This document discusses outsourcing and its benefits, effectiveness, and future. It provides an overview of outsourcing in HAL and focuses on improving efficiency and effectiveness. Some key points: 1. Outsourcing can reduce costs, improve quality, and allow companies to focus on core competencies. Both direct benefits like cost reductions and indirect benefits like stimulating process analysis are discussed. 2. HAL outsources manufacturing, assemblies, tooling, and logistics. The paper examines how to improve the efficiency of lead times and the effectiveness of quality and costs. 3. Suggestions to improve efficiency include providing digital resources to vendors, establishing a logistics department, enabling online payments, and implementing e

1. Paper on Outsourcing: Improvements and future
Presented By
Ashutosh Chandorkar, Dy Mgr-OS, AMD Nasik
Abhijeet Alsundkar, Asst Engr, PSS, AMD Nasik
Shrikant Suryawanshi, Asst Engr, VLD, AMD Nasik

2. Table of Contents
Sr No Description Page no
1 Benefits of outsourcing 1
2 Outsourcing in HAL 6
3 Efficiency 7
4 Effectiveness 10
5 Future of outsourcing 12
6 Summary 14
7 Bibliography 15

3. 1. Benefits of outsourcing
Most companies today are either outsourcing certain functions or considering it. In HAL we
have started the outsource of the manufacturing and logistics functions to certain extent. The
benefits discussion typically centers on cutting costs and augmentation of capacity. Outsourcing
has been viewed as a way to cut costs by reducing overhead and having a professional perform
the operation. While this benefit is attainable, it is not the only advantage and should not be
the only reason to outsource.
The benefits of outsourcing can be divided into two types. First, there are the direct benefits—
those that have an immediate impact. Then, there are the indirect benefits—the impact that
outsourcing has on the processes that have remained in house.
The direct benefits of outsourcing are those related to reduced costs, decreased cycle times,
and improved customer perception and satisfaction. They include:
• Focus on core competency
• Reduction in the cost of manufacturing and logistics services
• Reduction in head count of hourly workers and management
• Improved accuracy
• Flexibility and wider range of services
• Access to global networks and superior technology
• Improved service
• Improved quality
• Reduced capital investment and increased cash flow
Focus on Core Competency
A company that outsources manufacturing, logistics, or both no longer needs all the resources
it has been using to make a product, store it, and get it to customers. Therefore, the company
can redirect these resources to its core functions.
Reduction in Cost of Manufacturing and Logistics Services
When a company outsources manufacturing, logistics, or both, it can consolidate operations. It
no longer has to maintain factories and distribution centers. Therefore, the manufacturing and
logistics costs to the company that has outsourced are often lower because they are no longer
responsible for physical plants and personnel related to these functions. Also, the vendor might

4. be providing a shared service, so the company is not paying for under-utilized capacity, which
will in turn lower inventory-carrying cost.
Reduction in Hourly Worker and Management Head Count
The kind of streamlined, lean company that succeeds in today’s marketplace must do so with
fewer employees than the companies of the last generation. This is a hard fact for many
workers to swallow—whether they are order pickers, plant supervisors, or production
managers. Downsizing, mergers, acquisitions, and elimination of product lines will not go away.
Improved Accuracy
When someone (either inside or outside the company) only has to perform one task, it is likely
that task will be completed more accurately. If all you have to do is inventory, then your
inventory count is more likely to be accurate than if you also have to supervise several plants,
pay department bills, maintain a global network of distribution centers, and so on.
Flexibility and Wider Range of Service
You can offer your customers more because, although the company may actually be doing less
within its four physical walls, it is accomplishing much more. A company can produce more,
ship greater amounts, and break into product lines heretofore not considered because
everything is not being done in-house.
Improved Service
Outsourcing manufacturing and logistics improves service by shortening cycle times and
speeding time to market. Tapping into capabilities not available internally increases scheduling
flexibility and resource availability, which usually results in reduced time to market.
Reduced Capital Investment and Increased Cash Inflow
Outsourcing manufacturing, logistics, or both will reduce capital investment. This is because
once these processes are contracted out; the facilities previously used by the company are
removed from the balance
Indirect Benefits
The indirect benefits of outsourcing are usually not as easily defined and are an unexpected
surprise when realized. And when achieved, they have a subtle effect on the company’s bottom
line. Indirect benefits include:

