Aerospace/Defense Industry Dilemma: Outsource or Hire Engineers?

7/22/2010
By Sandra I. Erwin
Accenture Management Consulting
A big topic at the Farnborough Air Show this week: How to reduce costs in the aerospace and defense industry.
During a breakfast session with executives, the discussion focused on whether the industry could save money by outsourcing engineering services.  It’s an interesting and somewhat counterintuitive concept: What would possess an industry so rooted in engineering innovation to look to outsource engineering? 
One possible answer is that outsourcing is now viewed not just as a way to cut costs but also to spur innovation.
The term outsourcing immediately conjures thoughts of massive offshore call centers in which customer service takes a back seat to call volume. Such is not the case when it comes to engineering services. Cost is indeed a factor in the decision, yet the path to reducing overall costs has very specific targets. Aerospace and defense companies have little appetite for paying highly trained engineers, even new hires, to carry on essential but somewhat mundane tasks such as updating drawings and maintaining computer-aided design models. By using an engineering service provider in these areas, aerospace and defense companies can preserve expensive internal talent for research, development and other more complex engineering tasks.
Earlier this month Accenture released areport that found the pressures to reduce costs will be the primary decision drivers of aerospace and defense companies to use external engineering services over the next two-to-three years.
Cost is clearly an important consideration in the decision to employ outsourced engineering services. However, quality is also critical. The transition to an outsourced provider should be cohesive and transparent.  There should not be any difference in quality between the output of the in-house and outsourced engineering teams.
The latest research indicates that aerospace and defense companies and their service providers are working to maintain quality by moving from time and materials to work package based contracting. The shift from time and materials (paying for a given individual’s time worked on a specific task) to a work package model (purchasing the end to end design of a specific engineering requirement) has increased oversight and improved continuity of service delivery. By setting specific service level agreements around specific work packages, aerospace and defense companies can better monitor quality by measuring against a known target. Similarly, service providers can improve quality and coordination by knowing that they have responsibility for a clearly defined set of tasks.
Another topic discussed at the breakfast meeting was coordination. Despite the growing interest in engineering services, companies remain leery of simply tossing work packages off the wall to an engineering services team that is most likely working offshore. Their desired solution is relatively easy to address. Provide one hand to shake. Any substantial offshore engineering services presence should be closely paired with an onshore team that has a deep working knowledge of the engineering function as well as the industry itself. Those firms able to provide this mix of on- and offshore teams place themselves in a more trusted and, frankly, more comfortable position with their customers.
 
Craig Gottlieb is senior manager at Accenture’s Management Consulting Practice based in the company’s Hartford, Conn., office. 
All rights reserved © Accenture 2010. This article is produced by consultants at Accenture as general guidance. It is not intended to provide advice on specific circumstances.

Topics: Business Trends

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