Original Date: 08/30/2004
Revision Date: 01/18/2007
Best Practice : Outsourcing Strategy
An important aspect of doing business with TOMAK Precision is its sound Outsourcing Strategies that minimize the cost of doing business with external sources in a batch processing environment. The benefits obtained through batch processing and outsourcing practices allow TOMAK Precision to achieve profit margin goals and reduce costs to its customers.
TOMAK Precision has developed sound Outsourcing Strategies for heat treat, plating, and magnetic particle inspection in a batch processing environment that meets profit margin goals and delivers parts at reduced costs to its customers.
Approximately 75% of all parts produced by TOMAK Precision are routed to an external source at some point during the manufacturing cycle to perform required heat treating, plating, or specialized testing, and are then returned to TOMAK Precision for final processing and shipping. TOMAK Precision’s business strategy to establish long-term (three- to five-year) contracts with its customers allows the company to benefit from the economies of batch processing, and pass these benefits of reduced costs onto its customers. Batch processing allows TOMAK Precision to lower its internal cost and reduce set-up costs per piece. Most customers willingly accepted and absorbed the higher costs associated with short-term contracts. Times have changed, and reducing cost is a primary driver for staying competitive in the marketplace.
As a result, TOMAK Precision carefully analyzed its outsourcing practice to take full advantage of lot sizes versus costs. For example, heat treating one part would cost the same as heat treating 2,600 parts, if the external source charged $600 for a minimum lot size weighing a given amount. Making wrong choices on quantities routed to external sources can have a dramatic impact on achieving profit margin goals. TOMAK Precision established its own internal discipline of acquiring and reviewing the latest data from external sources on cost and lot sizes, as well as reviewing duplicate sources to get the most competitive pricing. The benefits obtained through batch processing and outsourcing practices allow TOMAK Precision to achieve profit margin goals and reduce costs to its customers.
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