Insourcing/outsourcing:the Flexcon Piston Decision

Insourcing/Outsourcing:

The FlexCon Piston Decision

MMT-235-W01 International Purchasing

John D'Aoust

April 1 2012

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BACKGROUND

FlexCon is a $3 billion maker of small industrial engines that has been manufacturing high quality pistons for fifty years. As demand for a broader line of products has increased over the years, FlexCon has responded by broadening the product line and currently produces three different kinds of pistons. These pistons are produced in three separate work cells (one for each piston type) and a total of twelve employees and eighteen machines have been allocated evenly between each of the three cells. Currently the company is producing pistons in-house that are considered to be simple, commodity type pistons and that provide no product differentiation in the market place. The critical components and subassemblies that make a major difference in the performance and cost of the finished product are currently outsourced to external suppliers.

PROBLEM

FlexCon has become increasingly dependent on external suppliers for critical components and has insourced parts that are relatively easy to manufacture in order to maintain existing jobs. The company is making an effort to redefine itself by gaining a better understanding of strategic insourcing/outsourcing alternatives. This effort includes focusing not only on cost factors, but also the true sense of what the core competences of the organization are, and whether the product/service under consideration is an integral part of the core competences. Therefore, the company has elected to conduct an internal review in order to decide where product development efforts and strategic investment should focus. During the internal review of the company, Executive Management noted that too much capacity and talent are being allocated to simple, commodity type items, which are providing minimal product differentiation in the market place. They generally felt that complex or challenging parts are of importance to FlexCon's customer base, but recognized that such components are being outsourced to external suppliers and that FlexCon has become increasingly dependent on such suppliers for critical components. A cross-functional team was established by FlexCon, consisting of a process engineer, cost analyst, quality engineer, procurement specialist, production supervisor, and machine cell employee, to study the problem and recommend solutions to insource or outsource the piston production.

QUANTITATIVE