Originally published - December 12, 2005
Nearly all leading product lifecycle management (PLM) software vendors argue that companies can now leverage globalization, outsourcing, and Web-based collaboration technologies to gain tremendous growth potential. Nonetheless, this relatively new phenomenon has been a long time in the making, as the following history of offshoring reveals.
In the 1980s, offshore manufacturing became commonplace, as manufacturing companies looked to reduce their labor costs and maximize their profits by moving some, or most, of their manufacturing capacity to low-cost labor markets like Mexico, South Korea, and Taiwan. This was purely a cost-saving initiative, exploiting low-wage regions and tax incentives around the globe. It was based on the assumption that straightforward manufacturing "build" instructions with discrete inputs and outputs and strong management oversight would minimize risk and preserve intellectual capital.
In the mid-1990s, as a result of the Internet and Web-based software technology revolution, the concept of using low-cost resources to develop software and maintain existing systems was born, and offshore development facilities in countries like India, China, Ireland, and the Czech Republic flourished. Software companies began to offshore low-intensity functions like documentation, quality assurance, and product maintenance for maturing products. Over time, whole business processes, like help desk support, claims processing, and other traditional call center functions, were moved offshore.
Today, we are witnessing the advent of modern three dimensional computer-aided design (CAD), computer-aided manufacturing (CAM), product visualization, and PLM technologies with sophisticated data synchronization, product data management capabilities, work force collaboration, digitized document management, and IT-enabled product development workflow. Major companies like GE, United Technologies, and Toyota have leveraged this technology in conjunction with low-cost offshore engineering and manufacturing services capabilities, to exploit the benefits of global product development. By rearranging product development activities, personnel, and processes around the globe to take advantage of advantageous cost structures, these companies have experienced increased product development productivity with real and quantifiable financial rewards.
Global Product Development Requires Significant Process Change
A lot of hard work and significant investment is required early on in order to take full advantage of global product development. Implementing global product development involves a lengthy transition process, and requires reconfiguring product development functions across multiple regions in order to maximize productivity and minimize long-term cost while balancing and mitigating risk.
Each step in the product development process must be broken down into clear and concise modular processes, so that the processes can be individually assessed as candidates for potential offshore outsourcing. This is a major challenge for many manufacturing companies, as they do not have a good handle on current design and development processes, and therefore have trouble breaking each discrete process down into manageable pieces that can be examined for cost efficiencies. It is imperative that any manufacturing enterprise have a formal cross-functional product development process road map and an instinctive process discipline before consideration is given to onshore or offshore outsourcing. The bottom line is that a company's internal product development house must be in order before it starts moving pieces of the equation offshore.
There typically is no shortage of concerns over a decision to offshore a part or all of a product development process. Even setting political concerns aside, there are considerable business, technical, and organizational concerns. Merely coming to"what" and"where" decisions is a stressful and lengthy experience that could give any product development or corporate executive grey hair. This is because in most cases, there is no going back without incurring significant costs and triggering second guesses about the merits of the initial decision to outsource.
Organizational concerns most often fall into the realm of control and communication. Dispersed product development processes require the same level of management scrutiny as non-dispersed ones, and are potentially subject to more unexpected change. Thus, formal and effective business processes that address change control are paramount. A well-defined and well-understood hierarchy of management control is also needed, as are 24-hour-a-day, 7-day-a-week communication channels that have redundancy in order to avert risk. Moreover, the decision to offshore product development has an impact on departments besides engineering and manufacturing. Its effects on logistics and supply chain, human resources, marketing, and customer support have to be taken into account when assessing total internal costs and impact.
Technology concerns still exist, even though technology advances in PLM, collaboration, and business networking are the key reasons that global product development is feasible today. Most of the target countries for global product development via offshore outsourcing, like Ireland, Israel, and especially India, have invested heavily in technology infrastructure, education, and technology awareness with strong government support, especially in regions such as Bangalore and Pune in India. Technology investments have been supplemented by national governments through tax incentives and educational subsidies since the mid-90s, and have had time to take root and grow. These investments have been especially beneficial to contract manufacturing, engineering services, software development, and business process outsourcing firms in these countries. Despite these investments, however, the technology concerns most often cited are localized network reliability, local and global Web disruptions, IT governance, technology distribution for things like software upgrades, and common business practices for digitized intellectual property.
Pressures on Product Development
For product development in most manufacturing sectors, increasing global competition consistently translates into increasing pressure to do the following:
improve product quality
reduce product cost
respond to changing customer needs
react to shortened product life cycles
improve product innovation
improve product retirement processes
create byproducts and up-sell products
With these competitive pressures driving product development at an ever-increasing rate, analyst firms have found, based on recent studies, that over 90 percent of manufacturing firms across a diverse array of industries are formally examining global product development opportunities. How quickly manufacturing firms actually outsource to offshore entities will be a calculated business balance between product development risk and the need to remain competitive.
PLM vendors are on the cutting edge of the global product development opportunity curve in that it is their technology that will enable the feasibility of global product development. Major software providers are honing their marketing messages with a view to global product development. Several of these PLM vendors have even instituted their own PLM products as control tools for internal product development.
Growth in the PLM software solutions market will be a good barometer of the transition to global product development. Enterprises that shift over time to a global product development strategy must invest in modern PLM technology in order to minimize risk and ensure that the perceived cost savings and productivity gains are achieved. The PLM software market could be on the edge of a significant growth cycle, thanks to the coincidence of new PLM software technology capabilities and innovation with the increasing global competitive forces driving manufacturing enterprises toward global product development strategies.
About the Author
Michael Bittner has over 25 years' experience in the business applications area, and has held various senior management positions in product development, consulting, and research.
He has designed developed, implemented, deployed, and managed projects for the financials, manufacturing, distribution, logistics applications, both in the United States and in Europe. His experience in implementing enterprise packaged solutions includes requirements definition, package selection, systems design, and process modeling, high level orientation, and ROI analysis.
Bittner is a member of the Council of Logistics Management (CLM), the Warehouse Education and Research Council (WERC), and the American Productivity and Inventory Council (APICS). He is also an active member of the Arizona Technology Council.
[Editor’s note: this information was current as of the original publication date.]