Flexcon Pistons

FlexCon, a $3 billion maker of small industrial engines, is undergoing a major internal review to decide where the company should focus its future product development efforts and strategic investment. Executive management is arguing that too much capacity and talent are being committed to producing simple, commodity-type items that provide small differentiation within the marketplace. FlexCon concluded that in its attempts to preserve jobs, it has insourced parts that are easy to manufacture, while outsourcing those that are complex or challenging. Producing commodity-like components with mature technologies is adding little to what FlexCon's customers consider important. The company has become increasingly dependent on suppliers for critical components and subassemblies that make a major difference in the performance and cost of end products.

Part of FlexCon's effort at redefining itself involves creating an understanding of insourcing/outsourcing among managers and employees. The company has sponsored workshops and presentations to convey executive management's vision and goals, plus educate those who are directly involved in making detailed insourcing/outsourcing recommendations.

One presentation given by an expert in strategic sourcing focused on the changes in the marketplace that are encouraging outsourcing. The expert noted six key trends and changes that influence insourcing/outsourcing decisions:

 The pressure to reduce costs is severe and will continue to increase. Cost reduction pressures are forcing organizations to use their productive resources more efficiently. A recent study found that over 70% of firms surveyed expect no change or a decrease in purchased material costs through 2000. As a result, executive management will increasingly rely on insourcing/outsourcing decisions to provide a way to effectively manage costs.

 Firms are continuing to become more highly specialized in product and process technology. Increased specialization implies focused investment in a process or technology, which contributes to greater cost differentials between firms.

 Firms will increasingly focus more on what they excel at while outsourcing areas of non-expertise. Some organizations are formally defining their core competencies to help guide the insourcing/outsourcing effort. This has affected decisions concerning what businesses a firm should engage.

 The need for responsiveness in the marketplace is increasingly affecting insourcing/outsourcing decisions. Shorter cycle times, for example, encourage greater outsourcing with less vertical integration. The time to develop a production capability or capacity may exceed the window available to enter a new market.

 Wall Street recognizes and rewards firms with higher ROI/ROA. Since insourcing usually requires