Manufacturing Today - Spring 2010 - (Page 24)

FEATURE BY SANJAY SALUNKHE Value Creators Outsourcers Take on New Roles ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// S T R AT E G I C O U T S O U RC I N G M F G TOMORROW Outsourcing has been a productive component of the manufacturing sector for decades. Product makers in a wide variety of industries have subcontracted facets of their business to third parties to make better use of available resources, focus energy on core competencies and reduce costs. B USINESS VALUE P ROFITIABILITY I MPROVEMENT In the product engineering subsector, the resource arbitrage model has ruled – particularly in cases of offshore outsourcing, where cost savings have been greatest. Subcontractors have handled the basics. Customers have charted out the product design, and provided outsourcers with blueprints for the engineering, the features to be included and technologies to be used. The outsourcers essentially acted as order takers. Now, the relationship between contractor and subcontractor is changing. As the economy puts more pressure on manufacturers to maximize returns, they are increasingly turning to outsourcers to act as partners in the process of bringing products to market. The new model calls for the outsourcer to act less as a “services vendor” and more of a “value creator.” Outsourcers and vendors are now often engaging in a shared risk scenario – and sharing in the rewards. As Warren Buffett would say, outsourcers now have “skin in the game.” Service Delivery Platforms A big part of the change has been facilitated by outsourcers’ development of service delivery platforms that can be replicated in new settings. These platforms integrate new levels of expertise, including HR processes, knowledge management, metrics programs, advanced infrastructure and labs. Outsourcers take their services deliv24 SPRING 2010 ery platforms and deploy a marketdriven model. This model incorporates four aspects of the product life cycle: joint-to-hip product conceptualization and development, accelerating product programs for lateral use and product modernization, goto-market strategies for new/ emerging markets, and “cost take-out services” as the product market matures. Central to the market-driven model is a tighter relationship with the manufacturer and the sharing of risk and revenue. Instead of being paid a flat fee for a service, outsourcers are paid based on the revenue from a product. The partner is motivated to improve product features and services to improve competitiveness, which influences sales. Partners also keep up with the changing product knowledge base to understand the roadmap and provide input on resources. The model is applicable for the following phases of a product’s life cycle: > New product development > Sustaining existing products > Product modernization and extended usage > End-of-life products New product development – In this area, the two companies co-develop a product or tool they believe has market potential. The outsourcer invests directly in the development of the product, subsidizing the development cost or completely absorbing it up front. Limits on the top and bottom C ONTENTS G ROWTH G LOBAL C OSTS lines can be mutually agreed upon, in line with the risks and responsibilities each party assumes. The outsourcer and the customer co-own the product until mutual objectives are achieved. Sustaining existing products – The outsourcer can assume full ownership of the ongoing support and maintenance – but not the IP or liabilities – of the product line. The outsourcer ensures the total cost of ownership, or support, for the product line remains below or at par with customer costs. The outsourcer ensures cost leverage through productivity gains. Supporting product life extensions – Working jointly with the product company, the outsourcing partner supports reengineering activities for alternate product usage, addressing newer market needs, product modernization projects or positioning the products for emerging geographies.

Table of Contents for the Digital Edition of Manufacturing Today - Spring 2010

Manufacturing Today - Spring 2010
Global Strategies
Cost Concerns
Growth Opportunities
Continuous Improvement
Business Value
Juanita’s Foods
Les Plats du Chef
Gardner Denver
Smeal Fire Apparatus Co.
Club Car Inc.
Parkson Corp.
MKS Instruments Inc.
Amity Technology
Co-Operative Industries
Corbi Plastics
Elyria/Hodge Foundries Co.
Inteplast Group Ltd.
Willbanks Metals
Zotos International Inc.
Akron Foundry Co.
Alo North America
Bosal International
First American Plastic Molding Enterprise
MAC Equipment
Mayville Engineering Co. Inc.
Kurtz Bros. Inc.
Aesco Electronics
Code 3 Inc.
Columbia Marking Tools
Euro-Rite Cabinets
Fampec Technology LLC
Faubion Associates Inc.
Ginsey Industries Inc.
Imagineering Finishing Technologies
Imperial Woodworks Inc.
Innovative Lighting
Liburdi Dimetrics
MTC Transformers
Plastiques GPR
S.A. Robotics
Sunrise Windows
Positran Manufacturing Inc.
Manufacturing Tomorrow

Manufacturing Today - Spring 2010