Next-Generation Outsourcing

Now that the hype about outsourcing -- or, more specifically, offshoring -- has subsided, the real work of incorporating this important strategy into U.S. manufacturing business plans is underway. The outsized expectations of dramatically reduced costs have given way to right-sized reality: Offshoring is not always the best way to improve a company's competitiveness, or even to reduce its costs. The strategy works well in some situations, not so well in others and sometimes works in unexpected ways.

This

healthy realism is as welcome as it was expected. Remember how happy manufacturing was to move on from the often inane and ineffective quality circles of the 1980s to more effective strategies that encouraged employee engagement in continuous improvement. Likewise, it's good to finally bring offshoring down to earth, and to identify the important lessons learned from early efforts. These lessons are:

* The terms "outsourcing" and "offshoring" are not synonymous, though the terms are often misused as if they were. A company can offshore without outsourcing by locating a facility in another country and selling there. It can outsource without going offshore by sending the work to another U.S.-based comtpany. And it can outsource offshore, by, well, outsourcing to an offshore company. Though subtle, the differences between these approaches are critical to implementing effective offshoring and outsourcing strategies.