Strategic Sourcing: A Progressive Approach to the Make-or-Buy Decision

Author(s): James A. Welch and P. Ranganath Nayak

Source: The Executive , Feb., 1992, Vol. 6, No. 1 (Feb., 1992), pp. 23-31
Published by: Academy of Management

Stable URL: https://www.jstor.org/stable/4165048

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0 Academy of Management Executive, 1992 Vol. 6 No. I

...........................................................................................................................................................................

Strategic sourcing: a
progressive approach to the
make-or-buy decision
James A. Welch, Arthur D. Little, Inc.
P. Ranganath Nayak, Arthur D. Little, Inc.

Executive Overview Historically, many firms have made sourcing decisions-commonly known as
make-or-buy decisions-based disproportionately on unit cost, with insufficient
regard for strategic or technological issues. This cost-focused approach has led
to competitive tragedy for many firms, indeed, entire industries. Managers need
better tools for evaluating sourcing decisions-tools that can accommodate the
long-term, strategic issues. This article presents such a tool, the strategic
sourcing model, which augments the traditional cost analysis by considering
strategic and technological factors. Using this framework, in conjunction with a
cost analysis, can help companies make the sourcing decisions that will move
them into the leagues of world-class manufacturing and position them for
sustained competitive success in the future.

Article The decision to make or buy is arguably the most fundamental component of
manufacturing strategy. Should a firm be highly vertically integrated, such as
Henry Ford's River Rouge plant, with raw iron ore and coal flowing in one end
and finished model A's rolling out the other?' Or should it assign the manufacture
of components to capable suppliers and then perform an assembly role-in what
is termed by some a "hollow" or "screwdriver" plant-combining inputs from
many suppliers to produce a finished product?

While human Henry Ford's model of vertical integration slipped from vogue in the 1950s and
resources are key to 1960s, when industry increasingly began to use outsourcing. Firms found that
any firm, the outsourcing had certain advantages, potentially allowing them to:
emphasis placed on
the labor category of * Convert fixed costs to variable costs, thereby providing flexibility in an economic
the cost sheet is often downturn
disproportionate. * Balance work force requirements
* Reduce capital investment requirements
* Reduce costs via suppliers' economies of scale and lower wage structures
* Accelerate new product development2
* Gain access to invention and innovation from suppliers
* Focus resources on high value-added activities

The Importance of Make-or-Buy Decisions

Averaged across all U.S. manufacturing establishments, the costs of purchased
inputs amount to about fifty-three percent of sales revenues, while labor costs
amount to only ten percent.3 Despite this, many manufacturers are obsessed with
labor issues, allocate overhead based on labor content, and justify capital
improvements based primarily on labor savings alone. While human resources
are key to any firm, the emphasis placed on the labor category of the cost sheet is
often disproportionate.

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Academy of Management Executive

While unionized manufacturers have decidedly less flexibility for outsourcing,

these companies may often overlook make-or-buy opportunities. Further,
unionized manufacturing workers are a relative minority, comprising only about
one-quarter of all plant laborers.4

Since purchased inputs are such a large portion of total product cost, the attention
that make-or-buy decisions deserve cannot be overstated. In fact, the gains to be
made by addressing purchasing issues are far greater than those that accrue by
attacking labor costs directly.

Beyond static cost issues, however, there are longer-term, strategic considerations
intertwined with the make-or-buy decision that are of even greater importance.
These strategic issues are the focus of this article. Here, we explain why and how
the following strategic variables should be considered in the course of a
make-or-buy decision:

* Process technology and its relationship to competitive advantage

* Maturity of process technology
* Competitors' process technology positions

Contemporary Challenges
In previous decades, outsourcing became big business and purchasing
departments expanded to tremendous proportions to manage the many vendors
supplying components, subassemblies, and services. As recently as 1989, General
Motors reported more than 8,000 suppliers for direct material alone.5 In the past,
manufacturers often elected to buy inputs, rather than make them, typically based
on myopic cost analyses. Rather than automating difficult or complex
labor-intensive processes, manufacturers bought from low-labor-wage sources
around the globe, at rates that were less than twenty-five percent of the U.S.
average. Today, the labor-cost advantage held by these suppliers is diminishing
(Exhibit 1).

.............................................................................................................................................................................

Just as Japan's labor-cost advantage has disappeared for U.S. manufacturers, the
labor-cost advantage of other countries is shrinking as their industrial bases and
economies develop. Furthermore, many suppliers that are located abroad, chosen
in prior decades because of their low labor costs, have grown to become feared
competitors.

