I don't like to post articles that are simply "Go to this link" types (though I suppose I've done it once or twice).

But I do want you to check out these links over at Evolving Excellence.  The series of articles refer to a company that we're all familiar with: Lego Toys.  They tell a couple of stories that wer'e familiar with: outsourcing core competencies and large consulting firms that get large paydays for bad advice.  (Here's the first blog article announcing Lego's decision back in 2006.  Then there's this next blog article announcing problems with the venture.  Finally, be sure to read this final article, which is the one that led me to the others and includes the admission by Lego's CEO that he made a dumb mistake.  Again, I know going to links is a pain but it's an interesting story and you want to get the full impact.)

Here's the executive summary:  Lego heeded the advice of Mckinsey (who was recently lauded here for a white paper on lean and culture change) to outsource the manufacture of its product to low-wage countries.  Eventually, Lego saw the error of its ways, and pulled most, if not all, of the manufacturing back to its Danish plants. 

I'm not opposed to outsourcing.  No company makes everything that it consumes.  But there is smart outsourcing and there is dumb outsourcing.  Rule #1: Never outsource core competencies or the manufacture of core products or their elements.

I once had a client that made (injection molded) large electrical boxes.  They had a clear Lexan cover that was difficult to produce without defects, the smallest of which showed up readily and clearly.  The plant manager told me that the company was thinking about outsourcing that component because it was so difficult to make.  They weren't looking to me for any advice on the matter (I was helping implement TQM) but told the plant manager that outsourcing the "hard to make" components was a mistake.  If process improvement was a core competency at the company (and they were spending a good bit of money on TQM to make it so) then the component should be kept in-house.  If the company outsourced anything, it should  be products that were easy to make, products that continual improvement couldn't add as much value to.  I don't think it was because of my advice to the plant manager, but the company decided to keep the hard to make covers in house.  And, you know what?  They never did get to the low levels of scrap they wanted to but they got low enough so that they were cost effective. All through continual improvement.