The Successful Management of Offshore Development & Manufacturing Projects Developed by Martin Wartenberg for UCSD EPSE September 26, 2011
Jan 14, 2016
The Successful Management of Offshore Development &
Manufacturing Projects
Developed byMartin Wartenberg
for
UCSD EPSE
September 26, 2011
Martin Wartenberg for UCSD EPSE 2
Workshop Topics
• Role of Management • What types of projects are most suitable for
outsourcing/off-shoring?• Which of the current business models is most
suitable for your organization and project?• Some consideration as to which Country to
select for your off-shoring venture.• Some Technical issues related to Global
Product development (Hardware or software)
In Scope
Seminar TopicsOut of Scope
• Discussion as to whether Outsourcing is a good or bad practice or political issues
• Detailed discussion regarding implementation and execution of Multi-Site projects
• Detailed discussion of managing complex technical product development
Martin Wartenberg for UCSD EPSE 3
Outsourcing & Off-Shoring Have Been Around For a Long
Time!• The Swiss Guards (US
& other Security firms in Iraq and Iran)
• Hessian Soldiers
• Food Services
• Security Services
• Personal Items
* Cleaning
* Gardening service
* House Cleaning
* Child Care
Martin Wartenberg for UCSD EPSE 4
Roles and Responsibilities
• Executive Management (C Level) Strategic cost, marketing and technical issues
• Middle Management (D Level) Convert strategic objectives into tactical
approaches and methods
• Line Management (M and S Levels) Carry out and execute on the strategies and
objectives developed
Martin Wartenberg for UCSD EPSE 6
Questions to C Level Executives
• What are the business reasons?
• Do you understand the outsourcing process?
• Do you know what the impact will be on the organization?
• Do you understand your own operation and the costs involved?
• Do you fully understand the economics of the outsourcing?
• Will you be able to downsize to realize the cost savings? (if applicable)
• Who will lead the effort and be responsible?
• Have you figured out how you will manage the outsourced
service for the future?• Have you thought through the global risks
(Earthquakes, Tsunami’s, wars, political unrest)
Martin Wartenberg for UCSD EPSE 8
These are your inputs!
• Goodrich Aerostructures• Hughes• NASSCO• Illumina• Teledyne• ViaSat• BAE Systems• HP
Industry Perspective
Commercial AerospaceMilitary AerospaceShip BuildingGovernment TelecomCommercial TelecomCommercial Product
Development (HW, SW & Mfg)
Pharmaceutical Development and Manufacturing
EPSE 2011 Graduating Class
Software Development• HP experience (HP facility)– Expertise level of “off shore
partner” group (keep work level low and periodically “throw them a bone” (i.e.: a little more challenging work) Skill levels plus time zone issues
• Hughes experience – Issues with culture and quality of results (some good teams)
• BAE Experience – Specialized areas (Info security, etc.) on a sub system basis (Localized and isolated) Some issues with interdependencies
• Teledyne – Some problems with new development error rates but no worse than local design
Product Development & Build
• NASSCO – Mostly Good experience with some problems with turn-around times and lost damaged materials (Mexico & Korea) Have worked through most process issues
• Goodrich Aerostructures – Very good results – can be identified as a tight coordination and on-going work with outsource partners (globally) Have had to cancel contracts and do some hand holding
• Teledyne – Circuit boards, etc. – late delivery problems periodically
• Illumina – Some design, manufacturing – some culture issues but mostly going well.
Lessons Learned• Very similar to most industry problems• Learn to spec. and define work early and
often• Check on work while in progress.• Provide hands-on assistance until they can
stand on their own• Take action when your not getting what you
want/need• Do it incrementally as you keep getting
better
Risk Management: Intellectual Property
• IP Risk: the greatest barrier to improved international business
• Recent study: Software Piracy is rampant around the globe*• 30-40% in India, Vietnam and China (2nd shift products)• 80-90% in Russia, Ukraine and Bulgaria
• R&D may want your services but Corporate Attorney says No due to IP risks• References (current and reputable)• Honest communications throughout…
• The Need for Consortia and New Legislation
*Gartner report quoted in CIO.com
More Definitions•
• Near shore Sourcing: sourcing services from geographies within close proximity to the location in which the services are consumed or contracted.
• Offshore Sourcing: sourcing services from geographies at a considerable distance from the location in which the services are consumed or contracted.
• Global sourcing: a corporate sourcing strategy that identifies and leverages those human resources and assets, regardless of geographic location, most appropriate for meeting the organization’s needs, often coming from both near shore and offshore locations.
• Insourcing: sourcing services internally as opposed to through a third-party provider. Often provided in a centralized shared services environment.