5. • Creating a catalyst for change. In the search for core competencies, how outsourced
operations are managed is highlighted. Companies can take a closer look at engineered
operations, planning, and scheduling. The result is a better grasp of accountability and
root cause analysis, which can only improve core functions.
• Initiating or fueling change. A company is often able to offer new services and
capabilities because outsourcing has increased performance in the form of shorter lead
times and reduction in the landed cost to the customer.
• Stimulating analysis. The requirement to document business processes (and their costs)
inherent with any outsourcing implementation often uncovers valuable information that
can be studied and put to use within the organization. In other words, developing
metrics to use to select a third-party provider may result in asking why these metrics
aren’t used throughout the company.
• Converting sluggish functional areas into dynamic ones. The actual process of finding a
provider and performing a baseline analysis will cause a company to look internally to
improve processes. This often breathes new life into functions such as customer service,
purchasing, and procurement.
• Resource and contact development. After a successful outsourcing implementation,
companies often find they have access to new business resources and personnel, such
as freight handlers, value-added service providers, and IT. Using these contacts, they can
form new beneficial relationships.
When both the direct and indirect benefits of outsourcing are laid out, it’s easy to see why so
many companies are already outsourcing or planning to do so. A company that outsources
operations has much to gain. Yes, there are risks. Yes, it is possible that an outsourcing strategy
will fail. But if you know how to approach outsourcing or work with experts who have made
outsourcing a core competency, the benefits far outweigh the risks.

6. 2. Outsourcing in HAL
Outsourcing in HAL can be classified into broadly four parts:
 Manufacture of detail parts
 Manufacture of assemblies
 Manufacture of tooling and special items
 Logistics and services (inbound and outbound)
While making an analysis of the above four area we need to look at the effectiveness and
efficiency of our outsourcing system which handles the above four areas.
Effectiveness would look into the quality and cost aspect of the delivered by the system,
whereas efficiency would focus on the lead-time aspect of the system.
In our present outsourcing system, following are the points related to the efficiency of the
system:
 Providing reasonable resources to the supplier/vendor for manufacture
 Responsive logistics and material movement
 Quick disposal of payments for received items
 Faster tendering process
 Quick clarification of technical queries and snags
The following points can be related to the effectiveness of the system:
 Evaluation, categorization and rating of vendors
 Training and guidance to vendors for during the prove out phase

7.  Assistance to vendors in scheduling and project management during the batch
production (for detail parts and assemblies)
 Maturity in communicating with the vendors
 Managing maintaining loyalty from the vendor
HAL being a production unit cannot solely focus on development with long lead times and good
quality, but at the same time we cannot provide substandard products to our customers .We
have to balance both aspects of effectiveness and efficiency for developing a robust
outsourcing system.
3. Efficiency
The issues relating to lead- time reduction are addressed in this section. We follow logic of
attacking issues in our circle of influence to reduce lead-times.
1. Provision of resources to the supplier:
It is generally observed that the vendor can manufacture our items if we are able to fulfill his
necessary requirements. For outsourcing to be successful the resource mobilization should be
quick and efficient. We should be able to provide the following
SR
no
Resource Present method of supply to
vendor
Suggested method for improvement
1 Drawing Hard copies of controlled issues PDF versions in soft form
2 Technologies Hard copies of controlled issues PDF versions in soft form
3 Raw material Shipped to the vendor by transport No suggestion
4 Standards No specified method A soft copy (may be in PDF Form) of
standards to mailed to every vendor
5 Templates Shipped to vendors as is raw
material
Digitized form in PDF
6 Tooling Shipped to vendors as is raw
material
No suggestion

