When Outsourcing Engineering Tasks May Be the Best Step for Your Business

Engineering activities play a pivotal role in a wide range of industries, including manufacturing and aerospace. The engineering sector is a catalyst for business growth, as it drives innovation and facilitates the creation of new products. Consequently, the demand for engineering services outsourcing has surged, leading to a significant market expansion. Projections indicate that the global engineering services outsourcing market will experience substantial growth, reaching an estimated revenue of US$ 6,802.92 billion by the end of 2031, compared to US$ 1,439.97 billion in 2022. This remarkable growth reflects a compound annual growth rate (CAGR) of 19.67% during the forecast period spanning from 2023 to 2031. 

Engineering process outsourcing involves entrusting the architecture, engineering, and construction functions of an organization to a third-party service provider. Studies show that approximately 36 percent of companies outsource certain engineering services, while 31 percent and 16 percent outsource research and development (R&D) and product design, respectively.

The steady growth of engineering process outsourcing can be attributed to the numerous challenges faced by companies. Establishing and maintaining internal engineering capabilities are among the most costly endeavors for organizations. Additionally, there is mounting pressure to expedite time to market, the burden of high fixed costs during peak product development periods, and a scarcity of qualified engineering talent. These obstacles can overwhelm small and midsize businesses that have limited resources and cause project delays for larger enterprises. By outsourcing, companies can mitigate these challenges, optimize costs, and access specialized expertise to drive efficiency and innovation.

Why Companies Outsource Engineering Services

Many businesses work with experienced third parties to source engineering talent, improve internal engineering processes, and access the latest technology while controlling costs. Cost reduction is still the number one reason companies outsource their engineering activities. Most firms start with cost reduction in mind, and then extend their outsourcing campaigns for more strategic reasons. For example, a study showed that General Motors (GM) outsources engineering work to help reduce costs, while Toyota outsources product development to reach new markets and improve quality.

Analysts predict that strategic engineering process outsourcing will prevail over time, as companies squeeze more out of their outsourcing engagements to gain more value, drive innovation, and speed up time to market. Traditional engineering services powerhouses like the United States, Germany and Japan are already facing stiff competition from emerging economies which remain as cost-effective alternatives to developed countries struggling with skill shortages.

Key industry verticals that outsource engineering services include architecture and design, industrial equipment, oil and gas, automotive, utilities, and high tech. Each vertical has similar but unique drivers for outsourcing; the automotive industry mainly wants to reduce costs, access domestic markets and address skill shortages, while the construction and aerospace industries want to address skill shortages, reduce costs and speed up time to market. 

Engineering Services Outsourcing Providers

The engineering market is following a similar trajectory as the IT outsourcing market. Presently, engineering process outsourcing is transitioning from a process-centric approach to a focus on achieving product excellence and driving business transformation. Established players in the industry have expanded their role beyond simply filling critical engineering positions. They now offer a range of services, including continuous process improvement, innovative solutions, standardized systems, data and software expertise, advanced analytics, and a commitment to delivering increasing value over time.  Large engineering service providers are being challenged by smaller companies that provide high-value engineering talent. Those that can provide end-to-end capabilities are in high demand. 

Top outsourced engineering service providers are expected to absorb most offshore high-end contracts, mainly due to sheer scale in terms of labor force and technological capabilities, and also strong infrastructure, cultural compatibility with the West, English proficiency, and IP protection laws. Third parties that provide low- to medium-end engineering services are still in the game, however, and will continue to attract companies looking to reduce costs.

Engineering Tasks That Can Be Outsourced

Engineering process outsourcing covers both engineering services and functions. Engineering services involve tasks such as planning, design, and consulting, which support physical engineering activities. On the other hand, engineering functions encompass the actual execution of physical engineering tasks. For example, designing forklifts falls under engineering services, while the construction of forklifts is an engineering function usually not performed by third parties. Typically, engineering service providers specialize in offering design, consulting, and management services, while tasks like building, manufacturing, or construction are rarely undertaken by them. It is anticipated that engineering service providers will gain a larger share of the engineering outsourcing market.

