NCR Retreats from Outsourcing

By Kevin Meyer

It's starting to be a trend... a good one for a change. Companies rethinking their outsourcing strategy after realizing how traditional accounting puts the blinders on total cost... and opportunity. A hat tip to regular reader Jason for shooting me this article on NCR.

When NCR decided to outsource production of bank ATMs in 2007, it was joining a trend that had been sweeping America’s electronics industry for more than a decade. By shutting its own factories in Canada and Scotland and inking a five-year deal with a contract manufacturer to make ATMs for North America, the company assumed it could cut costs.

And the inevitable happened.

Instead, says one NCR manager, the collaboration became “an enormous and costly exercise” that led to product delays and upset customers.

NCR makes ATMs at its own plants in China, Hungary, and India. The devices are also assembled in South Carolina and offshore in plants run by Flextronics, which in 2007 acquired Solectron, NCR’s original contractor. Among the headaches: Because ATMs are so complex, NCR engineers often had to jet around the world to sort out production glitches and design changes. This led to delays just as NCR was launching a line of ATMs that simplify making deposits and verifying transactions. “By outsourcing, we just couldn’t move as quickly,” Nuti says. E.C. Sykes, Flextronics’ president for industrial products, says: “We did have some bumps with this product line.”

So what is NCR doing?

Now NCR is changing course again. And this time it may be in the vanguard of a shift in corporate thinking that could bring skilled manufacturing jobs back to the U.S. Not only will NCR once more build all automated teller machines in-house, but it will also supply North America entirely from an 800-worker plant in Columbus, Ga. Before, some ATMs sold in the U.S. came from China and Brazil.

Why would they do that? Doesn't it fly in the face of the quest for "cheap labor"?

Behind the reversal is a sweeping rethink of corporate strategy prompted by the recession.

Nuti and his team decided they had to halve development times of intelligent, easier-to-use ATMs—currently 12 to 18 months—and consolidate production. Because many ATMs are custom-designed, NCR wants buyers to be directly involved in development.

The plant is just a two-hour drive from three key spots: NCR’s main customer service center, its innovation hub, and its new headquarters in the Atlanta area. “We want quantum-leap changes in our cost structure,” Nuti says. “To effect that change, you have to control your destiny.”

Yes, value is created by more than just a pair of hands. Chasing low labor costs ignores many other costs, values, and especially opportunities inherent in any supply chain. Congrats to NCR for realizing that the traditional P&L and balance sheet is just one part of the picture.

You might also like

Discovering the Value of People

The Productivity Impact of Pesky Intermediates