Engineering Services Outsourcing : The new era

In a recent report by Grandview Research, the total revenue estimated from the Engineering Services Outsourcing (ESO)market for 2020 is pegged at US$ 415.74 billion. Now, that’s almost triple the estimated US$ 145.26 billion made by the global ESOs in 2016. Is technology alone driving this massive growth or is the global resource crunch the sole reason behind? In the absence of a single answer, let’s objectively explore the directions and velocity of such winds of change.

The Doldrums of Digitalization

With leading-edge technologies and methods in engineering, the demand for engineering services outsourcing for end-to-end product life cycle solutions has significantly increased over the recent years. Moreover, the threat of disruption from shrinking profit margins is driving decision makers to find more cost-effective solutions that are also technically proficient. Over and above such threats, the evolving needs of the consumer necessitate faster new product development (NPD) cycles with enhanced user experiences that either grow or at least sustain ‘prosumer’ loyalty. Resultantly, engineers are expected to integrate digital technologies more comprehensively into the design and transform disparate activities into whole some commercial models. The product development process is no longer driven by patents alone. Rather, breakthrough research into consumer insights coupled with use-case based product development strategies is what’s creating the air-pods, hover boards and the Hyper Loops of today. Consequently, the age-old perception of the ESO is evolving from being an extension of the engineering organization to that of a managed service enabler,who is quintessential for sustenance in the ‘glocally’ competitive markets.

The shifting clouds in engineering activity 

In order to depict the paradigm shift from engineering services of yesterday to the changing face of engineering services today, we can take a simple example of the modeling and detailing of a product component. Modeling and detailing were usually two separate activities earlier, wherein now drafting as a separate task is diminishing, and this is being taken over by Model Based Definition (MBD), where all manufacturing information can go into the model itself. Due to the advancement of digital and associated technologies, it is now possible to create light models that can be dually used for the shop floor as well as for the supply chain engineers. These developments have enhanced productivity and reduced errors as there is a direct link between the model, dimensions and other manufacturing details. Hence, the model has become the single source of truth. In the same way, the outsourcing industry is shifting from the traditional way of execution of any task to smarter operational models.

Another example roots in the domain of engineering design. With the increasing capability and complexity of tools used in various engineering activities, a change in design needs to be automatically updated in the analysis model with minimal efforts. Such automation is no longer a dream, but a reality that reduces efforts in validating any design change. Engineering companies have also leveraged cloud services on a Pay-as-you-Use delivery model for running analysis and storing of data to minimize the capital investment on high-end processing hardware and data storage infrastructure.

Multi-dimensional winds

Till recently engineering used to be a domain intensive work. However,today’s engineering mandates a multi-disciplinary approach. For instance, engineering management of oil production plant assets is no longer about the diagnosis of the machine operating in the plant. Rather, it’s about collecting, integrating and analyzing all the performance related machine data for predictive and prescriptive analysis and actionable insights that could ultimately help Original Equipment Manufacturers (OEM) derive cost benefits from avoiding costly repairs or sudden shutdowns.

Strategic outsourcing rather than offshoring for cost-cutting

As a result of the aforementioned changes, outsourcing companies are exploring and piloting various commercial models for optimizing the cost as well as de-risking themselves. As different companies are testing different commercial and operational outsourcing models for cost-effectiveness or client-fitment, global delivery centers, profit centers, resource centers are increasing in number, but yet not in proficient expertise. This might be an offshoot of the fourth industrial revolution, wherein innovation is helping new IT solutions and efficient automation systems to drastically improve engineering processes despite the inherent challenges to ensure profitability. This is a shift from the traditional T&M mode of operation to Fixed bid, Unit price, Outcome-based or Risk Sharing partners. Hence, ESOs are now being compelled to align with customized outsourcing models as per their client’s strategy. Customers no longer want to intervene in the number of resources and are only concerned about the solution of their problems with minimum risk, cost and time. ESOs need to adopt to this change quickly to sustain in the market or else risk losing their competitive edge.

