The 5 Benefits and 2 Problems of CAE Outsourcing
Vehicle and powertrain manufacturers as well as the Tier1 component and Engineering Services Suppliers (ESPs) are under increasing pressure to outsource design and simulation activities to:
Benefit 1: Reduce Costs
It is an increasingly crowded marketplace. With entrants from emerging countries such as China and also OEMs’ desire to sell product in these large but price-sensitive emerging markets, OEMs must reduce the cost of their products to remain competitive. Utilising engineering resource from these emerging markets can significantly reduce the cost of engineering activities. An additional advantage is that this is a flexible resource which can be “switched on and off”as required.
Benefit 2: Reduce Time
Product development cycle time continues to reduce as OEMs compete to be first-to market with new technologies or platforms and so gain first-mover advantages. The ability to add engineering resources at critical times in the product development cycle at short notice can significantly reduce project durations.
Benefit 3: Add capability
The breadth, complexity and cost of engineering simulation tools and techniques means that only a very few companies have the ability to deliver every aspect of a vehicle or powertrain engineering programme. Outsourcing certain activities to third party specialists can give companies added capability when required.
Benefit 4: Add Capacity
Most organisations experience peaks and troughs in demand. It is inefficient to maintain permanent resources at a level to satisfy the peaks. Companies can maintain an efficient resource level to cover the low or average teams but still take advantage of the demand peaks by temporarily increasing capacity by outsourcing when the demand is greater than your internal ability to supply.
Benefit 5: Focus on Core Competence
Outsourcing certain activities that are considered non-core to third party specialists can free up expensive, highly-skilled resource to work on core competencies. This increases a company’s competence in these areas and in turn increases competitive advantage.
However there are two recognised general problems with outsourcing:
Problem 1: Compromise between Expertise and Price
The first of these is that, invariably, when looking to outsource engineering activities companies must choose between competence and price.
This is because the market for outsourced CAE services is divided into two segments: high expertise technical consulting firms (Consultants) and low-cost Information Technology Enabled Services (ITES) providers. The Consultants are often Europe based, concentrate on a niche (e.g. automotive transmissions), employ engineers with excellent technical skills and experience and charge hourly rates of between £60 and £150 per hour. The ITES providers are often located in Low Cost Countries (LLCs), deliver to a broad client base often including non-engineering industries such as IT and financial services, employ engineers with limited skills and experience and charge hourly rates of between £10 and £30 per hour.
As one European OEM explained: “The Base Engine goes to [European powertrain consultancy]; and the ‘scabby bracket’ goes to [low-cost supplier].”
Problem 2: Hidden Costs with “Low Cost” ITES Providers
The second challenge is that the cost-savings promised by low cost ITES providers often do not materialise. Or at least, not to the extent expected. This can be due to a number of factors including:
- Significant amount of preparation work required to “package” the work sufficiently;
- Time taken to educate the provider in the required procedure;
- Significant management overhead to oversee the provider;
- Rework of work that is not up to the desired quality;
- Late delivery.