WHITEPAPER. Engineering Services Outsourcing A research on drivers and trends
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1 WHITEPAPER A research on drivers and trends
2 1 WHITEPAPER INTRODUCTION THE RESEARCH COMPANY QEDBATON QEDbaton delivers high impact demand generation solutions to technology companies across global markets. With a team of 100+ demand generation specialists, QEDbaton converses with over 5000 technology decision makers & influencers monthly while tracking over companies. QEDbaton has worked with over 70 technology companies in the past 6 years. Its experience spans verticals & horizontals in geographies such as North America, Europe, Middle East, APAC and India. QEDbaton's key services include: Research Services - Market entry and market intelligence reports, list building and contact discovery and B2B surveys Demand Generation Services - Lead nurturing, lead qualification, appointment setting, event enrolment and direct marketing THE RESEARCH SPONSOR BWIR Barry-Wehmiller International Resources (BWIR) is part of the consulting platform of the $1.2 billion Barry-Wehmiller Companies, Inc., a market leader in packaging, paper and paperconverting capital equipment manufacturing, headquartered in St. Louis, Missouri with global operations. BWIR brings the best of both worlds - the dependability of a global billion dollar company with the benefits of distributed operations. BWIR has been recognized as a pioneer in outsourcing with a distributed global network of talent and resources. ISO 9001:2008 certified, BWIR has validated systems and processes in place to deliver superior services to their customers. In engineering services, BWIR offers the entire gamut of services ranging from product development, value engineering, sustaining engineering, CAD services, controls and embedded systems support. BWIR has over a decade pioneered setting up and managing Global Engineering Centers (GECs) for a wide variety of manufacturing companies, thereby helping them with faster product development and reduce operational costs.
3 WHITEPAPER INTRODUCTION ABOUT THE RESEARCH (ESO) has emerged as one of the major outsourcing initiatives in the last decade among the engineering and manufacturing organizations. With the growth of reliable communication systems the new globalization paradigm has changed from products that can be manufactured anywhere to services that can be rendered anywhere. This research is intended to understand the primary drivers to engineering outsourcing, the trends and cues from the practitioners. The broad parameters surveyed and analyzed were: Outsourcing trends Top outsourcing destinations Outsourcing partner selection criteria Type of engineering work outsourced Prevalent engagement models The survey was conducted with a broad range of manufacturing companies spread across geographies and revenues. The underlying idea was to get these details from the practitioners and hence the survey was targeted at senior engineering professionals in over a 100 manufacturing companies. Survey Demographics 13% 22% 43% 22% 17% 4% 16% 60% 52% 9% 9% 30% Industrial Machinery Equipment Manufacturers Oil & Gas Equipment Manufacturers Consumer Electronics Rotating Equipment Manufacturers Director/Head/ VP- Engineering Director/Head Product Development and R & D Engineering Manager Others Northern Europe Southern Europe Western Europe North America 2
4 3 WHITEPAPER OUTSOURCING STATISTICS Outsourcing Statistics 50% 50% Have outsourced Engineering Have not outsourcing Engineering It was observed that companies in the North American region were outsourcing more compared to the European companies. It was also observed that a larger percentage of mid-sized engineering companies (>$200 mn in revenue) were outsourcing engineering services and setting up captives engineering centers in emerging economies. Another interesting observation was about 30% of the companies surveyed ran their own engineering centers in emerging economies, but also outsourced engineering services to third party engineering service providers as a de-risking strategy and to build a global delivery model. A large percentage of these captive engineering centers were setup as engineering centers to support their manufacturing bases in emerging economies. DRIVERS TO OUTSOURCE Reasons for outsourcing Flexible arrangement to handle sudden spikes of work Availability of skills Outsourcing non core activities Cut down operational costs Reasons for not outsourcing Lesser volume of work Fear of losing intellectual property Work requires high degree of domain expertise Concerns with respect to managing the external team 13.64% 22.73% % 59.09% Contrary to popular belief, the primary driver for outsourcing does not seem to be cost. While companies do want to take advantage of outsourcing at a lower cost, the priority is to maintain flexibility and outsource noncore tasks and augment engineering skills to get products faster, better and cheaper to the market place. Some respondents even mentioned that there are some services that they outsource at a premium since this model allows them the flexibility to convert fixed costs into variable costs. The biggest deterrent to outsourcing seems to be worries with respect to IP concerns. The companies that have chosen to outsourcing have dealt this by choosing the right partners and selectively outsourcing non-core activities. In some cases, if the work content was very critical, the companies chose to take advantage of a global delivery model and executed it onsite, rather than offshoring it.
