A Silicon Valley manufacturing company decides to outsource manufacturing operations and lay off thousands of employees. Their approach is a model for transitioning employees into brighter futures while increasing operational efficiencies. 

Background

Westinghouse Security Electronics had to update its manufacturing techniques to remain competitive. The inventor of proximity access control technology in 1972, WSE once led the electronic access control in innovation, technology, and quality. But, by the mid-1990s, WSE had an aging product line and obsolete manufacturing techniques; the company was falling far behind its competitors. While its product was manufactured by hand in the heart of Silicon Valley—neither efficient nor economical—its competitors invested heavily in research and development. They started outsourcing manufacturing to offshore plants with advanced equipment and procedures. The result was that WSE’s competitors achieved better technology, higher quality, and lower cost.

Decision to outsource

WSE researched ways to update its manufacturing process with advanced automated equipment to keep its manufacturing staff intact. However, the cost of new equipment would be more than ten times WSE’s annual gross revenues. The cost alone made the decision clear: outsource manufacturing or die. However, WSE was not eager to cut its manufacturing staff.

Many of WSE’s 200 manufacturing employees had been with the company for over five years; a few were even 25-year veterans. Since they had spent their manufacturing careers at WSE, none of them had experience with modern manufacturing techniques. Laying them off would mean putting them in the streets.

Objective of outsourcing

Regardless of the concerns about laying off the manufacturing staff, outsourced manufacturing offered WSE a way to gain the benefits of high-tech automated manufacturing techniques without paying for new manufacturing equipment. This meant lower manufacturing costs, increased product quality,

and increased production. WSE would redirect savings to development and marketing. In short, outsourced manufacturing gave WSE a way to survive.

Problems of outsourcing

The logistical difficulties aside, the transition to outsourced manufacturing posed issues that could result in severe problems for WSE. With the imminent layoff of the entire manufacturing department, WSE risked months of low morale, low production, attendance drop-off, vandalism, and theft.

Solutions

To avoid these problems, WSE management devised a plan to mitigate the downside of layoffs. They eliminated all off-shore manufacturing options and considered only local contract manufacturing partners. Any company bidding on the manufacturing process had to include job placement for WSE’s current manufacturing staff. The company that won the bid was a local contract manufacturer who agreed to hire 90% of WSE’s manufacturing staff. WSE then offered a $3,000 bonus and contracted severance pay to any manufacturing employee who stayed with the company through the transition process. All WSE employees received a tour of the manufacturing plant. Manufacturing employees started receiving training from the manufacturing partner. WSE communicated the progress of the transfer through weekly meetings and regular bulletins.

Success

WSE’s outsourcing strategy resulted in 90 percent of the manufacturing employees staying with WSE through the transition process. Production increased during the transition period, and there were no negligible signs of get-even-ism, typical with layoffs, i.e., vandalism, theft, fights, etc. In short, WSE gained the benefits of high-tech manufacturing without having to pay for new equipment and without having to send its employees to the unemployment lines. WSE also received national press for its innovative approach to layoffs.

Recommendations for other companies

Cutting off a division to save the company is something that most organizations face many times in their history. Unfortunately, this usually means eliminating many employees, profoundly impacting individuals, the company, and society. Regardless, job elimination is often handled with an impersonal slip, a two-week check, and a swift kick out the door. In other cases, news of impending layoffs are kept secret, until the employees show up for work and find the doors chained shut with a sign that says “plant closed, your check’s in the mail”.

For example, working as a mapping engineer on the Exxon oil shale project in southeastern Colorado, I watched an executive say on the eleven o’clock news one night: “Rumors of an impending shutdown are not true; we’re in this project for the long haul.” The next day, 2,200 workers faced roadblocks, closed gates, and armed guards telling everyone to go home. The project had been canceled. When we returned to the worker’s village, all the stores and company facilities were cleaned out, boarded, and abandoned. Anarchy took over the town, but no one was there to hear them, a tree falling in the wilderness. [See "Shale's Black Sunday" in the Denver Post, May 3, 2007; https://www.denverpost.com/2007/05/03/shales-black-sunday/]

In comparison, WSE’s approach to layoffs seemed a refreshing, ethical, and socially responsible way to handle what is usually an ugly experience for everyone; it can serve as a model for other companies to follow. Keeping the manufacturing local and insisting that the manufacturing partner employs the company's workers helps keep jobs in the community and allows the workers to transfer to their new jobs with minimal difficulty. This strategy also helps increase the morale and loyalty of employees who stay. The expense of severance bonuses is offset by reducing vandalism and maintaining production and quality.

An ethical, socially responsible approach to layoffs can also result in improved community and press relations as the company shows its loyalty to everyone with a vested interest in the success of the company.

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