The list of industries affected by this phenomenon is well known. Some of the most
notable include: consumer electronics, machine tools, semiconductors, and office
equipment.

Pressured by short decision cycles, many manufacturers lost sight of the long-term
risk associated with outsourcing key inputs. They did not anticipate that
low-labor-cost suppliers could learn the critical skills necessary to become
competitive threats. These suppliers subsequently leveraged their relationships
with their customers to become highly competent at manufacturing, assembly,
engineering, and design. Today, many have also mastered Reseatrch and
Development (R&D). Ironically, the processes that were once thought too difficult
or costly to automate have now been automated by the very suppliers who were
chosen in favor of automation.7 These aggressive suppliers have successfully
integrated forward, becoming world-class competitors that continue to gain market
share from the companies they once served.

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Welch and Nayak

Relative manufacturing wage rates

Japan l

Taiwan

Singapore

South Korea

Hong Kong

Mexico

Brazil

India 1974 1988

0 20 40 60 80 100 120 140

Percent of U.S. dollars per hour

* Wages include supplemental benefits.

* Sources:6
-The World Competitiveness Report 1990, table 2.04
-Yearbook of Labor Statistics 1978, table 1 7A
-International Financial Statistics Yearbook 1982, passim
-The Wall Street Journal, June 28, 1974, p. 34

Exhibit 1. Wage Rate Gap Has Narrowed for Manufacturing Abroad

Consumer radios provide an example of an unfortunate sourcing decision. In the

late 1940s, U.S. manufacturers sought to cut costs by assembling radios in Japan
and elsewhere. Trans-Pacific technology migration increased steadily as U.S.
firms, hoping to reduce their costs even further, encouraged Japanese and other
manufacturers to develop capabilities to manufacture parts. Once the Japanese
internalized these capabilities, they began to develop and sell parts and later
complete receivers in the United States. They started with transistor radios,
which U.S. producers were slow to pursue because they had lower margins and
higher risks than vacuum-tube sets. Not only were the Japanese successful at
vertically integrating forward to compete with former customers, they actually
created a completely new market segment.8

These consumer product manufacturers must not have been astute history
students. If they were, they would have heeded yet another lesson from Henry
Ford, who experienced at least one supplier turning the tables on him. The Dodge
brothers, founders of what is now a division of the Chrysler Corporation, made
their debut in the auto industry as suppliers of gasoline engines to Ford. By 1914,
they had vertically integrated forward to produce entire automobiles and were
competing directly with Ford.9

These sagas and many others illustrate the danger in applying the classical
cost-oriented make-or-buy decision process; i.e., basing sourcing decisions
primarily on cost, with insufficient regard for strategic imperatives, including
evaluating a supplier's or licensee's potential to become a competitor.

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Academy of Management Executive

In contrast, an inspiring sourcing story comes from Lifeline Systems, Inc., a

Watertown, Massachusetts firm that manufactures emergency-response
communications equipment. By early 1991, after achieving tremendous success
with internal productivity improvements, Lifeline was able to repatriate all its
offshore manufacturing. ?

The Strategic Sourcing Model

What is the correct structure of the make-or-buy decision? The cost accounting
component provides one dimension of the answer. However, even this relatively
straightforward analysis can be mishandled. A true cost analysis includes a
rigorous examination of the assumptions that govern overhead costs. Questions
management must be able to answer include: How are overhead costs
determined? Is allocation used? What effect will outsourcing a product currently
made in-house have on the cost structure of remaining products? Conversely,
what effect will manufacturing a purchased product-in-house have on the cost
structure of this and other products made in-house?

When evaluating a sourcing decision, however, managers must consider more

than just manufacturing costs; in fact, all the factors involved in developing and
introducing products must be considered. These include design, R&D, engineering,
manufacturing, and assembly. The sourcing decision should also consider the
technology positions of competitors and potential competitors.

