OUTSOURCING ON THE WAY OUT?

Over the last twenty years I have become more and more confused about the actions of our gurus in industry and those dirt bags on Wall Street. We have seen merger after merger to the point where most industries are now so condensed we have created oligopoly situations (oil, pharmaceutical, defense contractors, food, banks/finance and chemicals to name a few). We were told and it was rammed down our throats, mergers and acquisitions actually allowed economies of scale which would lead to greater efficiencies and lower prices. Our healthcare is currently in a mess because large corporations control the hospitals and the pills. Ever since the merger of major oil companies over the last ten years placing this industry back almost to the point where it all started as Standard Oil 100 odd years ago, our gasoline prices have hit the roof. I could write ten pages of examples of what greed and avarice at the top has done to society, but President Obama appears to be no different than any of his predecessors in how he sucks up to big business. For me I feel nothing is going to change.

In the olden days a successful manufacturer was measured by the quality control he exercised in his factories which resulted in products if well made gained a ready acceptance into the marketplace. Fisher-Price toys for instance when they were made in America in Fisher-Price owned factories the brand enjoyed a global reputation of excellence. As soon as the company was bought out by that Barbie doll mob and the factories “transferred” to China, Fisher-Price toys became instant junk. When Levi-Straus started closing down American plants one by one, and looked to outsourcing through Chinese suppliers, their market-share declined accordingly. Once the benchmark of quality, the prices of their jeans today reflect the sub-standard product they now sell.

No matter what America manufactured, the world and in particular our own domestic market, held “Made in America” products in the highest of regard. One of the major reasons for this was its educated and diligent workforce was the envy of the world and couple this with invention and innovation; no other country could match us. We just need to look at WW 2 and see how this country mobilized and great corporations like GM and Ford started churning out airplanes and tanks in tens of thousands from their car plants. When I was young, when we described something strong and solid, we would say, “It’s built like a Sherman tank!”

What has changed about American industry is we have allowed academics (who should have stayed teaching the three “r’s” reading, ‘riting and ‘rithmetic to students) to exercise their minds and get involved in making sciences out of science where there was no science in the first instance. Warehousing and transportation is a grand example. It is not about “logistics” and all the modern day nonsense that surrounds the new meaning of that word. The most successful freight forwarder in America, Expeditors International is the only one to claim it is happy just to be called that; yes, a simple freight forwarder. Its growth has been organic and there is no other competitor that has matched its growth and profits for more than twenty years. In fact most its opposition have either disappeared or have been merged/taken over. American industry has to follow what Expeditors have always done and return to its roots, buy the raw materials, decide what to make, make it, store it, sell it and dispatch the finished product themselves and get the hell out of outsourcing.

The grandest example of a company heading into unchartered financial trouble because it has acted upon the most ridiculous of advice within the company and outside of the company is Boeing Co. First of all it embarked upon the acquisition path culminating with the takeover of McDonnell Douglas in 1997. Not long after, the then CEO (who soon after got the flick) for reasons the world would never know or understand decided Chicago was a better place than Seattle for H.Q. That is when its troubles started. A whistleblower got them into serious trouble with the Pentagon, culminating in the loss of an air force tanker order to Airbus and then their civilian aircraft division hit the skids with the delays to the Dreamliner 787 development program. Why has the 787 become such a disaster for Boeing? Simple, components and production that should have been in-house over the years instead has been outsourced to companies, many of which whose skills were wanting and quality control iat best, suspect.

Because of outsourcing (I wonder how many Chinese suppliers are also involved!) what could have been the most successful passenger aircraft since the 737, may never ever be profitable for Boeing. And its all due to delay costs created by outsourcing. However Boeing is starting to realize the error of its ways and recently announced it will be buying out one of its main suppliers, Vought Aircraft Industries, the main culprit that caused the 787 problems. The kicker in all this; who owns Vought, none other than the dirtiest and nastiest Private Equity firm ever created, The Carlyle Group. What do they know about aeronautics? Roughly as much as I know about nuclear fusion! I believe this event is a huge turning point and if American industry is ever going to get back on its feet again, this bricks and mortar approach needs to return. Outsourcing is “out” and in-sourcing is “in”. Let’s hope Boeing’s decision to take back key manufacturing is the tonic it needs to restore its position to number one ahead of Airbus and the harbinger generally of things to come for American industry.

Tags: 737, Airbus, Barbie, Boeing, Chicago, China, Dreamliner 787, Expeditors, Fisher-Price, Ford, GM, Levi-Straus, McDonnell Douglas, Pentagon, Seattle, Wall Street