8. 2. Responsive Logistics and material movement:
A separate department handling logistics and material movement should be incorporated.
In HAL a lot of manpower is engaged in the function of shop engineering .Typically a shop
containing 60 workmen has about 5 to 6 employees performing the shop engineering function.
It can be safely assumed that 8 to 9% shop strength is required for the function of shop
engineering.
The functions of shop engineering are logistics and warehousing. With the introduction of ERP
system the strenuous task of record keeping has reduced to a great extent. The main function
of shop engineering can be zeroed in to providing logistics support. As the workload handled in
outsourcing goes up, providing a separate department for handling the logistics can be a good
option. AMD, Nasik has been working on this principle successfully.
Incoming /outgoing of parts/raw material are being handled by a separate ‘Vendor Logistics
Department’. This makes material handling responsive and a great deal of effort of the
outsourcing department is taken care of.
3) Quick disposal of payments for received parts:
A lot of improvements can be affected in this area by making the system IT enabled. The whole
system of payments can be made online and triggered by passwords of different authorities.
There are three basic parameters which we ascertain before making payments:
 PO for the items should exist
 Items should be physically received inside the factory
 The items should be of acceptable quality
There should be no problem making the process IT enabled. The present process of payments
does utilize IT but in a small fashion. Lead times and effort in making payments can be reduced
by about 25% by It enabled payments process.
A Small description on the IT enabled process can be as follows:
 The triggering of the process for payments can start with receipt of items at the gate.
The authority for gate receipt is the security at the material gate.
 The VLD or outsourcing department can endorse/modify the gate entry type
(intermediate operation or final clearance).The triggering can also be taken one step

9. back where the vendor fills a dispatch format (may be online on ERP or hard copy)
before he dispatches the material.
 The payments cell in the outsourcing department is the authority to ascertain the
availability of PO for the items and their endorsement can resolve the issue of PO
availability.
 The endorsement for quality can be given by the concerned inspector who has checked
the parts.
 This entire process can run on the existing ERP system making the present system of
hard copies redundant.
4) Effective and fast tendering process:
The tendering process in the company needs a revamp for facing the present scenario. There
are definitely many tools available to make the process fast and effective.
E-tendering, where tendering makes extensive use of IT can be introduced for speedy tendering
.Post bid analysis which involves manual working for CST can be programmed into the system
which saves data for the tenders.
Example of e-tendering:
• MSRR and MSR can be approved in the system by endorsements by authorities with the
help of passwords. This will result in a lot of time saving from the present case.
Presently, data has to be entered in the system; hard copies of the same are to be made
and them approval has to be taken by way of signature of the authorities which involves
physical movement of files from office to office.
• Copies of drawings and technologies (in PDF form) can be emailed to the vendors (if size
permits) or the same can be sent via CD. This will save time required in postal mail
reaching the vendor.
• The vendors will be informed by email of the enquiry and a confirmation email of
receipt may be requested from them. This can help in ensuring that the vendor has
received the enquiry.
• The vendors may be given a unique password to log on to the system, whereby they can
go to the quoting screen.

10. • The vendor can enter his quote in the screen and submit the same if he wishes to freeze
his offer.
• The time period given for quoting can be decided by taking into account the quantum of
work required in the cost estimation process
• HAL estimate can also be incorporated into the system by entries made by the
concerned IED personnel having a valid password to log on into the system
• At the end of the allotted time period the system will get locked and no more entries
can be fed into the system.
• The system will generate a proper analysis of the quotes submitted and give
customized reports which can be used or placing orders.
4. Effectiveness
In this section we try to address issues which make system resilient to errors being made.
Ideally we would like our orders to go to the best vendor who is providing the least cost and will
deliver the items at the anticipated timelines.
In course of time the practices that we follow should make outsourcing effective
We discuss issues which can contribute to the development of outsourcing
1. Evaluation, categorization and rating of vendors
While vendor rating and vendor evaluation are buzz words uttered by many outsourcing
consultants the implementation of such ratings, KPIs or metrics are time-consuming and
dependent on varied factors.
A separate effort to compile data for vendor rating may not reflect the true picture as the
person trying to perform the rating is in a hurry to do so, or is worried that his vendor may not
end up in the bottom spot.

