A new framework for making sourcing decisions regarding low-volume, high-complexity products

Abstract

Compaq Computer Corporation's High Performance Systems Business Unit (HPSBU) manufactures a series of high-end computer servers called Alpha Servers. These servers are manufactured in relatively low volumes, typically for large institutions that require complex computer systems - either rapid number processing, as in scientific applications, or massive data processing, as in large database applications. They are mostly custom-configured for each customer, each server specifically assembled, and each system specifically configured to meet each customer's needs. As computer manufacturing processes become more standardized, and computers almost commoditized, it becomes impractical to manufacture all system components in-house. To that extent, Compaq has gradually outsourced more and more of the functions, which, combined, are necessary to deliver finished product to Compaq's Alpha Server customers. For instance, as computer manufacturing technology progressed, it quickly became evident, that keyboard manufacturing can, and should, be outsourced to a contract manufacturer, which can achieve economies of scale and produce large quantities of standard keyboards at minimal cost. On the other extreme, Compaq has made sure to keep most of its core competencies in-house, in order to preserve its competitive advantage. The key question faced by Compaq today is which functions to preserve in-house, and which to outsource. A new conceptual model for making this make or buy decision is presented. The purpose of this model is to raise the numerous issues at stake when considering outsourcing of a particular function, specifically when dealing with low-volume, high-complexity products, such as the Alpha Server. This model provides Compaq with a structured method of analyzing the various components that make up the finished product delivered to the customer, and deciding which need to be maintained in-house, which should be outsourced, and which of those can be outsourced. Initial model implementation was performed on the latest Alpha Server product family, dubbed Miracle for the purpose of this document.