• Global Product Development for complex engineered systems
Martin Wartenberg for UCSD EPSE 20
What types of projects are most suitable for outsourcing/off-
shoring?• Software - Development
(IT, System, sub-sets)
• Designs (System & Subsystem, Component, ASIC, Circuit, etc.)
• Business Processes
• Manufacturing – Continual Flow and Job-Shop
• Help Desk, call centers, • Pharma R&D / Low cost
production
• Clinical Trials
Martin Wartenberg for UCSD EPSE 22
Key Items for Consideration
• Relationship to the organizations core competencies and competitive advantage
• Ease of specifying the necessary design services – what we learned from Mfg
• Potential for changes and iterations due to external factors
• Local availability of key resources• Relationship of product or service needs to the
three project variables of cost, schedule & performance
• Is it safer to build to print or build to spec.?
Martin Wartenberg for UCSD EPSE 23
Steps for Implementation
• Determine and articulate why you are out-sourcing- Charter document like any project
• Identify and get inputs from key stakeholders
• Select the functions/projects to be out-sourced
• Bench mark current costs and parameters for performance
• Prepare a business case for the outsource efforts
Martin Wartenberg for UCSD EPSE 27
What Countries or Regions Can I Choose From?
• India Dubai• China Poland• Malaysia Czech Rep.• Mexico Brazil• Philippines Chile• Fiji Argentina• Hawaii Quebec • Russia• Eastern Europe• Israel• Egypt• Argentina • Canada• Ireland• Singapore
It Depends on ??
Martin Wartenberg for UCSD EPSE 28
McKinsey Study from 2009 and reported by WiPro (India)
Gartner reports indicate that India is dropping from an 80% SW support market share to 58% by early 2012)
Updates through 2010 from interim Gartner reports
CanadaDubai
Czech
Poland
Quebec
Martin Wartenberg for UCSD EPSE 29
Kearney Global Consulting Off-Shore
Attractiveness Index for Software1. India (90)-dropped to 82
2. China (72) reduced to 70 based on recent political unrest)
3. Malaysia (70)-up to 724. Dubai (68)5. Czech Republic (64)6. Singapore (66)7. Philippines (60) to 648. Quebec Canada (58)9. Poland (50)10. Hungary (50)11. Canada (54)12. New Zealand (50)13. Chile (48)14. Brazil (48)15. Israel (52)16. Ireland (44)
Index is based on a combination of cost, depth and quality of software engineers, infrastructure and government support, stability, language skills, understanding of business practices and five other factors.
Martin Wartenberg for UCSD EPSE 30
Kearney Global Consulting Off-Shore
Attractiveness Index for Manufacturing1. China (84)
2. Malaysia (76)3. Mexico (48) down a lot4. Bulgaria (68)5. Czech Republic (68)6. Singapore (64)7. Philippines (60) 8. Poland (56)9. Hungary (56)10. Canada (50)11. New Zealand (50)12. Chile (44)13. Brazil (46)14. Israel (42)15. Ireland (40)16. Vietnam (52) up a lot
Index is based on a combination of cost, depth and quality of workforce, infrastructure and government support, stability, language skills, understanding of business practices and five other factors.
Medium Technology
Martin Wartenberg for UCSD EPSE 31
Things to Consider in your Selection!
• Proximity• Importance of Proximity • Language• Availability of
Infrastructure• Cultural differences• Availability of best
practices (i.e.: CMMI ISO, ANSI, or other standards)
• Stability and Safety• Protection of IP Project Management and
Development Best Practices
Martin Wartenberg for UCSD EPSE 34
Outsourcing Plan1. Document objectives2. Options/Alternative analysis3. Define the scope and boundaries of services4. Prepare and validate service requirements5. Identify potential sources and determine their
qualifications6. Involve appropriate level of management in the review and
selection process7. Communicate with all personnel likely to be effected by
the decision and selection8. Short-list potential suppliers and prepare a definitive
request for proposal (RFP)9. Evaluate suppliers proposals and make a selection10. Identify the internal outsource project management team11. Negotiate the contract and agree on the service level and
other key methodologies12. Manage the transition and the contract
Successful IT Outsourcing - Sparrow
Martin Wartenberg for UCSD EPSE 35
Contracting Methods• Firm Fixed Price (FFP)• FFP Incentive• Cost Reimbursable• Cost Reimbursable – fee negotiable• Time and Materials (T & M)• Fixed Price – Award Fee• Body Shop – Negotiate • Others Considerations – Liquidated
damage clauses, personnel assignments, etc.
