Company Profiles - Why NCR Is Retreating From Outsourcing
Businessweek interview with Bill Nuti on NCR reversing the outsourcing strategy and now bringing more of it in-house (in the US). [video]
Article is published in the Aug. 24/31 edition of BusinessWeek magazine.
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By Pete Engardio
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. Instead, says one NCR manager, the collaboration became “an enormous and costly exercise” that led to product delays and upset customers.
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.
Behind the reversal is a sweeping rethink of corporate strategy prompted by the recession. The financial crisis hit NCR’s
key customers—large banks and retailers—especially hard. Besides ATMs, NCR makes such devices as super market self-checkout kiosks and bar-code scanners. Sales dived 16% in this year’s first half, to $1.12 billion, while profits plunged 91%. NCR does not expect demand to rebound quickly. “We spent a lot of time thinking about how we can win under the new norm,” says CEO Bill Nuti, who came from Symbol Technologies in 2005 after Mark V. Hurd left to lead Hewlett-Packard.
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. Besides generous state tax breaks and worker training subsidies, NCR says it was lured from Dayton by advanced manufacturing programs at local universities. “We want quantum-leap changes in our cost structure,” Nuti says. “To effect that change, you have to control your destiny.”
The new setup will be far more streamlined than NCR’s current ATM production in factories spanning four continents. 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 International, 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.”
NCR isn’t ditching globalization. Flextronics will still make machines that are less complex and produced in higher quantities. NCR plants in Latin America, Europe, and Asia will make ATMs for those regions. Other U.S. manufacturers are reassessing their scramble to outsource high-end products to Asia. Says electronics manufacturing consultant Charlie Barnhart: “Often, it would be cheaper for them to manufacture by themselves.”
Posted by staff at August 14, 2009 07:38 AM