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Outsourcing Heat Treatment is a No-brainer

14th Sep 2011   In Article Archive

...says Debbie Mellor, Managing Director of CHTA member Keighley Laboratories Ltd.

Outsourcing, the practice of using outside firms to undertake work that would otherwise be handled in-house, is now firmly entrenched in virtually every modern business. It is seen as a management tool for cutting costs, increasing efficiency, gaining access to specialist skills and freeing up internal resources for core business functions.

Initially, it was a way of contracting-out routine commodity functions, although latterly there has been a trend toward business process outsourcing (BPO) of entire end-to-end processes, like payroll administration and call-handling. Now there is a move toward knowledge process outsourcing (KPO), which represents a shift away from standardised processes, to carrying out complex and customised functions that demand advanced analytical and technical skills.

A recent survey by the Outsourcing Institute revealed that senior executives across all sectors of industry are now considering outsourcing such functions as end-user IT support, records management, staffing and recruitment, facilities management, distribution and logistics, and fleet operations.

There was no mention of manufacturing processes, yet I would contend that heat treatment, the thermal processing of metals and alloys to impart properties that enhance their working life, has all the hallmarks of a prime candidate for outsourcing.

Heat treatment is a non-core manufacturing process that carries massive overheads in equipment, manpower, energy consumption, maintenance and insurance premiums; it escalates the carbon footprint and requires continuing investment to keep pace with changing techniques and emissions standards. What are known as captive heat treaters (CPTs), those with in-house facilities, might arguably benefit where they are handling high volumes of fairly limited product types and immediate treatment is an integral part of the manufacturing process, but otherwise outsourcing this function is a ‘no-brainer’, if you’ll excuse the expression, and I will tell you why:

Cuts processing costs – it’s a matter of economies of scale. We heat treat components for hundreds of customers and are more cost-effective than in-house facilities processing more limited volumes; besides which, we must offer attractive terms to provide a competitive service.

Reduces in-house overheads – we operate a 24-hour heat treatment facility and the overheads of running furnaces, staffing costs, regulatory compliance, maintenance, training, sickness and holiday provisions, capital investment and ongoing upgrades are massive; but at least we defray these across numerous contracts.

Achieves greater flexibility – CPTs may understand their current heat treatment processes well, but changes in material, new product lines or heightened customer specifications will all demand knowledge and techniques they simply do not have in-house, whereas outsourcing will bring the necessary flexibility.

Releases valuable workspace – furnaces and other heat treatment kit take up considerable expensive floorspace, not to mention storage areas for consumables and work in progress, whereas out-sourcing releases that space for core activities, at the same time reducing insurance premiums.

Accesses new technology – heat treatment technology is changing all the time, from computerised furnace controls to new quenching methods, and outsourcing gives manufacturers access to a broader range of alternative treatments and updated methodology, from an expert supplier.

Improves carbon footprint – energy consumption is the biggest associated heat treatment cost, so outsourcing non-core thermal processing enables customers to implement plant-wide carbon-reduction initiatives, as well as cutting waste-disposal costs.

Avoids training problems – there is now a dearth of trained metallurgists, with much of the knowledge of treatments and processes largely confined to contract heat treaters, so outsourcing eliminates the expense and headache of difficult-to-arrange external training.

Enhances product quality – experienced contract heat treaters like ourselves can advise on alternative methods and materials that would improve product performance, while our qualified metallurgists ensure adherence to specifications and measure parameters like case depth and hardness.

Eliminates compliance issues – furnaces are potentially hazardous areas and management is often happy to rid itself of the complex health-and-safety requirements arising from a non-core process, at the same time exporting associated energy consumption and environmental issues.

Reduces capital investment – heat treatment kit has a long service life, but upgrading and enhancements, like computerised controls and carbon-content monitoring, demand ongoing capital that could otherwise be released for investment in other areas of the business.

Introduces shared risk – every capital investment entails an element of risk, but outsourcing shares the investment with a trusted business partner, spreading the risk and accommodating the normal peaks and troughs of business, without supporting a fixed overhead.

Frees internal resources – every organisation has a limit to its in-house resources, particularly people, and outsourcing heat treatment allows these resources to be focused on core business activities, redeploying skilled labour and experienced supervisors.

Improves cost control – the actual cost of running an in-house heat treatment facility is often seriously undervalued, even largely unknown, whereas an outsourcing arrangement represents a known, fixed cost, strictly controlled by the contract agreement and agreed technical specifications.

Sharpens company focus – by outsourcing an important demanding but non-core process like heat treatment, the company is able to focus its energy and resources on core competencies and meeting customer needs, helping managers set clear business priorities.

Hopefully, I have made a sound business case for considering heat treatment as a serious candidate for outsourcing, alongside many other non-core functions.

My experience of running a busy heat treatment contractor suggests that this process is becoming evermore challenging and complex, with the result that more and more manufacturers will choose to contract it out, as part of the trend toward KPO and a means of getting rid of an increasingly-onerous undertaking.