When the chase for lower manufacturing costs can bring product development efficiency at risk.
M.Sc.E.E (Civilingeniør), DTU 1990 EMBA, Henley Business School 2010 Philips 1990-1997 Alcatel Space 1997-2000 Brüel & Kjær 2000-2006 RESON 2006-2010 Lean Partners 2010- Lean Partners
Brüel & Kjær Establishing development centres in USA and Japan Offshore outsourcing of software development to India RESON Subcontracting software development Subcontracting project management Insourcing manufacturing Outsourcing manufacturing Redesigning supply chain Lean Partners Bridging gaps between R&D and Manufacturers Lean Partners
In an ever changing competitive world, the challenges for corporate leaders in the Supply Chain are many: Increased efficiency and lower cost. Higher quality and reliability. World class delivery performance. Minimised capital investments. Reduced inventories. Faster cash conversion cycles. For this reason many high tech companies in the last decade have outsourced manufacturing to low labour cost countries: Focus on non-core competencies. Utilise suppliers lower cost base and economy of scale.
Experiences show that mutual learning and innovation in relationships with external manufacturing partners most often does not happen. When central activities in the value chain are outsourced, it reduces the opportunities for internal interaction and learning across central competencies: Low integration of manufacturing knowledge in product development. Difficult to reduce production costs and time-to-market. Difficult to simultaneously develop product and manufacturing processes Difficult to maintain internal benchmarks for prices and processes.
High-tech products have strong interdependence between product design, engineering and manufacturing Being able to observe manufacturing processes and talk to plant people greatly improves design for manufacturability Multi-functional product development teams are only feasible when they are working nearby the manufacturing environment A company that has failed in building core product manufacturing competence in R&D will suffer consequences on NPI efficiency: Longer time to market for new products Less innovative and less competitive products Less adaptive to fast changes in the markets Loss of competitive edge
New taxes, employee salary laws and benefits has increased the cost of manufacturing in China. A very long supply chain, high inventory pipeline, shipping costs, different time zones, language and cultural barriers further adds to the cost of managing an off shore outsourcing partner In total, China s manufacturing advantage as an low cost country only amounts to about 5 percent and now ranks behind India and many other Asian countries
What does this mean for future outsourcing strategies? Keep everything in-house? Outsource everything including R&D? Outsourcing selected products? Outsourcing selected competencies? Outsourcing selected processes?
Synergies between R&D and manufacturing must be addressed: When engineers push the edge of performance, they don t yet understand how changes in design affect manufacturability and vice versa Product design, manufacturing processes and outsourcing decisions cannot be taken independently Paradigms that low cost countries are always cheaper should be challenged Increased logistics and handling costs of managing offshore outsourcing should be compared with labour cost savings Lean manufacturing can provide a cost efficient solution to keeping manufacturing in-house
Candidates for outsourcing Standard parts that have widespread use, no variations, and are not likely to go obsolete. Parts that benefit from mass production economies-of-scale High-volume industry-standard parts. Tasks and parts that require special skill, talent, or costly equipment. Tasks and parts that utilise the advantage of a suppliers capabilities Candidates for insourcing and optimisation using Lean Products with standard parts manufactured in flow High-variety parts built on demand Products requiring special skills or core competencies
Test and transmission equipment Creation and implementation of new R&D project management processes to improve time to market, schedule accuracy and product quality Implementation of ISO9000 system in the R&D department Implementation of new business processes for customised projects unit Power electronics for space Implementation of project portfolio and resource management system to improve resource efficiency Acoustic measurement equipment Reorganisation and transformation of R&D department Implementation of agile development processes Creation and implementation of global software development systems and processes Establishment of offshore development centre Marine measurement and detection equipment Restructuring of the Supply Chain, closing manufacturing sites and outsourcing non-strategic parts of the manufacturing process Reduction of inventory Cost reduction of purchased materials Efficiency improvements in manufacturing through successful LEAN implementation Efficiency improvements in procurement, order handling and logistics processes Lean Partners