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Outsourcing as part of a growth strategy

January 1st, 2010 / By: / Business, Feature, Management

Is the best way to do business still all under your own roof?

Outsource your website? Probably. Your bookkeeping? Maybe. Printing of logos on your fabric? Hmmm. It’s possible. But should you outsource the stuff you do best?

Never say never. These are interesting times.

Manufacturers who have long tried to keep work in-house may be rethinking that strategy as the economy finds its way out of a long valley. Outsourcing may become part of a growth strategy—a way to expand even in (and after) recession. “One of the keys to growth,” notes small-business consultant Rieva Lesonsky of Irvine, Calif., “is keeping your own overhead down.”

That’s what contracting work out can do. It’s cheaper than adding staff, buying equipment and paying for new space to do it yourself.However, the same argument may apply to the opposite approach—insourcing, or moving jobs and tasks in-house. Would now be the best time to buy equipment and hire skilled people so you can do it yourself? It could also be a good time for that kind of investment.

In interesting times, pressure heightens on managers to choose wisely. The question of how to grow in 2010, and whether to contract with other businesses to help your own business, has likely already dropped on your desk.

Why outsource? Even in good times, you may not be able to employ all the skills you need. Can you afford to keep an electrician on staff for lighted awnings or patio covers? Can you keep a skilled technician and the required printing equipment to work with customers’ requested designs, images or logos? Can you fulfill a government contract with existing capacity?

Customers feed the pressure as well. “They know what they want, whether it be a look or a style,” says Mike VonWachenfeldt, technical service manager with Glen Raven Custom Fabrics LLC in Glen Raven, N.C. You don’t offer it? “They’ll try to go on to somebody else,” he predicts.

Lesson learned

So when do you contract out? Answers are complicated. Focusing on what you do best is good strategy. Yet you can learn to do other things well, and should. If a process is new to you, asking for training (from an equipment manufacturer, for example, or an industry peer) is a good idea. If you try to cut corners by doing it in-house, and the job doesn’t go well—that’s your own company’s image hanging in tatters.

The same principle applies to choosing a good contractor. Printing graphics on awnings and other fabrics is relatively new to many fabricators, so James Garbarsky found somebody he thought would make a good business partner. Garbarsky, CEO at Azure Awnings in West Palm Beach, Fla., needed lettering to stand up to semitropical sun and even the occasional hurricane.

Garbarsky, however, says he made a wrong choice initially. The contractor’s lettering peeled off Azure’s canvas in a matter of days. That same contractor re-did the job, but Azure eventually brought in a second contract firm.

Meanwhile, Garbarsky spent a fair amount of time doing research on which lettering product would work best, and what would be the right substrate. “I learned something about the graphics and lettering world,” he sighs. “I love learning, but the reality is that time is of the essence and you should leave it to the professionals. I do awnings. I’m not going to be a printer.”

His top priority? “No matter what the economy is, you’ve still got to think big picture,” he says. “What matters to you? Your customer.”

In contrast, Queen City Awning Inc. of Cincinnati took printing in-house and began offering wholesale graphics for awnings two years ago. Such a move, if it’s related to your existing core competencies, “can be a cost-efficient way to grow your business,” argues Queen City president Pete Weingartner, CPP. “However, understanding the market for these new services is critical to their success.”

Three-way scramble

So it’s complicated. Moreover, managing any outsourced relationship requires all the usual attention any project warrants, with an added layer of difficulty—the contractor’s people don’t work for you.

Queen City Awning had already contracted out awning frames for a Virginia pub when the project architect decided he wanted taller awnings than had originally been specified. That placed Weingartner in a three-way scramble to get it right. “It took a lot of phone calls back and forth,” he says. The pub is open. The awnings look good.

Have you developed a new motto for hard times? ‘Sure! We can do that!’ “The important thing is survival,” says Glen Raven’s VonWachenfeldt. “If things are slow, any business that comes through your door, you do what you can to meet that customer’s needs; if that means expanding beyond your normal product offering—be prepared to do that.”

That could leave you with some deer-in-headlights moments, of course. It’s likely, though, that there’s a business not far away that knows how to do what you need, and that is in fact actively looking for your business.

Suppose your customer wants a corporate logo with a certain color gradient, and the color must exactly match the company letterhead and advertising materials.

You don’t happen to know the Pantone color-matching system by heart? AdGraphics Inc. in Pompano Beach, Fla., is one firm that sells such printed transfers for fabric. “This is what we do all day every day,” says Rich Thompson, president.

As you seek a contractor or a working partner of any kind, you should ask prospects for references. Reputable firms have no qualms about suggesting people to recommend them.

It isn’t always an easy decision. A prospective business arrangement may still make you a little nervous, even after due diligence and good references. You can say yes or you can say no, but don’t waste time. “If you don’t take care of your customers,” notes Thompson, “somebody else will.”

Do what you do

All this calls for really knowing your core competencies—or defining them if you haven’t done so already. Don’t farm out what you do best. Business experts will tell you never, ever to outsource your customer interface, for example. On the other hand, your computer provider may well have its call center in India. In the specialty fabrics industry, however, certainly you’ll want your own people to work with customers on their needs and expectations.

Before Queen City Awning hands off its custom work to a contractor, the company wants to get up close and personal—in person, to take the measure of prospects. “Nothing like being able to shake somebody’s hand and look ’em in the eye,” says Weingartner. “We have to feel comfortable with a person we’re relying on. Our reputation is on the line.”

IFAI conferences and events have helped Weingartner find such meet-and-greet opportunities. “That’s certainly one of the biggest reasons we belong to an industry trade association,” he says.

It might also require meeting in person to judge a contractor’s approach to business. Sometimes, notes Azure’s Garbarsky, he encounters contractor prospects who don’t seem to care as much about the work as he does. “Not everybody works the way you work,” he says, “so you don’t have the quality control that you would like to have in your own shop.” That’s a key reason for keeping a job in-house: you call all the shots.

On the other hand—and isn’t there always another hand?—picking a contractor just like you may be flat wrong. If you’re a big-picture person, you may want to partner with a detail hound, or vice versa. Two detail people working on the same project may be a recipe for disaster, cautions consultant Lesonsky. And will two visionaries just wander off chatting and never get anywhere?

The intangibles matter. How do you pick a partner? “Number one is trust,” says Bob Rosania, IFM, CPP, CEO with Ehmke Manufacturing Co. Inc. of Philadelphia. “If you don’t trust the entity that you’re entering an agreement with, then you set yourself up for failure.”

Wheeling and dealing

Don’t be surprised if you hear more about such sticky situations. Glen Raven’s VonWachenfeldt anticipates greater numbers of outsourcing and on-the-fly partnering as the recession plays out. He also sees wheeling and dealing opportunities. Put on your marketing hat.

For example, do you need printing? Suppose you approach a local business that specializes in digital printing and graphics. Suppose that, while the printer does your printing for you, you offer to create, say, grand-opening banners for the printers’ customers. “It could lead to work for the awning company to do work for the graphics company,” muses VonWachenfeldt, and could lead to repeat business for seasonal banners.

Don’t go overboard, however. Such relationships may grow and prosper, but some might always remain at arm’s length. Your contractor is “not doing it for your customer,” cautions Weingartner. In some ways, he adds, your contractor is “almost doing it as a favor to you.”

In short, the business climate ahead may be different as we lurch out of this recession. You may have some learning to do.

Marc Hequet is a Minnesota-based business writer.

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