OUTSOURCING THE LATEST
INSECURITY FOR WORKERS
is "in" among manufacturing employers and public and service sector
employers as well. UE members in a variety of workplaces find themselves required to be
continually vigilant to protect their jobs from the threat of subcontracting.
In fact, says UE Genl. Pres. John Hovis, outsourcing has been
revolutionized and become so prevalent that it should be acknowledged as a new
manufacturing technique that unions need to struggle with but cant wish away.
But if workers already have cause to fear job farm-out, their nightmares
could take a hellish turn as employers increasingly look to farm in work. The
latest trend in outsourcing is insourcing having subcontractors set up shop
in the shop.
Volkswagen opened a world truck and bus plant in Resende, Brazil in
November 1996 that some bosses believe may be the factory for the new millennium.
Volkswagens suppliers not only supply components but actually assemble units into
vehicles on the VW assembly line.
SUPPLIERS ON THE FLOOR
Welcome to the world of modular production and the worlds
first plant run by subcontractors. The production flow integrates seven
"modules" sequentially. Six are designed for VWs strategic business
partners its suppliers.
Each partner occupies a section of the plant and has responsibility for
the mounting of complete assemblies. Each partner is responsible for quality control and
is paid only when the totally assembled vehicle is approved by VW.
Among the supplier-partners is Rockwell International, which is
responsible for axles and suspension systems.
VW has essentially "farmed in" its assembly operation, being
exclusively responsible only for the seventh and final production module, final product
testing. "What are conspicuously scarce are Volkswagen workers," reported the New
Assembly-line workers in the new plant are paid approximately two-thirds
less than auto workers in Volkswagens Sβo Paulo plant. Any down time on the
assembly line is charged to workers, who must make it up without overtime.
Why the new process? A Brazilian VW executive explains that the old
manufacturing system pioneered by Henry Ford "cant respond fast enough to the
challenges of the global economy."
The Ford Motor Co., meanwhile, began building a new plant in Brazil
last July which will employ the "modular consortium" system. Ford suppliers are
reportedly investing a total of $300 million towards the companys "Amazon
Project;" the supplier-partners will share factory space with Ford workers,
delivering completed units of new vehicles instead of several parts that would later be
assembled on the line.
General Motors cutting-edge "Blue Macaw" plant,
also in Brazil, is likewise based on a new relationship with suppliers; its
scheduled to open this spring. Chrysler is also getting into the act, also in
Brazil, opening a $315 million modular truck plant there last summer.
But corporate plans for re-engineering manufacturing are not limited to
ITS HAPPENING HERE
General Motors, which has already had bruising battles with the United
Auto Workers over outsourcing, has a North American version of its Brazilian Blue
Macaw." GM envisions a smaller labor force (reduced by as much as half) and "new
manufacturing techniques" for what the company calls "Project Yellowstone."
Suppliers will build entire sections of a car; GM workers will do final assembly.
GMs Oklahoma City assembly plant has been chosen for the launch of Yellowstone.
GMs decision announced Aug. 3, 1998 to spin off its $31 billion Delphi
Automotive Systems components division is believed by some industry analysts to be
part of the companys shift to modular production.
Modular production "looks great on paper," says Business Week.
With suppliers shouldering more of the risk and investment, auto makers can cut the size
of assembly plant by two-thirds and slash the workforce by half.
Fords Batavia, Ohio parts plant will produce "gearless"
transmissions in a joint venture with the German firm, ZF Friedrichshafen AG,
holder of a patent for continuously variable automatic transmission. (Ford will own 49
percent of the new entity, ZF 51 percent.) Parts companies will install pre-assembled
modules in model-year 2001 cars.
According to Business Week, some experts believe the Big Three auto
companies will eventually sell off their engine and auto assembly plants.
