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.
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:
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.
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AVP, Global Delivery, QuEST Global
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