A conceptual framework known as the Strategic Sourcing Model (SSM) has been
developed to help managers account for these strategic and technological factors.
By examining various dimensions of the process technologies involved in the
sourcing decision, a firm can avoid the pitfalls of the classical make-or-buy
exercise where cost alone is used as a decision variable. To achieve this end, the
SSM examines:

* Process technology's role in providing competitive advantage

* Maturity of the process technologies under consideration
* Competitors' process technology positions

Process Technology's Role in Competitive Advantage

When sourcing decisions are examined, managers must ask themselves whether it
will be detrimental to their firm's competitive position to outsource R&D, design,
engineering, manufacturing, or assembly, both in the short term and in the long
term. Managers must determine the importance of process technology in attaining
and/or sustaining competitive advantage. Examples of process technologies that
have a high degree of importance in providing competitive advantage include:
near-net shape casting and forging in the automotive industry, assembly of
surface-mount devices for circuit boards in the computer industry, and diffusion
bonding in the orthopedic implant industry. Examples that typically rank low
today include: conventional green-sand casting of cast iron for automotive power
trains, conventional soldering of copper-brass radiators, and Dual In-line Package
(DIP) assembly used in circuit boards for the computer industry. Managers must
also consider a forecast of those technologies that have the potential to provide
significant competitive advantage in the future. Examples of these include: the
lost-foam casting process for making magnesium engine blocks for automobiles,
Tape Automated Bonding (TAB) for circuit board assembly in the computer
industry, and processing of composites for orthopedic implants (Exhibit 2).

While the examples offered here fall largely within the manufacturing arena, the
concept of "process technology" is truly broader in scope, applying to processes
like product development and supply chain management. Since these processes
can be done internally or "bought" and since they can provide competitive
advantage, they can also be considered within the framework presented here.

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Welch and Nayak

Industry/segment Low today (base technology) High today (key technology) High in the future (pacing technology)

Automobile power trains Product design isolated from Stand-alone software for Design for DFM and DFA software integrated with
manufacturing requirements Manufacturability (DFM) and Design for CAD/CAM systems
Assembly (DFA)

Automobile radiators Soldering of copper-brass Vacuum/NOCOLOK brazing of aluminum Advanced brazing techniques

Automobile bodies Spot welding of unitized steel Processing of unitized steel/aluminum hybrid Processing of all-composite space-frames

Automobile engine blocks Green-sand casting Near-net shape casting/forming Lost-foam casting of magnesium

Computers (circuit boards) Dual In-line Package (DIP) assembly Assembly of surface-mount components Tape Automated Bonding
Industrial controls Numerical Control (NC) Programmable Logic Control (PLC) Adaptive control

Orthopedic implants Investment casting Diffusion bonding Processing of composite materials

Exhibit 2. Significance of Process Technologies for Competitive Advantage-Industry Examples

Once the significance of the process technology for attaining and/or sustaining
competitive advantage is determined as low today, high today, or potentially high
in the future, the major abscissa range is known for positioning within the SSM
(Exhibit 3).

Maturity of the Process Technologies under Consideration

To determine the corresponding ordinate range for positioning within the SSM,
managers must evaluate the maturity of the process technology under
consideration-not just in their own industry, but across all industries. For
example, while composites are still emerging or embryonic in the orthopedic
implant industry, they are widely used in the aerospace and sporting goods
sectors. If the process technology is undeveloped or unavailable in your own
industry, other industries should be scanned to determine the relative maturity of
the process technology in a global sense. Do not invest in R&D to reinvent the
proverbial wheel.

Competitors' Process Technology Positions

Managers considering outsourcing must rigorously evaluate their firm's technology
position vis-a-vis that of the competition. This analysis involves a structured