Other key areas where engineering service providers are focusing on are:

1. Shorter product life cycle: Evolved consumers try to find prompt gratification and smooth experiences across all phases of product-consumption. Every new gadget craze lasts not more than a year and necessitates its successor. This pressurizes incumbent enterprises to squeeze their time-to-market to stay ahead of competition for acquiring the lion’s share of the consumer marketer. Hence, product companies are shortening product development time by strategically outsourcing tasks to engineering service providers, and freeing up their core staff to work on research.
2. Market Adjacency:In order to make the product development process smoother and cost effective organizations are focusing on adjacent markets for growth and are partnering with ESOs for delivering complete new product design as well as bringing niche skills.
3. Collaboration with start-ups and other ecosystem players:For developing the niche, SMART products, ESOs are partnering with start-up companies including manufacturing start-ups and other industry ecosystem players. This is helping them in rapid prototyping and also enables them in value engineering and developing economical versions of the enterprise products that can compete at different price points in different markets fulfilling customer requirements.
4. Industry 4.0to smarten both production and products:Growing consumer expectations and technology advancements are driving a lot of traction for SMART products by leveraging software, hardware and embedded skills.Industry 4.0 is transforming every aspect of manufacturing, research & development, product engineering and distribution. Nowadays, each asset has become the source of information to deliver superior consumer experience and ushers efficiency across the value chain. This is what’s improving the asset efficiency and enabling complete analysis, monitoring and optimization of critical infrastructure assets such as the aircraft’s landing gear.
5. Disruptive changes due to advent of new technologies:Emerging technologies are heavily impacting theESOs operational models and consequently transforming today’s enterprises in their approach to leverage technological advancements.A few such technologies the ESOs leverage to impart intrinsic value to their clients are:
   • Artificial intelligence, simulation and advanced modeling – Artificial Intelligence (AI) is helping to develop machines that could perform even more complicated tasks and algorithms. Machines that are capable of learning and improving without human intervention are the ultimate goal. Also,Machine Learning which is dependent on constant generation and analysis of data to automatically learn from success and failures is another potential business value-magnet created by AI. In addition, Internet of Things (IoT)is boosting inter connectivity and forcing engineers to consider it in their design process. With IoT, engineers can connect devices and systems to work together,and this in turn, will derive innovative solutions for many engineering problems.
   • 3D Printing– Additive manufacturing or 3D printing technology enables on-demand and on-location production. It enables near-instant prototyping, easy redesign of complex products, and short lead times that enable enterprises to redesign their products with the ESO’s help. In the aerospace sector, the composite expertise of engineering service providers are helping in designing products that are fuel-efficient, lighter and cost-effective.

Way Forward
In order to be a successful market player with a prospective growth potential, an ESO should implement digitally enabled delivery models. Thanks to the current technological advancements, design inspirations are for the times meeting functional objectives and digital business models. However, for long-term marker sustenance, manufacturing and engineering enterprises should adapt newer software techniques for a sustainable product lifecycle. These service providers should also understand the challenges of IT-enabled engineering by expanding their scope and by making investments in new processes and technology. Needless to say, outsourcing companies also need to do their due diligence in identifying ESO partners. They should ensure creativity and innovation, while the ESO partner should have the necessary skills and resources to provide secure, sustainable and quality product or service as cost effective models. They should be open to the supplier’s solution innovations and efforts to develop new technologies relevant to their product, which can derive feasible co-innovation models. Service companies in turn are giving opportunities to start-ups to quickly develop niche solutions or to break the in-house inertia that they may have developed as an outsourcing service provider.

By thinking ahead of prevalent selection criteria that revolves around minimal cost and risk considerations, and by adopting criteria that focus on quick turnaround time, proven software development capabilities specific to end-user and project needs, domain expertise, vendor infrastructure, and proximity to the manufacturing units and customers –product engineering companies can find trustworthy ESOs that can add to their efficiency in a smart way.

Article by —

Ajay Kumar,
AVP, Global Delivery, QuEST Global