5 WHITEPAPER PREFERRED OUTSOURCING DESTINATIONS India, followed by China have clearly emerged as the most preferred destinations when it comes to offshoring engineering services or to setup captive engineering centers. The respondents attributed the reasons for this as cost arbitrage, strong manufacturing base, emerging local demand and a large talent pool. Preferred outsourcing destinations 23% 23% While India (ranked as the top offshoring location) has the advantage in terms of English language skills, cultural compatibility with the West, a robust political and legal system, and a better perception of protecting Intellectual Property (IP), China (the second ranked offshoring location) has much better infrastructure and a well-developed manufacturing base. Other emerging destinations include Taiwan (Computing Systems), Ireland (Medical Devices), Poland and Brazil (Construction/Heavy Machinery). India 54% China Others OUTSOURCING PARTNER SELECTION CRITERIA It was observed that availability of skills is the primary driver for selecting a partner. Ease of communication and cost are secondary drivers for selecting a partner. It was also observed that most manufacturers chose their outsourcing partners without bias of offshoring destination except in cases where manufacturers chose partners based on proximity to manufacturing base. Outsourcing partner selection criteria Domain expertise / Product knowledge of the Ease of Communication Cost Infrastructure available with the vendor Customer references Proximity to production plant 2.43 Proximity to customers
6 5 WHITEPAPER TYPES OF SERVICES OUTSOURCED Engg. services outsourced to partners New Product Development 77.78% CAD Technologies 50.00% Sustenance Engineering 38.89% Controls Engineering 27.78% Value Engineering 27.78% Product development & value engineering emerged as the top service outsourced correlating with the fact that the top partner selection criteria was availability of skills. But it is intriguing that the top reason for outsourcing was flexibility to handle sudden spikes of work, which did not seem to correlate with the type of services outsourced. In discussion with a random set of re s p o n d e n t s, m o s t a c k n o wl e d g e d t h a t p ro d u c t development initiatives usually take a back seat when they are filled with sustenance engineering/ order fulfillment jobs and this extends their product development lifecycles. PREFERRED ENGAGEMENT MODELS Preferred engagement models 30% 10% 60% Project based Resource based Both Most respondents indicated that project based engagement models were favored more than Resource Based engagement models. To derive the benefit of a long-term relationship and knowledge retention, most manufacturers had dedicated teams retained with their outsourcing partners. But, to maintain accountability and to demonstrate value they were running projectbased engagements within these retained dedicated teams to maximize output. The Service Level Agreements in these cases were clearly based on hours allocated for task completion. The average satisfaction level with the quality of services provided by their existing outsourcing partners stood at 4 on a scale of 1 to 5. Manufacturers that gave lower ratings cited the main reasons as not being happy with the amount of time being spent on training & partner interaction and a few quality concerns. It was also observed that most manufacturers had multiple outsourcing partners as a de-risking strategy. The large manufacturers echoed that once they reached a large scale and steady state of operations with a particular partner, they felt it is necessary to diversify to other partners.
7 WHITEPAPER CONCLUSION Based on the survey analysis, it is clear that is a practice that is fast catching up with manufacturers. Almost all manufacturers are faced with typical engineering challenges of reducing budgets and pressures of faster, better and cheaper product development. With the availability of advanced communication technologies, global delivery of services has been made much easier, which is evident from the continuous growth of outsourcing of services from the manufacturing industry. Most small and mid-market manufacturing companies are also talking about outsourcing and it is no longer a service accessible only by the large companies. While outsourcing presents a huge opportunity beyond doubt, it also comes with its share of challenges such as IP security and communication. The more established service providers have clearly defined processes and systems to handle these and that is what manufacturing companies are looking for. The expectation is that the service providers will lead them into a smooth outsourcing relationship through a process based approach. Most manufacturers acknowledge that their outsourcing relationships have been successful because they believed that outsourcing is a long-term strategy for their organizations and have taken the right steps to ensure that these relationships grow and prosper. The following are some criteria that stand out for evaluating suitable engineering outsourcing service providers among others. 1. Availability of customizable engagement models with scalability to offer flexibility to manage sudden spikes 2. Availability of a global delivery model for better communication and ease of operation 3. Access to large pool of appropriate skills 4. A process driven approach to outsourcing 5. The ability to drive SLA based engagements 6
8 About BWIR Barry-Wehmiller International Resources (BWIR) is part of the consulting platform of the $ 1.2 billion Barry-Wehmiller Companies, Inc., a market leader in packaging, paper and paperconverting capital equipment manufacturing, headquartered in St. Louis, Missouri with global operations. BWIR brings the best of both worlds - the dependability of a global billion dollar company with the benefits of distributed operations. BWIR has been recognized as a pioneer in outsourcing with a distributed global network of talent and resources. ISO 9001:2008 certified, BWIR has validated systems and processes in place to deliver superior services to our customers. USA 8020, Forsyth Boulevard, St Louis, MO Phone: +1 (314) Fax: +1 (314) Toll free: +1 (800) INDIA MPL Silicon Towers, 23-1/B3, Velachery-Tambaram Road Pallikaranai, Chennai Phone: +91 (44) Fax: +91 (44) info@bwir.com Web:
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