Martin Wartenberg for UCSD EPSE 36
Contract Determination• Find a Contract Administrator is has
experience in the specific country• Depends on how well you know the
specifications• Depends on how well you know the vendor• Depends on how you will handle changes• If you are going into China or Vietnam, it
doesn’t really matter (current issue)• Other factors to consider? • The type and wording of your contract is
absolutely critical
Simple Total Cost
Recurring Costs:Purchase PriceLogistics CostsAdministrative CostsOn site Labor
Source Charlie Barnhart & Associates LLC
Non-Recurring Costs:Qualifying CostsNew Product IntroductionQuality or Reliability IssuesWarranty RequirementsTravel RequirementsInitiatives such as Lean or 6 Sigma
Comprehensive Total CostPrevious Slide Plus – Factors to
Accommodate:
Geography of SupplierEngineering Change ActivityLot SizeProduct MixProduct ComplexityLead-TimeFlexibilityComplianceCost of MoneyRequired Inventory
True Total Cost of Global Sourcing
From the USA (Manufacturing)
Mexico Add 19%
Eastern Europe Add 24 %
SE Asia Add 18 %
China Add 16 %
Source Charlie Barnhart & Associates LLC
“These are estimated costs based on additions including both legal and quasi legal issues.
Global Product Strategies
Local and International Environment
Competitive Situation
Firm’s Internal
Situation
Customer Needs &Price
Elasticity
ProductStrategies
A Testable Framework of Product Adaptation
Entry Scope
Export Sales Goal for the Venture
Firms InternationalExperience
Technology Orientation of
IndustryProduct Uniqueness
Cultural Specificityof Product
Type of Product
Similarity of LegalRegulations
Competitiveness OfExport Market
Product Familiarity OfExport Customers
Product Adaptation- Upon Entry- After EntryPromotion AdaptationPositioningPackaging/Labeling
Product Adaptation - Upon Entry - After Entry
Promotion Adaptation - Positioning - Packaging/Labeling - Promotional Approachh
COMPANYEXPORT MARKET
Product and Industry
Source: S.T. Cavusgil, Shaoming Zou, and G.M. Naidu. “ Product and Promotion Adaptation in Export Ventures: An Empirical Investigation,” Journal of International Business Studies 34, no7, (2010-,485.
A Framework to Integrate Markets, Platforms and Competencies
Market InsightsProduct Technologiesand Design Processes
Production Processesand Technologies
Organizational Capabilities and
Infrastructure
MarketsSegments 1 through N …...
Product or Service Platform
Competencies
Common design Rules and Tools
Derivative Products or Serviceswith Development Time/Cost Efficiency and Attractive Price-Performance Positioning
Subsystem B
Common Design Rules and Tools
Subsystem A Subsystem CInterface i….n
TTiers of Price-Performance1 through N ….
Source: Mark Meyer, personal communication
Sourcing Location for Complex System Design
Make Offshore Buy Offshore Make Onshore Buy Onshore
Martin Wartenberg for UCSD EPSE 43
Coo
rdin
atio
n
Req
uir
emen
t
Strategic Content and Value
Hig
h
Low
High Low
Development Process for Complex Systems
Martin Wartenberg for UCSD EPSE 44
• Component or task development
Systems Architecture Development
Systems Integration
Component or task development
ManufactureMaintenance and support
Intel Microprocessor Development
• Multiple “owned” locations
• Two main parts multiple cores supported by uncore
• All facilities validated to be able to do all designs using the same tools and methods
• Teams co-located at designed “home site” (drawn from all sites)
• Standard four stage methodology
Martin Wartenberg for UCSD EPSE 45
Lead Design Specialty Sites• California – design productionization
• Oregon – Desktop series UP• Colorado – High-end UP design• Massachusetts – High end UP design• Israel – Mobile technology• Moscow – Under development – generic
designs• Bangalore – Under development – Mobile
designs• San Diego – Embedded software
Martin Wartenberg for UCSD EPSE 46
Phase Development
• Phase 1 Global Architecture at Home Site
• Phase 2 Core Processor design – at many sites
• Phase 3 Chip Integration – Home Site
• Phase 4 Productionization and Manufacturing Preparation
• Manufacturing at many sites
Martin Wartenberg for UCSD EPSE 47
Cessna Aircraft Division of Textron Industries
• Divided Mid size business jets and turbo prop utility aircraft into 6 sections and 7 Distributed Systems
Martin Wartenberg for UCSD EPSE 48
Empennage
Tai
l con
e
Cabin
Cockpit
Wings
Engine PackageDistributed Systems1.Structure2.Avionics3.Electrical System4.Hydraulic System5.Flight Controls6.Pneumatics7.Fuel System
Design Approach• Cessna joined the Textron Global Technology Center in
Bangalore India• Part of the design center specialized in Cessna specific
technologies• Cessna Corporate remained responsible for over –all
systems design and integration • Detailed interface designs used to manage global vendor
supply chain – Interchangeable sections and distributed systems (very mixed results)
• All vendors/partners/divisions followed the Textron based 7 step New Product and Service Introduction (NPSI) design process
• Vendor and partner engineering teams co-located during the initial design and development activities
Martin Wartenberg for UCSD EPSE 49
Honeywell-Aerospace Task Based Off-Shoring
• Task assigned to the Advanced Manufacturing Engineering Group
• Options included Local Current sites (Arizona and New Jersey), Medium cost sites close to local sites (Rural USA, Puerto Rico), Low cost distant locations including India, China, Vietnam
Martin Wartenberg for UCSD EPSE 50
AME Decision Process Steps
Step 1: Create a full list of tasks that AME is responsible for carrying out – tasks that had to remain on-shore identified including tasks that should be co-located.
