Both the military and private industry manufacturers outsource services with the same main goal: to cut costs. And while they have marshaled some cost savings and derived additional organizational benefits, this tactic has also resulted in some unintended consequences. Here is a look at the advantages and risks of outsourcing, and the similarities and differences between how the military and private manufacturers do it.
To understand the impact of outsourcing, it’s important to probe into the rationale behind it. After the Sept. 11 terrorist attacks, force management constraints drove the military to convert many active-duty support units into combat arms soldiers.
As part of this strategy, the military outsourced its support efforts, recalls Mike Hamann, an Army Materiel Command (AMC) veteran who is currently a mobilized Civilian Expeditionary Worker for AMC in support of Forces of supply and logistics.
Manufacturers outsource for the same primary reason the military does: to achieve cost savings. Outsourced services common to both the military and manufacturers include:
- Specialized outsourcing, such as research and development or healthcare.
- Technical outsourcing, such as web development or engineering.
- Manufacturing-related outsourcing, resulting from global supply chain requirements or proximity to resources.
- Services outsourcing, determined by cost and/or quality considerations.
The formation and mission of the Defense Logistics Agency (DLA) best illustrates the Army’s strategy of consolidating services. DLA supports the mission in Afghanistan by supplying coalition forces with most of the food, fuel, and support elements in this war zone. The DLA Support Team-Afghanistan is charged with providing more than $10 billion in food and bulk fuel contracts.
It makes economic sense for the military and private manufacturers to outsource certain services. “It is sometimes more cost-effective to outsource services than hire the expertise in-house,” says Teresa Smith, a 30-year DLA veteran. “This is especially true when you need a service for a limited time, and/or for a specialized skillset not readily available from existing resources.
Some consider military outsourcing—originally intended to be a short-term solution at the beginning of contingency operations its usefulness. Even the cost savings are questionable as the war effort in the Middle East now exceeds 15 years. “The Army outsourced much more than has become healthy for its organic capabilities,”.
CONTROLLING ESCALATING COSTS
While consolidating services for food, fuel, construction materials, medical supplies, and repair parts was a big success story for the military, the persistent problem as a result of extended contingency operations is escalating costs. The Army is well aware of the problems associated with extended outsourcing, according to Hamann, and is looking at ways to solve current outsourcing challenges, including establishing task forces and tiger teams to analyze the dilemma and provide solutions.
Military and private manufacturers both want to reduce the need for highly skilled workers on generic manufacturing tasks to achieve the following benefits:
- Decrease plant and equipment costs.
- Reduce footprint requirements.
- Control reverse logistics costs.
- Develop more reliable schedules.
- Offer greater product options.
- Concentrate on core competencies.
WHAT DOES THE FUTURE HOLD?
Both the military and manufacturing have based outsourcing decisions primarily on cost considerations, and have placed less emphasis on product or service quality, or the organizational harm that extended outsourcing of core capabilities might cause.
The cost to prosecute a war, therefore, should be subordinate to the result of achieving not only victory, but also maintaining the armed services. Manufacturers, like the military, should make outsourcing decisions based not on short-term cost savings but on organizational health and stability.