3 ms·

As a counter point, outsourcing has served the car industry quite well. At one point in its lifetime Ford had it's own rubber tree farms. Nowadays car companies

by hencq 14y ago

As a counter point, outsourcing has served the car industry quite well. At one point in its lifetime Ford had it's own rubber tree farms. Nowadays car companies rely a lot on suppliers and heavily involve them in design as well. It's just very unlikely that one company has the skills and the focus to be good at everything. That said (and the article makes this point as well) suppliers have to be closely involved for this model to work. When Toyota was consistently beating American car manufacturers in terms of quality one of the biggest differences was in how they managed their suppliers. American companies tended to have multiple suppliers for the same parts and determine (sub) contracts mainly on a cost basis. Toyota on the other hand had very long term relationships with its suppliers and worked much more intensely with them.

nickpinkston 14y ago
I don't think this is a counterpoint. They said that it makes sense to be vertical early on. Look at the Ford Rouge Works where iron ore and rubber came in one side and Model A's came off the other. Now, it's a very mature category where it's all about refinement, not major innovation - so it's good to develop an interchangeable supplier base because you increase competition between them and you don't need to do anything radical. If you look at SpaceX for example, they make >90% of their parts because there's full-stack innovation going on constantly.
- hencq 14y ago
  > Now, it's a very mature category where it's all about refinement, not major innovation I disagree. You are completely right that in that situation it makes sense to develop an interchangeable supplier base. as you mention it allows you to increase competition and put pressure on them to reduce costs. However, in a situation where you're still looking for innovation, like developing a new car (or plane) it makes sense to work with highly integrated suppliers. These won't be interchangeable and because you're very dependent on them, the opportunities for cost saving are probably smaller. On the other hand, because they have specialized knowledge and skills they can actually help you innovate much faster. At least that's the theory; you're right that SpaceX seems to focus on doing as much as possible in-house and it seems to work for them. A reason could be however, that the type of suppliers necessary to make this model work are just not there (yet) in their business. I guess in practice it's about finding the right balance. Insisting on doing everything yourself can lead to bad cases of NIH syndrome, while outsourcing everything leads to a loss of control.
  - secabeen 14y ago
    The other element is being cornered by suppliers. If you only have one or two suppliers who can produce a component, you are exposing yourself to risk. Those one or two suppliers can let you develop a design that relies on their technology, then greatly increase the price when you are ready to go to production. Elon Musk calls this "going Russian": http://www.esquire.com/features/americans-2012/elon-musk-interview-1212-3 http://www.esquire.com/features/americans-2012/elon-musk-int...
  - nickpinkston 14y ago
    Yea, totally agree, but something like cars have far less variation than do SpaceX's rockets. Say, the automatic transmission isn't massively coupled (engineer constraint wise) to the rest of the car unless you're doing a hybrid or something. That means the local improvement (better gears, weight reduction, etc.) is most of the improvement - not in conjunction with much else. It's why you'll often find struts from a 1999 model that are drop-in replacements for the 2012 even though the cars look very different.
ww520 14y ago
I think the point in the article is that outsourcing your design of a brand new product early on is a bad idea. Once the design is done and the components have been standardized, outsourcing would cut cost. For cars, a lot of components have been standardized and don't change much over time. A tire still has rubber outside and steel rim inside.

by hencq 14y ago

nickpinkston 14y ago

I don't think this is a counterpoint. They said that it makes sense to be vertical early on. Look at the Ford Rouge Works where iron ore and rubber came in one side and Model A's came off the other. Now, it's a very mature category where it's all about refinement, not major innovation - so it's good to develop an interchangeable supplier base because you increase competition between them and you don't need to do anything radical. If you look at SpaceX for example, they make >90% of their parts because there's full-stack innovation going on constantly.

hencq 14y ago
> Now, it's a very mature category where it's all about refinement, not major innovation I disagree. You are completely right that in that situation it makes sense to develop an interchangeable supplier base. as you mention it allows you to increase competition and put pressure on them to reduce costs. However, in a situation where you're still looking for innovation, like developing a new car (or plane) it makes sense to work with highly integrated suppliers. These won't be interchangeable and because you're very dependent on them, the opportunities for cost saving are probably smaller. On the other hand, because they have specialized knowledge and skills they can actually help you innovate much faster. At least that's the theory; you're right that SpaceX seems to focus on doing as much as possible in-house and it seems to work for them. A reason could be however, that the type of suppliers necessary to make this model work are just not there (yet) in their business. I guess in practice it's about finding the right balance. Insisting on doing everything yourself can lead to bad cases of NIH syndrome, while outsourcing everything leads to a loss of control.
- secabeen 14y ago
  The other element is being cornered by suppliers. If you only have one or two suppliers who can produce a component, you are exposing yourself to risk. Those one or two suppliers can let you develop a design that relies on their technology, then greatly increase the price when you are ready to go to production. Elon Musk calls this "going Russian": http://www.esquire.com/features/americans-2012/elon-musk-interview-1212-3 http://www.esquire.com/features/americans-2012/elon-musk-int...
- nickpinkston 14y ago
  Yea, totally agree, but something like cars have far less variation than do SpaceX's rockets. Say, the automatic transmission isn't massively coupled (engineer constraint wise) to the rest of the car unless you're doing a hybrid or something. That means the local improvement (better gears, weight reduction, etc.) is most of the improvement - not in conjunction with much else. It's why you'll often find struts from a 1999 model that are drop-in replacements for the 2012 even though the cars look very different.

ww520 14y ago

I think the point in the article is that outsourcing your design of a brand new product early on is a bad idea. Once the design is done and the components have been standardized, outsourcing would cut cost. For cars, a lot of components have been standardized and don't change much over time. A tire still has rubber outside and steel rim inside.