Insourcing/Outsoucing—the Flexcon Piston Decision

Insourcing/Outsoucing—The FlexCon Piston Decision

This case addresses many issues that affect insourcing/outsourcing decisions. A complex and important topic facing businesses today is whether to produce a component, assembly, or service internally (insourcing), or whether to purchase that same component, assembly, or service from an external supplier (outsourcing).

Because of the important relationship between insourcing/outsourcing and competitiveness, organizations must consider many variables when considering an insourcing/outsourcing decision. This may include a detailed examination of a firm’s competency and costs, along with quality, delivery, technology, responsiveness, and continuous improvement requirements. Because of the critical nature of many insourcing/outsourcing decisions, cross-functional teams often assume responsibility for managing the decision-making process. A single functional group usually does not have the data, insight, or knowledge required to make effective strategic insourcing/outsourcing decisions.

FLEX-CON'S INSOURCING/OUTSOURCING OF PISTONS

FlexCon, a $3 billion maker of small industrial engines, is undergoing a major internal review to decide where the company should focus its 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 finished products.

Part of FlexCon's effort...