11. Guideline for performance measurement:
• Meaningful, unambiguous and widely understood
• Owned and managed by the teams within the organization
• Based on a high level of data integrity
• Such that data collection is embedded within the normal procedures
• Able to drive improvement
All parameters related to vendor rating and performance measurement must be linked with the
ERP system. The rating can be broken up in the four factors:
 Quality: Snags being the measure of the same and overall dimensional accuracies
observed. A designer clearing snag and the inspector performing the PDI can be given an
online scale to rate the same
 Rate of supply: Volume of Shipments in a quarter to the previous one
 Cost : Vendor cost versus HAL cost
 Responsiveness: Clearance of items as per production schedule (shortages can be a
measure of unresponsiveness)
Vendor rating in the form as specified above can be helpful in selecting vendors or tendering
thus making the system of outsourcing more robust.
2. Training and guidance to vendors for during the prove out phase
Most vendors are not very conversant with technology for aero-parts as well as quality
requirements required in the aero space industry. It is imperative that we educate the vendors
about the technology involved in aerospace applications and quality systems.

12. Development and proving of parts is a slow process and a lot of trouble shooting is required on
the way to complete proving. During this process the vendor has to be given every help to make
him prove the parts. Only when the vendor has proven the parts can we stop producing them in
house.
A dedicated team of shop floor experts has to guide the vendor during this stage.
3. Assistance to vendors in scheduling and project management during the batch production
(for detail parts and assemblies)
Since the vendor has proved the part during the proving stage much technical supervision is not
needed in this stage. The vendor has to be made aware of our plans and targets.
The vendor must try to align his resources in line with our production requirements.
It is to our mutual benefit that we provide a schedule for the items made by him and try to
preempt any difficulties in fulfillment of the schedule.

13. 5. Future of outsourcing
Benchmarking
The practice of benchmarking should be used decide the future course of action. There can be
many ‘ideals’ on which we can benchmark. HAL ranks 33rd
in the global aerospace industry,
which means 32 other companies, surpass HAL in size, operational effectiveness etc. We have a
wide choice to benchmark ourselves.
We can also think of comparisons with other industry segments like the automotive segment
which have raised parameters of manufacturing to new heights.
Example: Most Auto OEMS are following the policy of dealing with the select few vendors by
making the vendor base hierarchical. There is a concept of first tier vendor, second tier vendor
and so on. The OEMs deal only with the first tier vendors. Second and lower tier vendors and
dealt by the first tier vendors. This reduces the effort taken by the OEMs to deal with a lot of
vendors thus saving time, human resources and ultimately cost.
The first tier vendor is generally a bigger company which has the capacity to invest. As most
orders are routed (bulk business) to the other vendors through the first tier vendors, these

14. vendors tend to become loyal and work on lesser margins. The quality and reliability of the
vendors becomes high with reasonable cost.
There can be many better examples which we can come to know by comparison and
benchmarking.
The future of outsourcing in HAL can be divided into following two areas:
• Operational areas
• Management consultancy
1. Operational Areas:
There is plenty of scope to outsource operations area like the following:
Inspection: An agency approved by our quality department and CRI can act as authority on our
behalf to perform the inspection function at vendor’s site. This arrangement will decrease the
cost of deputation of personnel to vendor site. It would provide better inspection coverage at
both the in-house shops and outsourcing vendors.
Material Procurement: An agency approved by our quality department and CRI can act on our
behalf to procure and supply/distribute raw material to vendor. The same agency can take care
of the logistics function and ship parts to us from the vendor. The probable advantages of such
a facility can be as follows:
a. Space and manpower requirement will go down drastically

15. b. Modern practices followed by the agency would drive cost down
c. Minimum raw material inventory at HAL end
d. Professional accounting of material will drive cost down
2. Management consultancy:
HAL as an organization is rarely in the habit of seeking consultancy. It is a well known fact that
an outsider can always try to think differently about a job than a person who is used to doing
the job.
Expert consultancy always provides new dimensions and horizons. There is always scope for
improvement which we may not be able to discover.HAL has outsourced the HR function of
recruitment to some extent which is a positive sign .More such steps can be taken to include
core areas like Project management & Investment management
Project management is of great significance since we have many projects which are incurring
cost and time over-runs.

16. 6. Summary
There is scope for improvement in outsourcing activity and evolution of the system at all levels.
Ground level improvements can always continue by way of kaizen events. Computerization and
extensive use of IT has to be increased on all levels to expedite the present functioning of
outsourcing.
A strategic decision on consulting and benchmarking should take place at the highest level to
reap the fruits of ‘outsourcing brains’.

17. Bibliography:
http://www.tompkinsinc.com/publications/competitive_edge/articles/06-06-Outsourcing.asp