It’s an age-old question for original equipment manufacturers (OEMs) – are the cost savings from offshore outsourcing worth the potential supply chain risk? Lower cost regions and countries can seem appealing from a profit margin standpoint. But in our experience, the longer the supply chain, the more the total cost of production can increase, and the higher the risk for something to go wrong that cannot be easily handled from far away.
For example, with distance comes the need for extra inventory to cover product in transit or consolidate shipping. Once the inventory arrives it needs to be stored. And any production delay due to quality issues amplifies pressure on the OEM due to the extra length or number of steps needed to get parts to their destination.
Stainless Foundry & Engineering (SF&E) has worked with many manufacturers domestically who have struggled with an overseas partner. Our technical expertise and proximity to our OEM customers have helped us take over failing projects, successfully produce parts, and get quality products into their hands. The following are two stories of common risk scenarios we have helped our customers overcome. In the end, we were able to save the customers money, even with a higher cost per part.
Client Risk Scenario 1: Failing Inspection
An OEM with extremely stringent design requirements outsourced part production overseas, however production became stalled when the parts were unable to pass radiographic testing (RT) and liquid penetrate testing (PT). Given the high specification, the unique shape, and the distance between the OEM and the part producer, it was difficult to solve the issue. In addition, the OEM specifications, drawings, and procedures were copied and slightly modified by the overseas foundry without a full understanding of the impact they had on the alloy being used.
When SF&E began working with the OEM to attempt to solve the issue domestically, our engineers did not have the option to redesign the actual part. Knowing that the specifications and the design parameters needed to be maintained, after three rounds we were able to find a way to change the setup, feeding and casting to get the material to flow properly and pass inspection.
First, we identified a thin wall section in-between thicker sections. This was likely causing the RT failure since it would be difficult to properly feed the area to achieve solidification. We used the customer’s recommended setup and were able to pass RT inspection. We failed a visual inspection and fluorescent PT inspection, mainly on lettering of the part. In addition, we had more grinding, welding, and scrap than we would have liked for this part.
In the second sample, we modified the gating and rigging based on the results of the first sample. Once again we passed RT and failed visual and fluorescent PT inspection, however did see improved results in the lettering.
In the third sample, we built a core box for the lettering, modified the rigging location and size, and added a filter to reduce oxides in the casting. This time, we passed RT inspection, we passed visual inspection, and we passed fluorescent PT inspection with minimal rework. We significantly improved the lettering to meet customer specifications. And, we brought grinding, welding, and scrap to the level we planned for on this part, making this part as cost effective as possible to our customer.
When the customer approached us about a second product, we followed what we learned in solving the first challenge and were able to produce excellent quality castings on the first attempt.
Client Risk Scenario 2: Inconsistent Quality
An OEM was successfully producing a part in the U.S., but decided to outsource to another country as a cost-saving strategy. About a year into overseas production, the OEM observed inconsistent quality, which was causing delays on the supply side. The defects were identified after they arrived at the facility, causing the OEM to sort through hundreds of parts. Communication breakdowns prevented the OEM from solving the issue with the overseas producer. Coupled with the investment the OEM was making in large order volumes, the inconsistency forced the OEM to search for a domestic alternative.
The first thing the SF&E team did when working with the customer was to go onsite to their facility and walk through the production process manually. We observed the setup, machining, and final assembly. In doing so, our team identified something unusual. The main points for machining, which ultimately set up the critical assembly features, were not in the typical location because the part was inserted upside down.
SF&E developed and engineered custom gauges that would check the casting in different configurations to make sure the prime location points were always in place and consistent. As a best practice we have one set of gauges at SF&E and the customer keeps one set so we are using the same inspection tools. Production with consistent quality has been running smoothly ever since.
The longer the supply chain, the larger the risk for disruptions. The cost of disruption and the subsequent correction needed is often higher than the intended savings on price per part. With a shorter supply chain and a team of experienced partners, OEMs are able to communicate with their foundry quickly and face-to-face if needed.
SF&E is always a quick drive or airplane ride away from our customers, providing us the ability to respond, react, and solve issues in a short amount of time. With a shorter supply chain, customers have the ability to keep less inventory and ramp up batches when needed. For the two SF&E customers above, in the end the shorter supply chain was able to meet their cost-effective goals without sacrificing quality.