FUTURE IS ALREADY HERE
Deere manufactures big mowers at its plant in Fuquay-Varina, N.C.; MetoKote
Corp. is a painting subcontractor with an adjacent facility. Pieces of Deere machines
to be painted are whisked at 45 feet a minute to and from MetoKote via conveyer. The
arrangement between the two companies means that MetoKote pays for Deeres painting
operations, deals with the Environmental Protection Agency and handles changes in paint
technology. It also wipes out the shipping costs Deere incurred by farming out painting
Graham Packaging employees represented by UE Local 1421
at its Santa Ana plant will install and operate a bottle facility inside the Quaker
Oats beverage plant in Atlanta, blow molding plastic bottles for Gatorade. This will
be Quaker Oats first-ever in-plant operation. Graham, on the other hand, has nearly
20 on-site plants worldwide. "Weve done this a long time," says Roger
Prevot, Graham senior vice president. "More of our new facilities are on-site than
CONVERGENCE OF TRENDS
There is a convergence of two trends here: subcontracting and
whats been described as "lean, mean supply-chain management."
An early example of subcontractors working inside the plant because
of the corporate outsourcing craze has been General Electrics use of outside
maintenance personnel a practice contested by UE from the shop floor to national
Its becoming a common practice for companies to rent each
And as example of supply-chain management, look at how GE Transportation
Systems in Erie, Pa. (the employer of Locals 506 and 618 members) has built
a close relationship with suppliers like Dominion Castings, a Canadian division of
Chicago-based NACO. Beginning with a long-term contract for truck castings in 1993,
GEs relationship with its supplier deepened when NACO became involved in the design
and production of its steerable locomotive truck. "The NACO tie-up fits into a larger
GE strategy that targets just-in-time delivery from suppliers and significant inventory
In another variation, IBM, Hewlett-Packard and Compaq have
begun sending bare-bones machines to distributors; the distributors finish assembling the
computers when the orders come in. One Hewlett-Packard executive was quoted saying,
"Putting parts together? Others can do that." Another HP executive recalled for Fortune
magazine how 20 years ago, H-P workers made screws and steel, and wound motors. Now
production is quickly farmed out.
Nike and Dell are extreme examples of "hollow
corporations" all of their goods are produced by subcontractors.
Visionaries say that if manufacturing has a future, this is it.
Inventories all but disappear as product designers, manufacturers and distributors are
linked electronically. Goods will be produced based on retailers daily needs; even
cars will be assembled according to customer specifications.
Promoters of insourcing say the new partnerships allow companies to cut
costs, use their resources more efficiently, focus on specific goals, gain access to
others production expertise, gain economies of scale and get product to market
For example, management at VWs Resende plant claims it can
concentrate better on logistics, product engineering, process and quality assurance and
"Observers in Brazil believe that this type of closer
manufacturer-supplier relationship represents a trend that is here to stayand not
just in the automotive industry," reports Industry Week. "It may be more
easily implemented in a greenfield plant, they acknowledge, but if the right strategy is
followed regarding unions, it might be possible to introduce it in existing plants as
THE RIGHT LABOR STRATEGY
The "right" labor strategy would presumably require
neutralizing, if not eliminating, and certainly avoiding union organization.
If organized, workers would have a way of objecting to the seamy side of
this flexibility layoffs, deskilling and smaller paychecks.
This institutionalization of a two-tier employment strategy gives the
bosses a powerful weapon against unions. Not surprisingly, last November union members at
GM and VW plants in Sβo Paulo, Brazil accepted managements first offer on a new
In Resende, Brazil, local union leaders hope to organize the VW plant
eventually but admit the web of employers poses a challenge.
OUTSOURCING IS IN
The insourcing phenomenon is bad news to those American workers who
are already under threat from outsourcing and should be of concern to those who
work for suppliers. In the new "flexible" and "lean" global economy,
subcontractor jobs can be outsourced.
In 1994, U.S. companies subcontracted about $16 billion worth of work
a figure expected to grow to $37 billion in 1998. A 1997 study by the OI saw
companies planning projects that would double their outsourcing of all types, including
services as well as production of parts. Last year, companies covered by a Dun &
Bradstreet survey said they would increase manufacturing outsourcing alone by 25 percent.
