For most of us, the definition of long-range planning is: “Which earth-shattering, mind-numbing, failure-inducing, emergency production problem should we tackle, right after rushing through lunch?” Perhaps some actual long-range speculation would help us avoid such crises. Since 2020 is not so far in the future, we begin a series of articles on what manufacturing, cleaning, surface quality, and contamination control may look like in just a little over six years. We start with outsourcing.
Outsourcing is an emotionally and politically charged issue because, perhaps, the first thing that comes to mind when the word “outsourcing” is mentioned is offshoring. For more than a generation, manufacturers have been moving actual production to locations where labor is less expensive and where worker safety and environmental regulations may be less stringent or not as well enforced as in more developed countries.
Will the trend to offshoring abate? Mike Jones, Vice President of Microcare, New Britain, Conn., asserts that “outsourcing is a shiny brass ring. Lots of companies continue to add plants offshore.” As of mid-July, the trend continues. Indications are that while offshoring is down from its peak—despite heated discussions of reshoring and examples of reshoring—many large companies, including those involved in critical cleaning and manufacturing, are increasing offshore production.1
“People want the low-hanging fruit, even though the low-hanging fruit was picked awhile ago,” says Jean Mozolic, President, The Mozolic Consulting Group, Wrentham, Mass.
Michele Nash-Hoff is author of Can American Manufacturing Be Saved? Why We Should and How We Can, and has decades of experience in the challenges of manufacturing and complex supply chains, including those involved in custom fabrication of metals and plastics. Nash-Hoff comments that, given the increasingly competitive global marketplace, manufacturers continually strive to reduce costs to keep or increase market share. However, she cautions that to make the correct decision for outsourcing, a company needs to understand the concept of total cost of ownership for outsourcing manufacturing. Total cost of ownership is an estimate of the direct and indirect costs and benefits related to the purchase of any part, subassembly, assembly, or product.
Outsourcing is much more than offshoring. Outsourcing might be to locations across the globe or across the street. You can’t do it all under one roof so sometimes it makes sense to outsource. Manufacturing involves so many steps, materials, and specialized processes that in-house expertise and equipment may not be available. Jones explains that “outsourcing may make sense not only in terms of cheaper labor but also to achieve efficient use of capital equipment; it allows companies to tap into expertise they might not have in-house, and be more responsive to market needs. Companies have used outsourcing for legal services, accounting, and advertising for years, so conceptually this is nothing new. What’s changed is we’re not outsourcing functions that (a) used to be part of the manufacturing process, or (b) the labor-intensive portions of the customers’ experience with a company. So data processing or customer service is outsourced to India, and manufacturing is shipped to Batam, Indonesia. I see this as a dangerous step, a mistake, for many companies because of quality issues or core competency issues.”
Greg Heiland, President of Valutek and Executive Director of The Global Society of Contamination Control, explains that “historically, large wafer fabs were vertically integrated, from front end to back end all under one roof. Early on, outsourcing was driven by market pressure. Companies were in survival mode. There was the attitude that ‘if we don’t outsource, we won’t be viable.’ Now, companies are looking at the strategic aspect of outsourcing—outsourcing where it makes sense in terms of core competency.” For example, in semiconductor fabs, “rather than having employees/subcontractors clean sputtering and diffusion chambers in place, they are outsourcing the entire process to contract cleaners who perform this task on a large scale at their remote location.”
Now where there used to be, say, 250 fabs, we have “fabless” companies. These are companies that used to make their own chips. The benefit of outsourcing is that you have companies that provide a specialized function. However, once you have broken up a company into a supply chain, you have introduced a huge layer of complexity. There may be a tradeoff. You may get the lowest cost; but are you really getting consistent quality?
In addition, as we have pointed out, the ball is always in your court. This means that if you outsource cleaning, it is still your responsibility to ensure that the process is conducted to the appropriate specifications. Prior to outsourcing cleaning, we recommended that, in addition to calling out cleanliness standards and required surface characteristics, you also invest the time to understand the critical cleaning processes, the rationale for cleaning, and the cleaning process that your supplier uses.2
Heiland recounts that during recent site visits in Asia, he observed instances where the pressure toward cost containment has led some plants in Asia to reuse not only the same gowns but also the same gloves for up to a week at a time. “Some Asia cleanrooms are having their soiled gloves and polyester wipers washed, for re-use up to three times. There is a limit to reusing disposables, particularly for critical cleaning applications.”
