Letters to the Editor

01/01/2000

Dear Advanced Packaging:

The article in your October issue, "True Cost of Outsourcing" by Randie Reed, is written from the perspective of a controller. I have found through my experiences that the "make or buy" decision is a very important one that is often quite complex. This article simplifies the complexity. The true cost of buying outside may be far higher than the production costs, overhead costs and delivery costs. Most companies making a tangible product have to buy some things and make some things. What to make or buy is a top management, marketing, financial and engineering decision.

As a senior process and manufacturing engineer with many years of experience, I have been involved many times in crash programs to engineer and build electronic parts and assemblies that the company formerly bought. In most cases, the reasons why we were forced to build the parts ourselves were very high costs or impossible delivery times. Costs tend to go through the roof when one asks for design, quality or engineering changes to standard delivered parts. Long lead times and late deliveries were the most common reasons to build parts in-house. The crash program would begin only after the problem had bubbled up to the very top; the company CEO or president had tried every other means to speed delivery.

American companies in recent years have had a tendency to hollow themselves out to be mostly sales and marketing organizations. This can be very dangerous, as dependence on outside manufacturing organizations can lead to powerful new competitors or price competition. Look at American auto or computer manufacturers as examples. If you can buy it from an outside source, slap your label on it and sell it, so can someone else.

Sincerely,

Marvin Kraft

San Jose, Calif.