Offshore Engagement Models - Are They Just About the Cost Benefit?

Raghuraman Ramamurthy May 8, 2015

Offshore engagement models within manufacturing.Moving certain high cost engineering tasks overseas is a growing trend among manufacturing companies worldwide, and for good reason. Working with offshore vendors provides significant benefits to cost, as these engagements cut spending on labor while also ramp up development speed.

With much faster time-to-market and reduced spending (through offshore agreements) comes added profitability. Often, offshore engagement models like dedicated development centers provide profitability gains that can’t be matched by other cost optimization initiatives.

However, while profitability boosts are an obvious plus to any manufacturing company, the benefits of moving certain expensive aspects of your organization overseas don’t necessarily stop with cost.

In this article, we go in depth on how various offshore engagement models (T&M, fixed and developmental) can help your business in more ways than just reduced cost. Namely, in how these engagements work to reduce cost by offering quicker development at a fraction of the price.

Greater Flexibility to Market Pressures

While offshore engagement models greatly reduce overhead and labor costs, they also allow companies to respond to market pressures much quicker than if production was kept local. In offshore engagements like T&M and fixed bid projects, manufacturers can easily produce more goods in shorter timeframes; production can be adjusted at a whim to meet increases or decreases in consumer activity. With improved scalability comes less material waste, as overproduction can be largely avoided.

Overseas collaboration, particularly through hourly T&M engagements, allows manufacturers to adjust their output to market trends with much more efficiency. Even though scaling overseas operations often brings new work agreements and cost, this flexibility by the hour is too significant a benefit to overlook.

Better Use of Resources Locally

It could be argued that the greatest value for a manufacturer is not in their operations, but in how well they distribute their products to a global market and run their business. Offshore engagements allow companies to funnel more resources into profitable ventures, such as sales and R&D, back home.

For companies where improved sales and distribution could drastically improve profits and the bottom line, moving manufacturing tasks overseas frees up the resources to do so.

Responsiveness Within Price Sensitive Markets

While reduced cost is a clear benefit of offshore manufacturing, perhaps the strongest benefit is what that lowered cost allows companies to do back home. With lower labor and overhead costs, companies pull market share away from their competitors with more responsive pricing. Your company will be able to reduce prices more so than the competition, while retaining its profitability.

With the right operations, offshore engagement models can play a powerful role in reducing time-to-market and more effectively meeting market demand. These configurations can fraction what your business is currently spending on time, materials and labor, and thus drive price competitiveness within busy markets.

Paired with other initiatives for product cost optimization (PCO), moving high-cost tasks overseas can give your company the advantages it needs to overcome market challenges back home.

Overseas manufacturing is just one of the strategies your business can use to cut high production spending, however. For added flexibility to market pressure and pricing, consider standardizing more affordable materials or practices throughout your operations. Smarter floor-level decisions can give your company the control over price it needs to overcome the common manufacturing challenges, particularly those that concern scalability and response to changing consumer behaviors.

Survey: Global Manufacturer

Topics Product Cost Optimization Global Engineering Centre Globalization