Engineering tasks that are often outsourced include:

Research and Development (R&D)

R&D or new product development is the number one engineering service that organizations outsource. Research indicates that nearly 40 percent of small and midsize businesses choose to outsource their R&D efforts. The primary motivation behind R&D outsourcing is to achieve faster speed to market, gain access to top-notch engineering talent, deliver higher-quality products, and ensure compliance with regulatory standards. Established industry players are more inclined to offer comprehensive end-to-end services that encompass every stage of the product development cycle, ranging from concept creation to manufacturing. Conversely, smaller niche providers often specialize in offering low-end or specialized R&D services, such as hardware/software solutions.

The spectrum of R&D services includes various crucial aspects such as conceptualization (transforming marketing requirements into concepts, styling, and packaging design), conducting feasibility studies, optimizing and validating designs, value engineering and virtual simulation, as well as modeling, simulation, and implementation. Additionally, it involves product engineering and, in some cases, product manufacturing. However, not all third-party providers engage in product manufacturing, as this aspect can either be outsourced to another provider or handled in-house.

CAD and Drafting

Computer-aided design (CAD) and drafting rank as the second most frequently outsourced engineering service, following closely behind research and development (R&D). CAD and drafting tasks include conversion of paper blueprints into electronic CAD drawings for easier retrieval, editing, sharing and archiving, conversion of 2D drawings to 3D formats and vice versa, creation of concept drawings, modeling, and prototyping. The outsourcing of CAD/CAM and drafting was especially common about a decade ago, when engineering services outsourcing was in its infancy.

Initially, CAD and drafting outsourcing was fragmented, with companies adopting a piecemeal approach. However, companies quickly realized the potential for enhanced value in their outsourcing contracts. As a result, they began subcontracting crucial, knowledge-driven design work to service providers. This shift allowed companies to optimize their outsourcing contracts and extract maximum value from them.

Building Information Modeling (BIM)

Advanced 3D modeling technology has enabled service providers to create even more complex systems for their clients. Building information modeling (BIM) is one example. BIM is a 3D model-based process used in analysis and the design process. BIM generates accurate visual representation of a building or facility and extends building information to five dimensions, including time and cost. BIM software interprets the design as a combination of model elements, each of which contains attributes that provide cost estimates and other information. BIM allows virtual information sharing among all participants in a construction project, including the design team, the client and service provider. Accurate visual representation also allows builders to monitor operations easily and determine the real world implications of building construction. 

Reverse Engineering

Reverse engineering, also known as back engineering, involves capturing data from a finished product and using it to replicate the original item or create a completely new one. This process is applicable to various products, including electronics and computer software. Typically, it entails disassembling the system and analyzing its components. Engineers generate a 3D CAD model of the physical object using 3D scanning or traditional measuring techniques. The scan data is then converted into a model that accurately represents the design features of the original product. Reverse engineering service providers acquire CAD data, design new components to fit existing parts, address manufacturing defects, update CAD models as necessary, and enhance manufacturing process efficiency.

Product Lifecycle Management (PLM)

PLM encompasses both software technology and a business strategy. Companies delegate project or product lifecycle management to external experts who oversee the product throughout its evolution, from design to disposal. These providers may manage the company’s entire product portfolio, data, and processes, while also offering consulting, support, and IT services to identify and implement process improvements. Some providers specialize in creating and centrally managing data and technology used to access the data.

Document Management

Document management is another service that can be outsourced to service providers. Third-party electronic document management systems (EDMS) software offers a comprehensive solution for administering, operating, and managing engineering documentation. Service providers may also provide consulting and implementation services for document management systems to enhance process efficiency and ensure data security.

Value Management and Benchmarking

Value management and benchmarking are cost reduction measures that focus on value drivers such as quality, safety, and time. Service providers assist companies in maximizing the value derived from their implementation projects through value management services that adhere to time and budget constraints. These services also help managers identify suitable projects and opportunities, track and optimize progress during implementation, and assess performance relative to industry peers.

Engineering Consulting

Outsourcing engineering consulting enables businesses to address challenges by developing strategies, roadmaps, and reinventing engineering processes. The objective is to enhance return on investment (ROI), engineering process efficiency, and align technology adoption with business outcomes. Consulting services vary across industries. For instance, in the geotechnical sector, providers offer geological and feasibility studies, design recommendations, materials specifications, and review and sample testing. In the environmental sector, providers offer services such as environmental site assessment, groundwater sampling, natural resources evaluation, and HAZMAT studies.

To learn more about outsourcing, you can read our Top 8 Qualities of an Outsourcing Company in the Philippines article. We invite you to follow us on social media and to visit our website to learn more about our services.

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