Executive Summary
Today’s manufacturers of highly engineered products are faced with the most challenging environment in history. Traditional cost pressures, demands for improved quality and increased customization are exacerbated by increased global completion from small and large competitors alike. So how is today’s domestic manufacturer supposed to compete? The traditional answer of growing top line revenues while reducing expenses still works, but most companies have already attacked their most basic problems and are cautious, for good reason, to take on large improvement projects.
One compelling process improvement is the use of embedded offshore resources. At up to one third the wage rate and with an average education level one to two times that of a domestic resource the cost benefit is obvious. However, just adding offshore resources isn’t enough. The correct application of embedded resources can make a substantial improvement to your business beyond that of simply lower cost resources.
The benefits of addressing these problems and pain points are numerous including:
- Raised bid/RFQ hit rate (bid quantity, quality, timeliness).
- Increased job profitability
- Manufacturing process bottleneck exposure (Job Router/Traveler
- reation, CAM/CNC programming, CMM works, etc.)
- Higher production machine utilization rates
- Increased production/product quality
- Reduced production material usage and improved scrap utilization
In order for this to work it has to be done right. This white paper explores this premise in more detail.
Today’s U.S. based Engineer to Order (ETO) manufacturer faces a number of challenges. Customers, both individual and institutions, have steadily increased the pressure to:
- Lower Cost
- Increase Product Quality
- Shorten Lead Times
- Allow for Greater Customization
Competition has grown to include international small and medium businesses (SMBs) along with large multinational corporations who are looking to continue to grow by increasing their share in niche markets they previous refused to serve.
So how is today’s domestic manufacturer supposed to compete? The traditional answer of growing top line revenues while reducing expenses still works, but most companies have already attacked their most basic problems and are cautious, for good reason, to take on large improvement projects.
The benefits of addressing these problems and pain points are numerous including:
- Raised bid/RFQ hit rate (bid quantity, quality, timeliness).
- Increased job profitability
- Manufacturing process bottleneck exposure (Job Router/Traveler creation, CAM/CNC programming, CMM works, etc.)
- Higher production machine utilization rates
- Increased production/product quality
- Reduced production material usage and improved scrap utilization
Today’s market for those providing highly engineered products and components are more challenging than ever before. Increased cost pressures, demand for customization, an explosion of the number global suppliers, and larger companies looking to serve niche markets are forcing manufacturers to change their business model. These pressures often manifest themselves in some less than effective work practices as SMBs and their employees struggle to keep pace. Some examples of these include:
- Not answering enough bids/RFQs to sustain order/production levels
- Internal team is quoting the easiest to estimate projects, not the best work to perform
- Answering bids/RFQs late or at the last minute resulting in lower hit rates
- “Short cut” estimating practices that introduce risk
- Losing control of a jobs cost during the manufacturing process
- Late project launches to the manufacturing floor
- Reluctance to use outside resources due to the teams’ potential resistance and the ability of outside resources to understand the nuances of their business
The benefits of addressing these problems and pain points are numerous including:
- Raised bid/RFQ hit rate (bid quantity, quality, timeliness)
- Increased job profitability
- Manufacturing process bottleneck exposure (Job Router/Traveler creation, CAM/CNC programming, CMM work, etc.)
- Higher production machine utilization rates
- Increased production/ product quality
- Reduced production material usage and improved scrap utilization
- Improved inventory turns
- Improved employee morale and reduced turnover
There are a number of solutions to challenges outlined above, but all of them involve adding resources or improving technology and equipment. Ultimately it’s the business case and the underlying cost-benefit analysis that drives which investment into the operation is best. In this case let’s explore the use of embedded offshore resources.
Let’s first consider the fully loaded cost of a resource qualified to perform product or manufacturing engineering (2D drafting, CAD/CAM/CMM Programming, etc.).
Skilled Engineering Resource Cost:
- Recruiting Expense: $2K – $15K
- Base Salary: $60K – $85K
- Benefits & Employment Taxes: $15K – $34K *assumes 1.25 – 1.4 base salary
Includes Social Security/FICA, Unemployment/FUTA, Medicare, Workman’s Compensation Premiums, Life Insurance, AD &D Insurance, Long-term disability, Health, Dental, Vision, Dependent Care, Tuition Reimbursement, Retirement Plans, etc.
- Space: $2k for an average 8×8 workspace (225 – 250 square feet)
- Other Equipment: Computer ($1K), Engineering Software ($2.5K), Phone & office supplies ($500)
- Travel & Living Expense: $2K – $5K for miscellaneous company activities and travel
Total First Year Engineering Resource Cost: $85K – $145K Compare this to the first year cost of introducing an embedded resource.
- Recruiting: $0K
- Salary (Hourly): $36K – $56K *assumes 250 work days per year times 8 hours
- Benefits & Employment Taxes: $0K
- Space: $0K
- Other Equipment: Engineering Software $2.5K
Travel & Living Expense: $5K – $8K *assumes two or three trips