We would point out that while gloves may be resistant to chemicals, extensive reuse of what are supposed to be single use products can also result in breakdown of the glove and permeation by process chemicals. This can lead to contamination of the product and to exposure of the worker to chemicals.
What will happen by 2020? Miniaturization, concern with surface quality, and the required level of cleanliness will only increase over the next six years. Managing critical cleaning, surface quality, contamination control, and application of coatings requires exacting, unambiguous, readily understood written instructions. Adherence to such instructions has to be part of the contract. It also requires a level of on-site inspection and auditing. Jones comments that “if you have to station large numbers of people offshore to watch over the local production personnel, you have negated at least some of the cost benefits.”
Outsourcing has to be finessed. How, when, and where you outsource can make the difference between success and failure. Unanticipated expenses and legalities can negate at least some benefits of outsourcing. Jones notes that people must realize that “outsourcing is a double-edged sword. Properly used, it can be an effective tool. However, especially where you get close to your value-proposition, the day you move offshore is the day you give away your business. Particularly in China, you may end up creating competition that has a negative impact on your margins.”
“If you look at the Western world,” explains Jones, “there are the confluences of the rule of law, the relative transparency in government, an ability to enforce contracts, and expectations of benefits from intellectual property. Companies moving to other areas and attempting to operate in a Western manner can be bitterly surprised.” Jones asserts problems with infrastructure and unexpected expenses can add to costs. In India, there can be duties and fees as you move from state to state. In Malaysia, you pay annual taxes up-front when you open your doors. “Companies may not discover the extra expenses until they are neck deep in it.”
Rules, attitudes, and policies differ among countries. Mozolic contends that there is more I.P. protection in India than in China; and, in contrast with China, the language of industry is English. On the other hand, explains Mozolic, what would be called “payoffs” in the U.S. has traditionally constituted expected business practice in India. This practice is being officially mandated out of existence; and it is likely to be eliminated for larger, visible enterprises. “I don’t know how long it will take to go away, especially for ‘ma and pa’ shops, because it is a traditional part of the culture; it is not viewed as something that is wrong.”
Pollution and worker safety
Nash-Hoff adds that by 2020, “more people will be concerned about pollution. We make artificial borders; but we share the same air.” She notes that pollution in the northwestern United States is wafting over from China via the trade winds.3 Atmospheric modeling links this air pollution from Asia to the production of exported product.4 In addition, Asian pollution can have effects that reach well beyond the West Coast of the U.S. Looking to the future, related air modeling studies predict that there will be global climatic effects.5
Jones also predicts that the social implications of offshoring, pollution, and worker safety concerns will grow. “Look at the building collapse in Bangladesh that killed more than 1,000 people who were making clothing for Western companies. Look at the environmental damage in China—many of their rivers are dead; the air pollution has been as much as forty times the danger level; and ozone-depleting chemicals are still used there. These behaviors will affect the Western world and there will be repercussions. Customers will rebel; they very well may boycott products.”
The balance of power
Predictions about outsourcing, offshoring, and the world economy diverge markedly. While we would not presume to have definitive answers, here are a few opinions for your evaluation.
For one thing, manufacturing may have a different profile, even by 2020. Jones notes newer technology, like 3D printing, may obsolete the benefits of offshoring. We might note that other technologies could grow. Additive manufacturing could supplant traditional machining. Printed electronics could obviate the need for soldering and critical cleaning in many electronics applications.
“All major companies on the planet have a presence in India; and India is graduating a large and growing number of materials scientists,” asserts Mozolic. “When I went through the program, materials science was mainly metals and little else. Now, there are more materials. Newer materials drive technology. Packaging becomes smaller. This all drives specifications. Specifications will become tighter; there is finer granularity. We are pushing materials specifications, and this will continue in 2020. When you have to handle these materials in a manufacturing environment, this drives contamination control to levels we would not have even thought of a few years ago.”