Minor abscissa -
Your process technology relative to competitors

Weak Tenable Superior Weak Tenable Superior Weak Tenable Superior

Emnerging/ vX _ _
emnbryonic

Growth Buy
0

E ~~~~~Low today High today High In the future

Significance of proces technology for compettive advantage

Maior abscissa ->

Exhibit 3. Strategic Sourcing Model|

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Academy of Management Executive
If the process
technology is
undeveloped or
unavailable in your
own industry, other
industries should be
scanned to determine
the relative maturity
of the process
technology in a
global sense.
In the context of a key
sourcing decision,
knowing your
competitors'
technology positions is
as important as
knowing their market
shares.
28
benchmarking approach similar to that described by Camp or Scharlacken and
Greene. 1 ' This procedure will differ by industry, as can the metrics used to rank
your firm versus the competition. Probably the most widely used metric for this
analysis is "cost per unit." Other underlying metrics include: unit output per
worker-hour, unit output per machine-hour, defects in parts per million, or
material usage per unit. Even knowing the number of process engineers per
product line is useful when comparing your position to that of your competitors.
Once you have determined your firm's relative technology position, the minor
abscissa coordinate is known for positioning within the SSM. In the context of a
key sourcing decision, knowing your competitors' technology positions is as
important as knowing their market shares.
Sourcing Decisions Involving Proprietary Technology
While the potential exists to lose your technological edge through outsourcing key
processes, it can also be lost through licensing arrangements, joint ventures, or
reverse-engineering. The ramifications of exposing and ultimately compromising
important technology should be weighed heavily in the outsourcing decision. It is
unwise to assume that a less developed subcontractor is incapable of learning
and innovating.
The "Cost of Quality" in a Sourcing Decision
Quality is extremely important in the sourcing decision. Leading manufacturers
have become skilled at quantifying quality and its associated costs. This
framework, the "cost of quality," provides a meaningful way to consider quality in
the sourcing decision. 12 Poor quality will cost more, whether it is manifested as
scrap, rework, customer returns, recalls, warranty costs, complaints, or general
customer dissatisfaction leading to foregone business and share. These factors can
be quantified and accounted for in the sourcing decision. To determine a potential
supplier's quality performance, a priori, progressive manufacturers evaluate the
supplier's processes, not just prototypes or sample parts. Quality should be
quantified and incorporated into the make-or-buy decision as costs or cost
avoidances. If a supplier's quality performance results in a cost difference vis-d-vis
in-house manufacture, then this cost difference must be considered in the
make-or-buy decision. A premium price from a supplier can be justified if there is
commensurate reduction in the categories of scrap, rework, returns, recalls, or
warranty costs.
Sourcing Decision Frequency
The recommended frequency of the make-or-buy decision will differ by industry,
technology, and specific input, as well as varying with economic cycles. In
extremely dynamic industries, such as semiconductors, decisions will require more
frequent reassessments. Conversely, the analysis by a punch press manufacturer
as to whether to make or buy crankshafts a strategic but mature input-will
have a much longer decision cycle.
Making the Final Decision
After following the model's guidelines and locating the applicable cell in the
matrix, the tentative sourcing decision will be one of the following: make,
marginal make, develop internal capability, buy, marginal buy, or develop
suppliers.
Make and marginal make: For technologies that provide significant competitive
advantage but are not mature-and therefore not readily available-the
preferred decision is to internalize the technology and develop it, thus preventing
the competition from benefiting from it as well. These "make" technologies will
embody the core competencies of the firm. Honda's core products, for example,
are internal combustion engines and power trains. Honda does not outsource
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Welch and Nayak

these critical items because the ability to design and build them is the very heart
of its competitive advantage. 13

However, if the firm is technologically weak in the area under consideration, the
decision to internalize is only marginal. As a result, the firm must choose between
investing to develop its own capability and outsourcing the technology. Ultimately,
all marginal decisions should be examined collectively, thereby allowing priorities
to be set. Riskier investments should be few and focused to avoid exposure and to
facilitate clear evaluation of their effectiveness.

A premium price from Develop internal capability: Technologies that promise future advantage but are
a supplier can be still emerging or embryonic-and therefore not available elsewhere-should be
justified if there is nurtured through emphasis on R&D. Well-established conceptual frameworks and
commensurate specific techniques exist which ensure that a firm has a strategically balanced
portfolio of R&D work. This approach embodies a structured process for R&D
reduction in the
analysis and planning, empowering a company to: set project goals and priorities,
categories of scrap,
allocate resources among R&D efforts, measure results, and evaluate progress. 14
rework, returns,
recalls, or warranty
Buy: In cases where competitive advantage provided by a technology is low
costs.
today, outsourcing is indeed a prudent decision. Used judiciously, outsourcing
allows a firm to leverage its own capabilities by focusing resources on high
value-added activities. For example, scarce management talent and time should
not be wasted on activities that do not add unique value. In addition, outsourcing
provides the potential to reap economies of scale through specialized suppliers. In
cases where the input has historically been made internally, but is now evaluated
as a candidate for outsourcing, the value of further investments in the associated
technology should be critically examined and weighed vis-d-vis outsourcing.

Marginal buy: Mature technologies that provide significant competitive advantage

are typically those that have been developed in other industries. An example of
this is fermentation technology, which was developed in the brewing industry and
later applied to biotechnology. If licensing is economically feasible and the firm
has demonstrated the ability to integrate and assimilate externally developed
technologies, then the technology should be purchased. Otherwise, outsourcing is
again a prudent decision, although this will typically involve developing a
supplier that is currently participating in another industry.

