Insourcing — The Value Provided From Manufacturers Focused On 'In-House' Production

The term “insourcing” first appeared in business literature in the early 1990s (1,2). It is a combination of the words “in” and “outsourcing,” and it is a term used to emphasize the positive aspects of bringing functions back in-house. Insourcing is used to describe a business’s function generally focusing on the core competencies. Insourcing is synonymous with the term “in-house” and will be used interchangeably.

Keeping core functions in-house for an equipment manufacturer has key benefits that include both processes and people. Of course, keeping processes in-house could require more employee investment, including training, performance assessment, process documentation, and infrastructure. The improved benefits from keeping functions in-house are not always in the forefront of sourcing decisions but are highlighted as follows:

Value in People — Benefits from In-House Production

• Improved Quality – Employees are more familiar with the company’s products, services, and culture. Investment in people for core functions leads to improved speed and quality resulting from training, experience, and a stake in the outcomes. Stakeholders generally have less turnover and work together as a team better.

• Enhanced Innovation – Keeping activity in-house fosters teamwork. Value is created when companies foster innovation by bringing together employees from different departments and disciplines. This can lead to new ideas and solutions that would not be possible if a function were outsourced.  
• Improved Customer Service – In-house customer service can help companies to provide a more consistent and personalized experience for their customers. Customer service personnel have access to information quickly to answer the tough questions that arise.
• Engineering, Research, and Development – In-house engineering, research, and development can help to maintain a competitive edge in rapidly changing industries. Engineering teams function best when near manufacturing to quickly address concerns and limit project delays. Expertise developed in-house is best to improve existing products and invent new ones to stay competitive in the market.

• Custom Solutions – In-house expertise leads to more flexibility to customize processes and procedures to meet customer-specific needs and maintain a high standard of quality.

Value in Process — Benefits from In-House Production

• Increased Control – When a company keeps a function in-house it maintains full control over the process and outcomes. Control is important to maintain product quality and either fix or improve processes in place for an equipment manufacturer. 
• Increased Agility – Insourcing can give companies a competitive advantage by enabling them to respond more quickly to changes in the market. This is because insourced functions are not subject to the same delays and bureaucracy as outsourced functions.
• Reduced Costs – Insourcing can sometimes lead to reduced costs, especially when the company has the expertise and resources to perform the function more efficiently than an external provider. Employees that are trained and have a stake in the business tend to help efficiency for the sake of better products and long-term business stability.
  
  

Two specific examples below recognize the importance of in-house production with regards to treatment of stainless steel and BABA (Build America, Buy America) compliance.

Stainless Steel Surface Treatment

Stainless steel is a common material used in wastewater treatment. Stainless steel is corrosion-resistant and has the structural strength needed to hold up to hydraulic forces present in larger wastewater applications. Stainless steel must have contamination removed from welded areas and the surface passivated to prevent biogenic metal corrosion present in wastewater applications. Corrosive forces are strong enough to damage equipment in a matter of months if the steel is not treated correctly. Obviously, any corrosion that occurs could compromise the structure and, to a lesser degree, the aesthetics of the equipment. Improper steel surface treatment can be very costly if equipment must be replaced or if parts must be replaced under warranty.

Total immersion in acid solution to both descale (remove iron and contaminants) and passivate the steel surface (promote a thin oxide layer) is a time-tested superior method approved by ASTM380 for stainless steel. The immersion process involves contacting all parts and pieces of equipment in a bath of nitric and hydrofluoric acid. 

Many businesses that handle stainless steel outsource the surface treatment process as it is deemed either too hazardous or too labor intensive. Alternative methods to the total acid immersion process can be used and are more cost effective but also more error prone. Manual methods such as abrasive blasting or manual scrubbing, while acceptable by ASTM Standard (4), are more subject to human error considering there may be as many as 100 welds to manually descale per unit. Experience has shown that it is much tougher to maintain the quality of welds if the descaling process is done manually versus a more automated and consistent immersion process.

Keeping the stainless-steel surface treatment process in-house and using best available technology has resulted in the following benefits:

1. Quality Control – In-house expertise helps maintain quality standards for the immersion process more so than if this process were outsourced to a low-cost supplier. There is less material rejected when the surface treatment process is done in-house. Superior processes are used for surface treatment and there is traceability back to a documented process if a problem does arise.
2. Credibility – An equipment supplier in the wastewater market will not have acceptable credibility if excessive corrosion occurs, compromising equipment. Excessive equipment corrosion will ultimately corrode a water company’s sales.
3. Overall Internal Cost Savings – Equipment is shown to last for years in very corrosive environments without need for replacement. Corroded parts are very costly, especially if a part or assembly must be replaced in the field under operating conditions. Limiting replacement costs is critical for a satisfied customer.

The Build America, Buy America (BABA) Act is focused on strengthening U.S. based manufacturing. BABA requires federal funds to be spent on manufactured products that can certify they meet at least 55% domestic content by cost. The clear reasoning for BABA is applying federal funds for domestic job creation and strengthened manufacturing base. As the EPA is defining and clarifying the domestic cost content calculations, the value of in-house manufacturing continues to prove its advantages. Increased control and tracking of materials for in-house processes makes calculations of cost simpler, while increasing the domestic cost content. As BABA is currently defined, a manufactured product made in-house with domestically made components will have little problem meeting BABA requirements. Customers of these products will also have a greater level of confidence in compliance through the streamlined supply chain and reduced number of suppliers that can change over the course of longer-lifecycle projects.

When sourcing equipment, it is important to understand the value in terms of quality and compliance that comes from a business that keeps competencies and control within. A short-term view may result in initial capital savings without considering lifecycle benefits, quality control and overall value. Supply chains can be stretched by war and pandemic but a company that builds from within has limited risk from these factors. In-house requires a longer-term investment at all stages of a manufactured product, but often makes the most sense for projects designed over years and built to last for decades. 

References:

1. Wall Street Journal titled “Insourcing: Companies Bring Back Outsourced Functions” 1993
2. Harvard Business Review “Outsourcing: A Strategic Perspective.” 1992   
3. Wikipedia https://en.wikipedia.org/?title=Insourcing&redirect=no
4. ASTM 380 Methods for Steel Passivation

Jay Conroy is President of Hydro-Dyne Engineering and 2024 WWEMA Executive Committee Chairman-Elect of the Water and Wastewater Equipment Manufacturers Association (WWEMA). WWEMA is a non-profit trade association that has been working for water and wastewater technology and service providers since 1908. WWEMA’s members supply the most sophisticated leading-edge technologies and services, offering solutions to every water-related environmental problem and need facing today’s society. For more information about WWEMA, visit www.wwema.org.