FLEXCON PISTON DECISION

FlexCon started 50 years ago and has become a big name in the small industrial engines market. Due to
a broader product line, Flexcon looks to outside manufactures to produce large complicated parts. They
kept a small amount of manufacturing inhouse to produce small easy to manufacture parts. FlexCon is at
a cross roads when it comes to keeping their products outsourced or spend the money to have
everything inhouse. They continue to grow more dependent on suppliers for their critical components
which can make a big difference in performance and cost.

Right now, FlexCon is considering outsourcing all pistons that are part of the “R” series engines. The
parts are currently being manufactured in house by less than 20 employees. FlexCon's engineers agree
that the process to produce the pistons is a mature process. Having employees that are trained in all
areas increase quality by 30% and 20% in productivity. FlexCon is known for top rate products and the
engineers worry about quality if the process gets outsourced. I think that FlexCon should outsource their
“R” series engine products. As the market changes and their customers want new and improved
products, keeping their production in house doesn’t allow room for new product development and
expansion. It also states that the “R” series line has been growing around 16% over the last year.
Although the cost of training and tool a new team would be great, it sets the company up to meet the
demands in the future at the “R” series line grows.

My recommendation is to outsource the “R” series piston manufacturing. This will be a multi-step
process to ensure the ease of transition. We will use different driving factors to ensure a successful
transition. These factors1 are (1) have a defined process for global sourcing, (2) centrally led and
coordinated decision making, (3) site-based control of activities, (4) real time communication (5)
information sharing with suppliers, (6) availability or resources, (7) sourcing and contracting systems, (8)
IPO support. To accomplish these goals, we will have to set up different teams to manage the transition
process. We will need to have our engineers work with the new suppliers to make sure they have all the
tooling and training to produce our pistons. We must make sure we are cutting cost and not the quality
people expect from FlexCon. We will also need to set up a logistics team to manage and inspect
shipments. They will need a way to track and manage POs making sure we get our products on time and
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Purchasing and Supply Chain Management, Monczka, Handfield, Giunipero, Patterson, Chapter 10 Pg. 400
 FLEXCON PISTON DECISION

in the right quantiles. Since we already have some of our products outsourced to other manufactures;
we need to make sure all of our systems work together. This is where having a centrally led
management structure is key. Communication between our ordering departments and our
manufactures are key all departments must work together.

I think one of the main reasons companies choose to outsource is for the cost savings. When you
outsource your manufacturing, you do not have to pay labor costs that consistently go up each year. You
also do not have to invest in new equipment and tools as your products change. Cost saving may be
around 20 to 30 percent2 in some cases. Some companies choose to insource their products to keep
more control over their manufacturing. This keeps quality high but comes with a larger price.

I feel like they should use Quantity Discount Analysis 3. This technique is used to examine incremental
changes in cost between cost and the suppliers quoted price. This helps make sure the money they
budgeted for manufacturing lines up actual cost. They should also run a cost analysis and a total cost
analysis4 . A cost analysis breaks down all the individual costs material, labor, and administrative costs.
Total cost analysis shows how much is spent on shipping, tariffs and poor quality. Together all this data
gives the company an overview on what is being spent and on what.

Whether to insource or outsource is a major decision for a lot of companies. They have to calculate
which direction would be best for their business. Is the cost saving worth the set-up cost of offshore
manufacturing? Does the company have the capabilities to manage such an endeavor? For FlexCon they
have to consider if an outsourced manufacturer can keep the quality that their customers expect. If they
can overcome the hardships of outsourcing start up then I feel it is the right choice for them.

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Purchasing and Supply Chain Management, Monczka, Handfield, Giunipero, Patterson, Chapter 10 Pg. 376

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Purchasing and Supply Chain Management, Monczka, Handfield, Giunipero, Patterson, Chapter 12 Pg. 485

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Purchasing and Supply Chain Management, Monczka, Handfield, Giunipero, Patterson, Chapter 11 Pg. 413