Nash-Hoff predicts that “there will be more and more labor unrest in China, just as we had labor unrest of the workers in our country starting 150 years ago. We now have the Internet enabling people to see how people are living in other countries, so labor unrest will drive wages higher and higher.” Nash-Hoff asserts that much of labor unrest in China is about pollution. She predicts that this sort of unrest will accelerate dramatically over the next six years, adding, “I don’t think the Chinese government will be able to control the Internet. They are already trying, but not having complete success. It’s how people will find out what is happening around the world. ”
Heiland explains that “China used to have cheap labor; you could name your own price; but now all the workers have PDAs; they demand higher wages or they change jobs. A manufacturer may say, ‘We’ll keep a presence in China, but we’ll open a plant in India, Vietnam, etc.’ However, now you have a more complex supply chain.”
Heiland adds that while manufacturing in the U.S. is not dead, “there is a misplaced post-World War II mentality that the United States owns the world. America is less relevant globally. In China, they talk about when the global economy will move off the U.S. dollar.” Heiland predicts that “it won’t happen by 2020, but it will happen in our lifetime. He adds that “there are no unions in a global economy.”
Jones does not see the inevitable economic dominance of China. Jones notes that the population of China is aging “at a furious rate; the average age is 46; and China may become as grey as Japan.” Jones asks “where will the next generation of workers come from? Many young men cannot find wives.” While it may not happen by 2020, Jones predicts that the dearth of available workers and dependence on the paradigm of pricing alone will cause China to hit a wall.6
Mozolic takes the view that “cultural and financial boundaries are likely to blur. We see more and more of a global economy; and, whether or not we get there by 2020, there will be a global currency and global credit.”
Jones expects that while in the 1990s and into the early 2000s, outsourcing to distant facilities, based on perceived economics alone, may have been acceptable, “by 2020, smart companies will pick the right tool for the right job. Partnering with job shops geographically closer to the final assembly plant, using partners with similar corporate cultures may be advantageous.”
Nash-Hoff also predicts that by 2020, final assemblers will use more regional sourcing. “If they have a plant in China, they will use China. If it’s in Thailand, they will use Thailand.” She cites a number of factors including shipment time and higher oil prices affecting transportation costs.
Manufacturing costs money, no matter where you do it. Currently, we know of no source of free components, so there must be an inherent limitation to the paradigm of continuing to lower costs. By 2020, we expect that the more successful manufacturers will take a more comprehensive view of what is outsourced and where outsourced activities are performed. This comprehensive approach is likely to include the impact of worker safety and of air and water quality. After all, even if companies could somehow manage to ignore the worker, community, and environmental aspects of uncontrolled use of industrial materials, the fact remains that pollutants can damage product. And that impacts the bottom line.
Outsourcing and offshoring are both likely to continue. Regional specialization, not inexpensive labor, may determine where at least some manufacturing takes place. “In the U.S., innovation will be our salvation,” says Heiland. He adds that “outsourcing makes the world a much smaller place. The whole world becomes interconnected. Firms that strategically leverage outsourcing will be rewarded.”
1. McCormack, R.A. “America’s Biggest Companies Continue To Move Factories Offshore And Eliminate Thousands of American Jobs,” Manufacturing and Technology News, 20:10. July 30, 2013. http://www.manufacturingnews.com/news/TAA0731131.html
2. Kanegsberg, B. and Kanegsberg, E. “Contamination Control In and Out of the Cleanroom: Can You Outsource Critical Cleaning?” Controlled Environments Magazine, Oct. 2012.
3. Blumenthal, L. “Scientists track Asian pollution,” The News Tribune (Seattle, Wash.), Sept. 4, 2008.
4. Lin, J., et al. “International trade of China affects air quality in the U.S.,” Proc. Nat. Acad. Sci., in press, 2013.
5. Weaver, C.P., et al. “A preliminary synthesis of modeled climate change impacts on U.S. regional ozone concentrations.” Bulletin Amer. Meteorological Society, 90, 2009.
6. Morris, D. “China’s Aging Population Threatens Its Manufacturing Might,” CNBC, Oct. 24, 2012.
Barbara Kanegsberg and Ed Kanegsberg (the Cleaning Lady and the Rocket Scientist) are experienced consultants and educators in critical and precision cleaning, surface preparation, and contamination control. Their diverse projects include medical device manufacturing, microelectronics, optics, and aerospace. firstname.lastname@example.org
This article appeared in the October 2013 issue of Controlled Environments.