frequent machine upgrades necessary. This means its customers are indirectly accessing the most technologically advanced, efficient machines – and realizing the benefits they offer.

In some cases, Sanborn will even acquire a specific machine at the request of a customer. “We’ll consider buying equipment for the right customer if we think we can use it elsewhere,” Parsche offers. “It helps us stay up-to-date.”

Maximize factory space and improve cash flow

Sanborn receives and warehouses bulk shipments of materials. Customers are not billed until the orders are processed and delivered, which helps them manage cash flow.

This just-in-time approach also adds logistical benefits. “We deliver directly to a particular location, such as a weld cell, and bypass any bottlenecks the customer might have,” Parsche offers.

Floor space opens up, too. “The outsourcing doesn’t just remove certain processes – it frees up the space associated with them,” Parsche explains. “That floor space is valuable real estate these days. With outsourcing, the OEM can remove some internal processes and use that space to finish products and get more of them out the door.”

Take advantage of material and processing expertise

Experts in tubing since 1957, Sanborn asks plenty of questions when it begins working with a manufacturer. “OEM engineers are increasingly less experienced,” he says. “The younger group doesn’t have as much hands-on experience. We’re glad to help any way we can.”

Sanborn will help its new customers find the right materials and also review the design of the OEM’s parts as needed. “We’ll see how we can apply our technology and maybe offer a different approach,” Parsche states. “Sometimes we can find efficiencies and improve the part.”

Improved scalability

Most every manufacturer wants new orders, but those that keep too many processes in-house must be careful what they ask for. Every challenge is exacerbated when there’s an uptick in demand. A tight labor market becomes strained. A busy factory floor becomes overcrowded. The list goes on.

“We can handle the spikes without a problem,” Parsche explains. Sanborn’s tubing inventory ensures materials are always available, plus its advanced equipment can keep pace with increased customer demand.

“It’s hard for some of these companies to keep up with the technology and that becomes a scalability issue,” he details.

The case for in-house

Is there a scenario where OEMs should retain the work? Yes, but it’s fairly limited:

“First, they must have the right equipment, and it isn’t cheap,” Parsche says. “Then they need enough volume to keep the machines working. Plus they need an available workforce.”

That may work fine today, but not so well tomorrow. “Technology gets outdated in a hurry,” he states. This isn’t always a big issue in the short term, but it will eventually take a toll.

“As time passes, outdated equipment can carry hidden costs in terms of labor, waste, increased downtime and other inefficiencies,” he adds.

Avoiding those added costs and reaping the other benefits of outsourcing fabrication make this option even more attractive to OEMs.

Contact us today to discuss your component outsourcing needs.