Step 2: Identified those tasks that required a lot of coordination and ranked based on complexity of tasks and likelihood of ambiguity
Step 3: For each task considered for outsourcing – team identified all labor costs including any extra coordination or travel or other ancillary extra costs
Step 4: For each potential location – rates and efficiency factors were applied (Not all locations are equal)
Step 5: An optimization model was created to balance all factors and determine recommended approaches and places
Martin Wartenberg for UCSD EPSE 51
Martin Wartenberg for UCSD EPSE 52
Marty’s Personal Recommendations
• If you are interested in only cost savings (35-50%) and have no strategic goals stick with top name Indian firms (WiPro, Infosys, etc.) If you understand your requirements well enough to spec. them well and don’t have many changes. In hardware go to established firms like Flextronics
• If you want to extend your firms capabilities and wish to save 15 to 20% in cost – try Canada and especially Quebec Province
• If its your first venture – try near shoring to Canada (Burnaby BC, Quebec and Toronto) or the Philippines or Puerto Rico
• Don’t outsource your competency ever• Plan on traveling to the ODC for regular reviews• Don’t plan on saving money in the first year of your out-
sourcing experience• If your IP is important to you, stay away from certain
countries that will steal your stuff
Martin Wartenberg for UCSD EPSE 53
Hardware Lessons Learned at QSC Audio
• Large Manufacturing Company in Costa Mesa (High end Audio Eqpt.)
• Plants in U.S, China, Vietnam, Indonesia • Vendors in Europe, Malaysia, Korea & China• Does not do “build-to-print”• Requires build to spec with local QA and
testing• Only does business in China with
Taiwanese or Hong Kong owned business• Relationship established at the CEO level
Martin Wartenberg for UCSD EPSE 54
Design Lessons Learned at Pulse Link
• Venture based Ultra Wide Band Products
• Complex ASIC’s subcontracted to a Russian Firm
• System Engineering subcontracted to consulting firm
• Product delays and loss of key technical edge
Martin Wartenberg for UCSD EPSE 55
Lessons Learned at Wind River & Trillium (Now part of Intel)
• Medium sized Embedded Operating and Specialty software companies.
• Picked a reputable Indian Partner in WiPro• Build a pilot program for the first 5
developments for each company.• On-site WR & Trillium representative in
Bangalore and Lahore and a WiPro Rep in Alameda and Los Angeles
• Frequent reviews both in U.S and India• Relationships established at the working
level• Mutual respect and a continual cross-flow
of personnel
Martin Wartenberg for UCSD EPSE 56
Hints for Future Implementation
• Mistake proof your design or build documentation – language, culture, ambiguity, etc. (Poka Yoke)
• Train out-source project or functional managers and make sure they are suitable (Communications, temperament, other sensitive issues)
• Be prepared to travel to site on a regular basis for both formal and informal reviews
• Be prepared to establish relationships outside of work
• Set-up good communications systems with sites and common tools
• And for all your sakes don’t completely rely on E-Mails or texting as your primary communication media
Martin Wartenberg for UCSD EPSE 58
References• Successful IT Outsourcing by E.
Sparrow, Springer UK, 2008• Offshore Ready by S. Morstead, APQC
Publication, 2007• Web sources of outsourcing information 1. American Productivity and Quality Center –
www.apqc.org 2. The Out Sourcing Center –
www.outsourcing-research.com 3. CBS 60 Minute Video Presentation at
www.wipro.com/insights/cbsos.htm 4. Global Picture at http://www.cio.com/archive/071504/guide.html