Riding the outsourcing tide

Contract manufacturing is as much about IT as it is about business model

Contract manufacturing -- that is, owning the brand but outsourcing the manufacturing -- started as a trickle in the 1980s and is now reaching flood proportions. But hold on to your life raft, because the tide is about to get even higher.

Paula Rosenblum, director of retail research at Aberdeen Group, issued a study this summer called "The Retail Brand Management Sourcing Benchmark Study." In it, she recommends the following, "For long lifecycle product, an all-China-all-the time policy may in fact be the safest and least expensive route to sourcing success."


Currently, quotas limit the number of finished products a particular foreign county can export to the United States. Come Jan. 1, 2005, those quotas end for all World Trade Organization members. Without quotas, brand-name apparel companies will be free to outsource manufacturing to an even greater extent. 

And yet the Aberdeen study, which looked at 115 retail and consumer product enterprises, found that most are still living in the Stone Age. Fax and e-mail "remain the predominant technologies used for sourcing [at 58 percent], and forecasting through spreadsheets [at 47 percent] rate a close second."

Wilsons Leather, a $500 million apparel company with its own retail outlets, is an example of a manufacturer that cut its factories loose years ago. You might say it is now a marketing company.

I spoke with Wilsons CIO Jeff Orton and Director of Business Applications Scott Christian to see how they handled the change.

They tell me that shedding the company's factories was a business decision, but one that technology made happen.

"The business model led and we looked at the best technology to complement that," Christian says.

To me, that might be one of the big understatements of all time.

Technology that can react more quickly to changes in the market or production problems is such an important competitive advantage that it becomes woven into the fabric of business decisions. A casual observer would be hard-pressed to distinguish between the business model and the technology model a year after the launch.

Managing a process is different than manufacturing a product, Orton says. For example, Wilsons didn't need a material resource planning package because it didn't want to manage the day-to-day events on the factory floor. Rather, to create an extended enterprise, IT became responsible for an integrated solution that manages both old and new partner relationships while giving the executive team visibility into every aspect of production, including pre- and post-production.

Orton says there are two key questions that must be answered in the affirmative before software is selected. First, does the solution give a company enough lead time to be proactive when schedules slip?

"If a batch doesn't get dyed on time, I might have to change the logistics," Orton says.

Second, the company should ask whether or not the solution is a Web-based system for zero deployment.

"The Web freed us up," Christian says. "I can drop technology without having to fly 20 people over there."

Wilsons uses New Generation Computing's e-SPS (Sourcing and Production System) suite for these reasons, plus the fact that it integrates well with other parts of the business such as ERP and product lifecycle management. But e-SPS isn't the only product out there. Interestingly enough, Oracle announced this month an update to its SCM suite that includes major changes to "better compete in the global marketplace."

The outsourcing tide will either raise your company boat or sink it. If your information systems are still using faxes and spreadsheets, you'd best deploy the lifeboats.