Engineering: The last frontier of business process outsourcing

Oct. 20, 2005
Until recently, many companies did not outsource their engineering activities because conventional wisdom says engineering is a core technology that should remain in-house.

Engineering: The last frontier of businessprocess outsourcing

James Richmond, CEO

Scott Miller, COO
Eserv LLC Peoria, Ill.

But today, product engineering is well on its way to becoming a mature industry, akin to civil engineering and architectural services. Industry experts are calling engineering "the last frontier of business-process outsourcing" and expects the market to reach $19.5 billion by 2008, up from $4 billion two years ago.

From design to production and maintenance, most engineering functions can be outsourced successfully. It's the hottest trend in business-process outsourcing, and for good reason. Consider some of the benefits:

Variable resource model — A nationwide shortage of engineers and high costs of maintaining employees demand a flexible delivery model that lets manufacturers scale the workforce to the project cycle. Unlike the contingent-staffing model, which provides temporary, untrained staff in 30 to 60 days, product-engineering companies can rapidly deploy fully trained workers to complete projects on time and on budget while letting client companies remain agile.

Faster time to market — Studies suggest that a product late to market by three months loses between 25 and 33% of lifetime profitability. Rapid deployment of resources made possible by outsourced product engineering prevents such financial hits.

Technology integration made easy — Constant exposure to multiple manufacturing environments in varied industries helps product-engineering firms leverage a wide-ranging group of suppliers on the client's behalf. This raises the potential for differentiation through cost-effective and highly functional products.

Access to the latest tools — Unlike long-established manufacturers that depend on independently evolved legacy processes and technologies, engineering-service providers continually acquire the latest technologies. Through collaboration with product engineers, manufacturers benefit from these cutting-edge tools, without significant changes to internal systems.

Wide perspective — External professionals bring a fresh set of eyes, best practices, and the expertise of specialists. A study in Lean Product Development by Colin Mynot suggests that engineers spend only about 25% of their time doing engineering. Outside engineers are not distracted by multitasking or torn by competing priorities so manufacturers become more efficient.

Greater accountability means higher quality — Bad product quality can kill a company. Sometimes it is the result of employees who feel pressured to take shortcuts to cut costs or save time. As vendors, engineering-service providers are held to higher standards of quality and accountability.

While product-engineering firms can bring significant value to manufacturers from the outset, it may take them several months to develop a complete understanding of the client's structure, culture and processes. For best results, product engineers must develop trust with employees and overcome any resistance to outside " interference." Candid discussions will ensure in-house stakeholders, particularly long-tenured individuals, are open to new approaches and a balancing of internal and outsourced efforts.

Never throw a project over the fence to a product-engineering firm. Outside professionals are most effective when they relate to internal departments as their own. Seamless teamwork, facilitated by management, helps engineering, manufacturing, finance, logistics and marketing work together. An effective way to break down barriers preventing cooperation is to colocate at least a few outside engineers on site with client employees.

Recent articles in Business Week suggest the U.S. is moving out of the knowledge era into the creativity era. The implication is that some knowledge-based services will be outsourced to other countries while American companies will focus on creativity and innovation. This holds true for the rapidly growing industry of product engineering.

While some foreign countries can provide many valuable low-cost services, no Internet or videoconference can replace the personal interaction of manufacturers and engineering specialists as they sit across the table from one another, brainstorming the ideas that may lead to the next product revolution. The creation and development of the most cutting-edge innovations are easiest when these activities take place close to the manufacturing plant.

Eserv LLC ( is a product-engineering company.

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