Used judiciously, Develop suppliers: Mature technologies that will become important in the future
outsourcing allows a should be considered as candidates for outsourcing, with the added objective of
firm to leverage its developing suppliers. Even if the firm has already developed internal capabilities,
own capabilities by there will inevitably be suppliers-in other industries where the technology has
become mature-who have further traversed the experience curve. Therefore,
focusing resources on
competitors will soon gain access to the technology, and the time window of
high value-added
advantage will be relatively narrow. This decision holds even if the technology is
activities.
in a growth stage in other industries and your firm's competence in the given
technology is weak. The investment required to gain parity can be better applied
elsewhere.

A Progressive Sourcing Decision

An example of an enlightened-although difficult-outsourcing decision is one
made by Ford Motor Company many years after the Henry Ford era. Ford owns
twenty-five percent of Mazda and has had a long relationship of product
co-development with them, including the 1988 Probe and Festiva models. As part
of its more recent CT 20 project, Ford outsourced product development to Mazda
and then relied upon this company for valuable manufacturing help. Even with its
equity position in Mazda, Ford's outsourcing was subject to certain key conditions:

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Academy of Management Executive

Products
Efforts were limited to subcompact and compact cars only, recognized as the
Japanese firm's strong suit, but admittedly not Ford's. In the CT 20 project, the
platforms for the Ford Escort and Mercury Tracer were developed by Mazda in
Hiroshima, Japan, using the same platforms as the Mazda 323 and Protege.

Involvement and Learning

Ford engineering and management staff were on-site in Hiroshima and were
actively involved in the new product development for CT 20, facilitating
organizational learning.

Technology Transfer
Ford builds the Escort and Tracer models in two different plants: Hermosillo,
Mexico, and Wayne, Michigan. The Hermosillo plant is an exact copy of Mazda's
plant in Hofu, Japan, where the 323 and Protege models are made. Mazda was
heavily involved in establishing this plant, adapting Japanese philosophies and
practices to local political, cultural, linguistic, and geographical conditions, thus
obviating the excuse that "it can't work here." Even with lower wage rates and
higher labor turnover than any U.S. plant, Hermosillo generates the highest
quality of any Ford assembly plant in North America. Subsequently, the Wayne
operations have been modified to capitalize on the Hermosillo plant's experience.

Conclusion
The sourcing dilemma-to buy or not to buy-is of central importance. While cost
is always important in any business decision, managers should consider strategic
and technological issues in conjunction with the decision. Companies that
continue to make sourcing decisions based solely on cost will eventually wither
and die, as many already have. Conversely, thoughtful use of the strategic
sourcing model, in conjunction with a rigorous cost analysis, can help companies
make the sourcing decisions that will move them toward world-class stature.

Endnotes The authors would like to thank their clients
and their colleagues at Arthur D. Little, Inc. for
helpful comments and suggestions. The authors
would also like to thank Professor Joseph
Blackburn and Professor Germain Boer of
Vanderbilt University's Owen Graduate School
of Management.
' In its heyday, vertical integration
associated with the River Rouge facility
included: iron ore and coal mines, a dedicated
railroad, 20 diesel locomotives, two 600-foot
ore-carrying ships, three blast furnaces, one
basic oxygen furnace, foundry, engine plant,
tool and die plant, stamping plant, glass plant,
assembly plant, and power-generation
capability. Ford Motor Company Public
Relations, The Rouge. Dearborn, MI: November,
1977.
2 A study of product development in the auto
industry found that "supplier involvement
accounts for about one-third of the advantage
in labor hours and four to five months of the
lead time advantage" that Japanese firms hold
over their U.S. competitors in the race to
introduce new products and that "much of the
difference we observe has to do with the
engineering capabilities in the supplier
network, and the ability of the [Japanese] auto
firms to both nurture and capitalize on that
capability." Kim B. Clark, "Project Scope and
Project Performance: The Effect of Parts
Strategy and Supplier Involvement on Product
Development," Management Science, volume
35, number 10, October 1989, 1247-1263.
3Purchased inputs include both goods and
services. Labor costs are the wages paid to
production workers. U.S. Department of
Commerce, Bureau of the Census, Census of
Manufactures 1987 and Annual Survey of
Manufactures. Washington, DC, 1986, 1988.
4 Grant Thornton, Grant Thornton
Manufacturing Climates Study (9th edition).
(Chicago, IL: Prentice Hall, July 1988), 168, 170
(prepared by Leo Troy).
5 This figure is a count of GM's direct
material suppliers for its North American
manufacturing plants. It does not include
suppliers of spare parts and MRO items. This
information was obtained through private
correspondence with Lorrie Janis, Coordinator
of Supplier Assessment and Development;
General Motors Purchasing Activities, Supplier
Development & Systems; Detroit, MI; October 5,
1989.
6 Data for Exhibit 1 were adapted from the
following sources: IMD International (Lausanne,
Switzerland) and The World Economic Forum
(Geneva, Switzerland), The World
Competitiveness Report 1990, Geneva,
Switzerland: 10th Edition, 1990, table 2.04;
International Labor Organization, Yearbook of
Labor Statistics 1978. Geneva, Switzerland,

