Jay Warner, Warner Consulting, Inc.
Posted 8/9/04

A major airplane manufacturer purchased a small fastener for many years.  Years ago an engineer and a small molding shop worked out the details and locked in the production method for this special plastic, consumable part.

The airplane manufacturer purchased the part on a continuing contract.  Our hero, the owner of the manufacturing firm who reported this experience, subcontracted with a small shop to make the part.  Consumption was reasonably steady, and for 35 years all went along smoothly.

Then the airplane manufacturer announced that this was the last contract.  The supplier was disappointed, but no contract is no contract.  The subcontractor decided to retire.  He liquidated the equipment and sold the building.  The workers went off into the world.

Six months later a FAX arrived.  "We need 2,000 of these parts by next Monday!"  Our hero said later that it gave him a certain feeling of satisfaction to write NO BID in magic marker and FAX it back.  Then he returned to his desk and waited for the phone to light up.  It wasn’t long.

"You have to make these parts!" said the expeditor  at the major airplane manufacturer.  "We have to have the 2,000 parts by Monday." 

It seems that the airplane manufacturer had contracted to have the part made overseas for the obvious reasons.  It had taken the overseas manufacturer three months to deliver the parts, and the airplane manufacturer three more months to decide that the new supplier was not going to get the part "right."

"I’m sorry," our hero explained.  "We don’t make these parts any more."

"But you have to.  We’ll pay greater than the standard rate!"  In this industry, small parts that are critical to keeping production on stream are often billed two or more times the regular bid price to cover the overtime labor costs.

"I’m sorry.  You said the contract was over.  We have been subcontracting these parts for 35 years, as your engineer set up with us way back when.  The subcontractor has closed shop – laid off the workers, and sold the equipment.  I doubt you could even get the software back now.

"By the way, have you looked back through your engineer’s files?"

"He died a couple years ago," said the expeditor.  "All we could find were some notes on the parts."

"Yes, I remember we discovered that only one brand of tap worked right.  We even specified to the tool company not to change their production method on the taps, because we didn’t really understand why theirs worked and others did not.

"All I can suggest to you now is that you send an engineer to your present supplier, and see if they can work out what’s wrong and fix it.  That knowledge is gone now.  It would take us a good while to learn how to make those parts again."

I’m sure that the airplane manufacturer found some way to get working parts for their airplanes, either by improving or living with the parts they were getting, or by changing the parts the fasteners held together.  

This is only one horror story I have encountered with companies that are experimenting with outsourcing for parts.   The cost of unexpectedly non-functioning parts, as well as the cost of ulcers to the employees, is real.  Another way to say this is, the value of the knowledge contained in the parts may be very large indeed.

It seems to me that for critical parts a customer would be wise to order trial quantities from the new supplier concurrent with the regular shipments, so they can find out in a low stress situation just how good the new ones really are.  Another solution is for the supplier to periodically improve their product so that clearly no new supplier can match them.  Translation:  continually add knowledge to your product to keep the value of that knowledge high.