Outsourcing can be a real money saver when your source can deliver the correct parts on schedule. When things don't go so smoothly, however, expect big glitches in your build-and-ship schedule. As a small company used to building most parts ourselves, it has been our constant goal to find good suppliers who can build parts for us more economically than we can. We are learning that with outsourcing comes a certain loss of control that can have a direct impact on the ever-critical cash flow.

Our experience with outside sources is that they tend to be overly optimistic when they quote delivery times. Since we don't have the resources to inventory a "buffer" of parts, we tend to order as needed based on what our supplier has told us is a reasonable delivery time. Great in theory, but when our parts are late -- our shipments are late -- causing unhappy customers and cash flow interruptions.

Since it is impossible to forsee all possible problems, we need to develop a purchase schedule with a "plus or minus" 2-week delivery accuracy. Also, when funds allow, we should stock enough raw material and parts to get us past missed deliveries. Recently, we had to build a batch of parts in-house the "old" way while we waited for our new source to deliver.

Since we have eliminated some of the labor-intensive jobs we used to do in-house, more hours are available for final assembly which in turn depletes inventory faster, which is obvious -- but still requires an adjustment to our purchasing schedule. Much of what we do is still primitive.

One of the things on my "to-do" list has been the development of a supplier/material database that I will integrate into our order/shipment database. Every model that ships will trigger the proper deduction of its components from the inventory. At the "buy" level, a large flashing message will pop up reminding us to get things on order. Ultimately, I'll have the computer generate the purchase order automatically and fax it to the supplier. I see all kinds of opportunity for real confusion -- oops -- I mean efficiency.