Summary
OEMs, Tier1s and Engineering Services Suppliers are all under increasing pressure to outsource design and simulation activities in order to:
- Benefit 1: Reduce Costs
- Benefit 2: Convert Fixed Costs to Variable
- Benefit 3: Reduce Time
- Benefit 4: Add Capability
- Benefit 5: Add Capacity
- Benefit 6: Focus on Core Competence
However, there are three recognised problems with outsourcing:
- Problem 1: Compromise between Expertise and Price
- Problem 2: Expertise from Consultants not as Expected
- Problem 3: Hidden Costs with “Low Cost” ITES Providers
6 Benefits of Engineering Outsourcing
Benefit 1: Reduce Costs
Building and maintaining a full CAE capability in-house can be expensive because the discipline has become so specialised.
Several types of software are typically required to cover each of the:
- Physics (e.g. CFD, FEA, MBD)
- Products (e.g. engine, transmission, vehicle)
- Attributes (e.g. weight reduction, emissions, NVH)
Each simulation discipline (CFD, FEA, MBD) typically requires an engineer that is a specialist in that area. This results in considerable costs to recruit, train and maintain a team.
A solution to this is to outsource some or all of the CAE activities to a company that already has all of the tools, engineers and procedures required.
Benefit 2: Convert Fixed Costs to Variable
By outsourcing certain activities rather than maintain the capability in house a company can convert fixed cost to variable.
This improves the ability of companies to respond to financial challenges, reducing risk.
Outsourcing engagements can be turned on and off relatively quickly with no resulting bad feeling within the permanent employees.
Benefit 3: Reduce Time
Product development cycle times continue 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 can significantly reduce project durations.
Outsourcing providers can often provide multiple resources and/or operate shifts enabling fast turnaround of projects.
Outsourcing entire projects to capable suppliers allows companies to focus their resources on critical projects resulting in their faster completion
Benefit 4: Add Capability
The breadth, complexity and cost of engineering simulation tools and techniques means that only a very few companies can deliver every aspect of a vehicle or powertrain engineering programme at a competitive standard
Better to maintain capability in the most common tools and outsource the rest e.g.:
- Maintain FEA capability but outsource any CFD requirements
- Keep vehicle engineering in house but outsource powertrain
By focusing its efforts on developing a smaller range of capabilities the company has a better chance of creating real expertise improving its competitiveness.
Companies that don’t currently have a design or simulation capability can work with an outsourcing provider to add that capability or offering.
Benefit 5: Add Capacity
Most organisations experience peaks and troughs in demand.
It is inefficient to maintain permanent resources at a level to satisfy the peaks. This will result in unnecessary costs and bored employees at times of low demand.
Conversely, maintaining a minimum resource level means the company missing out on potential revenues or slower time to market and stressed employees at times of peak demand.
By outsourcing activities to a trusted partner at times of high demand, companies can maintain an efficient resource level to cover the low or average demand loads but still take advantage of the demand peaks when they occur.
Benefit 6: Focus on Core Competence
In a highly competitive environment it is essential that companies focus on developing their core competence i.e. the reason their customers choose them.
Very few product or service companies attempt to deliver all aspects by themselves. Instead they work with partners to deliver a complete offering.
Outsourcing certain activities that are considered non-core to third party specialists can free up expensive, highly-skilled resource to work on developing a company’s core competencies increasing their competitive advantage.
3 Problems with Engineering Outsourcing
Problem 1: Compromise between Expertise and Price
Unfortunately there are three common problems with outsourcing:
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.
As one European OEM explained:
“The Base Engine goes to [European powertrain consultancy]; and the ‘scabby bracket’ goes to [low-cost supplier].”
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 (LCCs), 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.
Problem 2: Expertise from Consultants not as Expected
The second problem is that clients don’t always get the expertise they were expecting because:
- Consulting companies have a large number of engineers. They are not all “A” team.
- As with any company there are a lot of junior, inexperienced engineers
- Most Consulting companies have offices and resources in low-cost locations to bring down costs
Particularly if the price has been negotiated down, a client is unlikely to get the “A” team. They will be working for the major accounts on the highest paying projects.
Problem 3: Hidden Costs with “Low-Cost” ITES Providers
The third challenge is that the cost-savings promised by low cost ITES providers often do not materialise. 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