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Welch and Nayak

1978. table 17A; Intemational Monetary Fund,
International Financial Statistics Yearbook 1982.
Washington. D.C., 1982, passim; and "Foreign
Exchange," The Wall Street Journal, June 28,
1974, 34.
7 Product designs can be enhanced through
concurrent engineering and use of techniques
such as Design for Assembly (DFA) and Design
for Manufacture (DFM). While previous product
designs may have made automation infeasible,
the manufacturing processes for these
re-designed products can be easily automated.
8 Michael Dertouzos, Richard Lester. Robert
Solow, and the MIT Commission on Industrial
Productivity, Made in America: Regaining the
Productive Edge (Cambridge, MA: The MIT
Press, 1989). 222.
9 This information was obtained through
private correspondence with Brandt
Rosenbusch, Corporate Archivist, Chrysler
Historical Foundation; Highland Park, MI;
September 13, 1991. The story is also
documented by: Ford Whitman Harris and
Harry Franklin Porter, "Deciding Whether to
Buy or Make" from The Library of Factory
Management, Volume III: Materials and
Supplies, (Chicago. IL: A.W. Shaw Company,
1915), 49-50.
" This example was taken from: "A Small
High-Tech Company Makes a Huge Leap in
Quality." Business Week, May 20, 1991, 128.
" Benchmarking is treated thoroughly by:
Robert C. Camp, Benchmarking: The Search for
Industry Best Practices that Lead to Superior
Performance (Milwaukee, WI: ASQC Quality
Press, 1989). Also refer to: John Scharlacken and
Alice Greene of Arthur D. Little, Inc.,
Competitive Benchmarking: A Tool for Helping
Companies Become World Class (Cambridge,
MA: Arthur D. Little, Inc.), Manufacturing Notes,
Volume 3, No. 2, 1991.
12 The cost of quality is treated
philosophically and conceptually by Philip
Crosby, Quality is Free (New York, NY:
McGraw-Hill, 1979), 15, 115. For rigorous
examples of cost of quality analyses, see
Joseph Juran, Juran's Quality Control Handbook
(4th edition) (New York, NY: McGraw-Hill, 1988),
4.1-4.30.
13 The concept of core competencies is
explained by: C.K. Prahalad and Gary Hamel,
"The Core Competence of the Corporation,"
Harvard Business Review, May-June 1990, 79-91.
14 Please refer to: Philip Roussel, Kamal
Saad, and Tamara Erickson of Arthur D. Little,
Inc., Third Generation R&D: Managing the Link
to Corporate Strategy (Boston, MA: Harvard
Business School Press, 1991).

About the Authors James A. Welch is a senior consultant for Arthur D. Little, Inc., where he
specializes in manufacturing strategy with an emphasis on supplier
management, manufacturing planning and control, facilities planning, and
Just-In-Time manufacturing. Mr. Welch earned his M.B.A. from Vanderbilt
University's Owen Graduate School of Management and his B.S. in mechanical
engineering from The University of Michigan. Mr. Welch is certified in
production and inventory management (CPIM) by the American Production and
Inventory Control Society (APICS). Mr. Welch serves on the Alumni Board of
Directors for the Owen Graduate School of Management at Vanderbilt
University.

P. Ranganath Nayak is a senior vice president at Arthur D. Little, Inc.,

where he is responsible for the company's worldwide operations management
consulting practice. Dr. Nayak is co-author of the book Breakthroughs! (Rawson
Associates, New York, 1986), and is currently writing a book on product creation
and productivity improvement. Dr. Nayak received his Ph.D. in mechanical
engineering from the Massachusetts Institute of Technology.

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