Nowadays, global manufacturing operations wrestle about the issue of what and how much to outsource. For the paperboard packaging industry, outsourcing is a delicate balance of products, services, and operations for the entire operations team to collaborate on in reaching the right allocation. Such collaboration needs to be done with due consideration to a global environment with a climate that changes daily.

Staying Competitive

Darrin Banyan is a consultant to packaging firms after spending an entire career in the industry working for such firms as Mead, International Paper, and others. He sees the majority of packaging manufacturers outsourcing a portion of their operations overseas.

"Weyerhaeuser, Pactiv, and Smurfit all have operations in various parts of Asia," Banyan says. "I know of at least one independent corrugator that sources their linerboard from Europe. I have spoken with a folding carton manufacturer that looked to outsource his operations to Mexico. None of these folks are outsourcing all ops abroad of course, but they are all doing some."

Banyan sees the shift as being volatile. No matter how much business China or any other overseas nation does, there is no guarantee that outsourced business will stay there forever.

"I suppose in simplest terms, the driver is the need to shift resources to meet the changing competitive dynamics created by globalization," Banyan says. "Technology and innovation are making it easier and easier to overcome obstacles associated with distance."

Banyan says that books are printed in China, for example, while their subsequent binding operations are accomplished on the water in "floating factories" during the trip back to the states.

"My guess is that we'll see resources shift back and forth from various parts of the world in all industries to meet changing demand and to stay competitive," Banyan adds. "Packaging tends to follow, not lead, so I'd say we'll see an increase in off-shore outsourcing before we see a decline."

Allan Barnard is a principal with the Dallas-based Everest Group who focuses on industrial outsourcing. Many of Barnard's consulting clients are consumer package goods firms. Such firms are selective in deciding what to outsource.

The obvious factors that drive outsourcing are inherent in a manufacturer's cost model: competitive price pressure, margin pressure, and innovative ways to trim costs without dampening the viability of allowing the delivery of goods to market.

Labor arbitrage has been a big factor, according to Barnard. He says that many firms that did not want to delve into outsourcing in the past just cannot avoid it, and are looking at outsourcing functions that one might think would be kept as a domestic staff function.

He has seen engineering, prototyping, and industrial engineering functions actually outsourced to overseas firms in places like India and China.

Barnard points out that a trip to the country where such work is accomplished is valuable, to ensure the quality is there and to have a mutual buy-in by all parties that can create a true collaborative effort. In his experience, outsourcing engineering and the services required to tool up an operation have worked extremely well, maintained or improved quality, and saved money.

The times that this has not worked were when the collaborative effort was missing. When a purchasing manager sought the low bidder without collaborative consent of the manufacturing and engineering staff, for example, the resulting outsourced operation had problems.

Banyan explains that other industries that experienced an outsourcing of their operations, such as call centers, have returned jobs back to the U.S. from countries such as India. He says it is akin to the centralizing and de-centralizing cycles of organizational structure. Companies choose one path for periods and then adjust for the sake of change and differentiation.

"The process should involve business stakeholders," Barnard says.

He says the operations team should own the proposed service that is outsourced.

Leveraging Global Supply Chains Effectively

According to Banyan, procurement and sourcing professionals need to ask introspective questions about their business continually.