THE CASE FOR OUTSOURCING
We have stated the case for integrated development, but what about the case for outsourcing integrated development? If vertical integration - or integrated development - is so appealing, shouldn't product development companies just do it all in house? What are some of the reasons for avoiding this approach and stating the case for Novation?
"Let's integrate and outsource it so that we can get back to business."
Product manager, ABC Company.
Rigid silo structures
Unorthodox, fluid organizations that allow for original thought are breeding grounds for innovation. Many companies, however, are built around more rigid structures that incorporate functional work areas or groups and naturally gravitate toward conventional silo and departmental structures, each with their own responsibilities and synchronous customer/supplier relationships. It is often difficult for a corporate culture to morph into what is needed to build an environment ripe for innovation and asynchronous fluidity. Novation has a unique culture, allowing for a fluid, integrated design and development processes.
Product and market variability
In order to compete, a company must remain responsive to rapidly changing market demands. This requires continuous attention to market changes, customer needs and the vision to develop new products. It also entails the investment of market research, engineering R&D, product design and development. Lastly, to support an ever growing and changing product offering, a variability of production methods and capabilities is often required to avoid having product characteristics be dictated by production limitations. These factors demand the significant burden of knowledge and capital investment, which drives fixed overhead costs. By outsourcing to an integrated product development and manufacturing supplier that is adaptable and responsive, a company can remain proactive in its business endeavors without the restraints and overhead costs of internal development and production resources.
When we talk about the core competency of our customers, the discussion should focus on their expertise in the markets they serve, knowledge on the market needs and how they meet the needs within their target markets. In other words, their focus and energies are better spent on growing the business and meeting a market need, rather than producing a product and the minutia around supporting a manufacturing operation. Raw material, manufacturing engineering, capital equipment, proven production processes, finish product inventory management - these are all things that Novation can take out of their mix so that our customers can focus on their business. We deliver the products and they grow their business.
Holding an outside integrated supplier accountable is often easier than holding internal staff accountable. There can be finger pointing and internal blame that occurs, which negatively impacts staff working relationships, productivity and effectiveness. Having a professional supplier, expert in the area of integrated product development will be more easily held accountable for budget, schedule, and product design and production quality. This external accountability is also often more easily managed and requires less effort on the part of the internal management team.
It is often challenging for a company to estimate the cost of internal staff and hidden overhead costs. This leads to inaccurate predictions on design and development investments. When outsourcing, companies are able to hold the outside supplier accountable for a fixed or budgeted cost for product development and predict a more accurate return on investment. They are also less burdened with the need to occupy internal resources that could be used for other purposes or that are continuously being shared and stretched.
By outsourcing product ideation, design and development, a company is freed up to implement parallel efficiencies in another way. By continuing to explore and market and distribute new product ideas without have to be bogged down with the details of engineering, sourcing and production issues.
Shortage in skilled work force
More and more, companies are faced with a shortage of skilled work force both in terms of development and production technicians. Novation works continuously to look for talented employees to fill technical and production requirements. Our managers bring years of experience in identifying and training talent to bring breakthrough ideas and implementation into our customers' product development projects.
Although there is clearly a strong case for integrated development - the vertical integration of design and production under one roof - there are times when companies require outsourcing in a single, specific area. This logic typically falls around design or production processes that require significant investment in capital equipment and an equal investment in developing a specialty in a technical expertise. Injection molding clearly falls into this scenario, requiring significant expertise in the production process as well as capital equipment. Design also falls into a specialty area - requiring expertise in ideation, voice-of-customer, ergonomics, material engineering and more. To invest in human capital to accommodate design expertise would be costly and, often, underutilized.