Engineering Services Outsourcing A research on drivers and trends WHITEPAPER
Mar 26, 2016
Engineering Services OutsourcingA research on drivers and trends
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INTRODUCTION
1
Engineering Services Outsourcing Drivers and Trends
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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 15000 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
email direct marketing
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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 paper-
converting 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.
2
INTRODUCTION
Engineering Services Outsourcing Drivers and Trends
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“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.”
Engineering Services Outsourcing (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·
ABOUT THE RESEARCH
Survey Demographics
13%
22%
22% 43%
Industrial Machinery Equipment Manufacturers
Oil & Gas Equipment Manufacturers
Consumer Electronics
Rotating Equipment Manufacturers
9%
30%
52%
9%
Northern Europe
Southern Europe
Western Europe
North America
17%
60%
4%
16%
Director/Head/ VP-
Engineering
Director/Head Product Development and R & D
Engineering Manager
Others
OUTSOURCING STATISTICS
3
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.
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 non-
core 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.
DRIVERS TO OUTSOURCE
Engineering Services Outsourcing Drivers and Trends
50%50%
Outsourcing Statistics
Have outsourced Engineering
Have not outsourcing Engineering
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Reasons for outsourcing
4.13
3.77
3.14
2.65
Reasons for not outsourcing
59.09%
45.45%
22.73%
13.64%
Flexible arrangement to handle sudden spikes of work
Availability of skills
Outsourcing non core activities
Cut down operational costs
Lesser volume of work
Fear of losing intellectual property
Work requires high degree of domain expertise
Concerns with respect to managing the external team
PREFERRED OUTSOURCING DESTINATIONS
4
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.
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).
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.
Engineering Services Outsourcing Drivers and Trends
54%
23%
Preferred outsourcing destinations
23%
OthersIndia China
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Outsourcing partner selection criteria
4.19
3.90
3.80
3.16
2.89
2.43
1.30Proximity to customers
Proximity to production plant
Cost
Customer references
Infrastructure available with the vendor
Domain expertise / Product knowledge of the
Ease of Communication
TYPES OF SERVICES OUTSOURCED
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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.
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 project-
based 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.
PREFERRED ENGAGEMENT MODELS
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.
Engineering Services Outsourcing Drivers and Trends
27.78%
27.78%
38.89%
50.00%
77.78%
Value Engineering
Controls Engineering
Sustenance Engineering
CAD Technologies
New Product Development
Engg. services outsourced to partners
Preferred engagement models
Project based
Resource based
Both
30%
60%
10%
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CONCLUSION
6
Based on the survey analysis, it is clear that Engineering Services Outsourcing 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
Engineering Services Outsourcing Drivers and Trends
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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 paper-converting 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
Phone: +1 (314) 862 8000 | Fax: +1 (314) 862 4154
Toll free: +1 (800) 862-8020
8020, Forsyth Boulevard, St Louis, MO 63105
INDIA
MPL Silicon Towers, 23 - 1/B3, Velachery-Tambaram Road
Pallikaranai, Chennai - 600 100
Phone: +91 (44) - 4390 9100 | Fax: +91 (44) - 4390 9211
Email: [email protected] | Web: www.bwir.com