Manufacturers account for nearly two-thirds of all outsourcing
The electronics industrys subcontracting manufacturing sector is
growing faster than overall electronics sales. Nestlι Corp. may own 495 plants
world-wide, but subcontractors produce more than half its production and almost half its
packaging. Big pharmaceutical firms are relying on small specialized biotech production
GM outsources about 55 percent of its work, Ford 62 percent and Chrysler
67 percent, compared to 75 percent for Japanese automakers. Four out of five auto-parts
plants are non-union.
"The restructuring that has swept the automobile industry for the
last several years seems pointed toward a two-tier industry: one union, one non-union; one
more or less well-paid; one, not; both with super-stressed workplaces," writes Kim
Moody in Labor Notes.
SERVICE AND PUBLIC SECTORS
Of course, not only manufacturing workers are affected. Information
services is a growth industry for subcontractors. For example, a subcontractor in India
handles the medical records for a hospital in suburban Washington, D.C. Companies from the
Philippines to Ireland are vying for U.S. office jobs.
Postal workers unions have been protesting plans by the nations
ninth-largest firm the U.S. Postal Service to subcontract work. Public
sector employees federal, state, county and municipal face severe threats
from subcontracting. School districts contract for services like cleaning.
Then again, UE Local 792 members at Wright State University
are employed by the universitys food-service subcontractor.
While many UE members are fearful of and have been fighting against
the threat of outsourcing, a growing number of UE members work in manufacturing
plants that supply parts to factories owned by major auto and electrical manufacturing
companies. They have benefited from the 1990s growth in outsourcing, but their jobs, too,
may be in danger.
"One change in outsourcing is that the suppliers of outsourcing
services themselves are beginning to outsource non-core functions and form alliances with
other providers to offer end-to-end services," says The Outsourcing Institute.
Sub-suppliers are providing hundreds of individual parts to main suppliers.
Already in the auto industry, companies are supplied by subcontractors who
in turn outsource work.
The ultimate so far, reports Fortune magazine: "A
rolling chassis being delivered by Dana Corp. to Chryslers new $315
million Dodge Dakota pickup-truck plant in Campo Largo, Brazil. The chassis arrives on
inflated tires complete with brakes, steering components, gas tank, and other parts
supplied by 70 companies, including ITT, TRW, Eaton, and Bosch."
U.S. industrys love affair with outsourcing and new fling with
insourcing is ominously reminiscent of Japans reliance on subcontracted labor. Each
big company employs 100 subcontractors, which in turn contracts out to hundreds more
companies, some with only a few employees. The wages and conditions of workers employed by
subcontractors are inferior to those employed by the major corporations.
The big Japanese corporations like this system because the work of the
tiny subcontractors can be of very high quality; if minor changes are needed they are easy
to make, allowing the corporations to remain highly competitive.
The bottom layers of the Japanese workforce are made up of subcontract
employees, "temporary" employees, "extra-workers," day laborers and
casual workers, employed by the subcontractors and myriad of small employers dependent on
Despite the hype, insourcing has already exhibited real-life problems
for big corporations like finding reliable suppliers and maintaining good relations
with subcontractors. When Daimler entered into a joint venture with a Swiss firm to
produce a micro-car plant in France last year, quality problems delayed the cars
introduction by six months. Daimler says modular assembly works but will not entrust
suppliers with production of its high-price Mercedes luxury sedans.
As the boundaries of U.S. manufacturing become blurred, all the way from
parts to distribution, accountability becomes more difficult a problem potentially
for business and labor. A subcontractor intricately involved in production is not so
easily fired. And who do unions bargain with or strike against?
As vertical integration gives way to "virtual integration," the
danger for business is that the insourcing model will simply shift labor costs without
For workers, the danger is that business will succeed at the
expense of their wages, benefits and jobs.
The union must get on top of insourcing or any subcontracting
before it becomes a reality in their workplace, counsels UE Genl. Pres. Hovis.
"We must be more vigilant about bargaining over subcontracting while
we still have bargaining power, before work is moved out or in," says