4 Tips for Picking the Right Outsourcing Partner

Today, doing business is like a Formula One race — it's all about teamwork and collaboration. Drivers Sebastian Vettel and Lewis Hamilton don't win races on their own. They rely on the backing of their racing teams and on the power of their cars' engines (Red Bull Racing / Renault and McLaren Racing / Mercedes-Benz, respectively).

Similarly, an electronics system product company cannot flourish on its own; it needs a well-organized supplier network to win and cope with the business dynamics of time-to-market and time-to-volume. But the current fragmented supply chain, with multi-location and multi-disciplinary suppliers, makes it extremely difficult for system companies to reach the finish line fast, and in a cost-effective way.

So how should system companies make their supply chains more efficient and effective? An apt motto to follow is: If it's not your core priority, outsource it to someone doing things right in that area! With some leading R&D service providers ready to take charge of managing the manufacturing supply chain, along with design, it's a wish fulfilled for system companies that want to focus more on product innovation and addressing dynamic market needs.

But can third party R&D service providers really walk the talk? The answer is yes. Some leading R&D service providers have excelled in capitalizing on their wide networks of electronic manufacturing services (EMS) partners and component suppliers, and in delivering on the manufacturing promise to system companies. (See: Hands-Free Outsourcing Makes Its Debut, where I wrote about “concept-to-product outsourcing” offerings by third party service providers.)

Doing one's due diligence when selecting the service provider would hold system companies in good stead, help overcome supply chain hiccups, and bring long-term benefits.

Here is a checklist to help you make the right choice:

  1. Expertise is key: Ensure that the service provider you choose has extensive expertise in translating market needs to product architecture, design solution, integrated design implementation, test and engineering services, supplier quality engineering, component engineering, environmental compliance engineering, and failure analysis at the system level. This is crucial since you want the R&D service provider to have the capability to resolve any system-level issues that may crop up at the later stages of the product development cycle. You should be able to hold them accountable to the task.
  2. Extensive support base is critical: The service provider must have an extensive network of electronic manufacturing service (EMS) partners to help in the flawless execution of manufacturing. They should be able to utilize this partnership for even low-to-medium volume high-complexity products.
  3. IP is sacred ground: IP is always very dear to a system company. Do not compromise on IP while outsourcing the manufacturing supply chain management to the service provider.
  4. Check the track record: Today, product designs require a higher degree of connectivity and customized end-user experience. As a result, there is a growing convergence of multiple technologies leading to design complexities. Ensure that the solution provider you choose has design pedigree in developing high-complexity products in areas of communication, computing, and video.

15 comments on “4 Tips for Picking the Right Outsourcing Partner

  1. Nemos
    June 14, 2011

    “it's all about teamwork and collaboration” I believe if you want to be successful you must adapt this motto in your daily life putting away the selfishness. You can achieve much more if you are working as a team member instead of working alone. I agree with all the blog mentioned and in addition  a successfully company is the company that treats to its employees as the colleagues.     

  2. SunitaT
    June 15, 2011

    Do not compromise on IP while outsourcing the manufacturing supply chain management to the service provider.


     Thanks for the post. If some company wants to oursource part of its core IP, what all precautionary measures that company should take in order to protect its IP ?


  3. Daniel
    June 15, 2011

    Prasad, in formula one race, I agree that it’s totally a team work from company to sponsor to last end mechanic. So if the team is winning, the price money is not going to the driver or champion. Instead it’s fairly dividing among all the peoples involved for the success of team. That means they are suitably rewarding for their effort and team work, apart from salary.

    In most of the companies, especially in BPO/ITES and IT companies, such profit sharing is not happening. That’s the one of the reason for dissatisfaction among employs. Instead management is trying to gain maximum profit by using the employees. Now most of the countries, especially US and EU are against outsourcing and in this scenario outsourcing companies have to struggle well to get the works.

  4. mfbertozzi
    June 15, 2011

    Well done, Prasad, your editorial summarized key points to consider in outsourcing activities with success. In addition to be sure partner is right in terms of knowledge and experience, I am really convinced one key factor is also the mindset from customer that would like to outsource some internal activity. All organization inside him should to be adequate in thinking as per that process, otherwise even partner is good, doubts on full achieve results will come soon, isn't it?

  5. Mr. Roques
    June 15, 2011

    I agree with mfbertozzi, those 4 points really highlight the biggest issues with outsourcing partners. Should you also look at existing customers? Or is that something that is not known, or does it even matter? Are there so many suppliers that it's better to look for a new one?

  6. mfbertozzi
    June 15, 2011

    In my opinion, it seems a guideline for existing customers and new ones in the future. With regard to suppliers, market experience says for sw developing/testing, India region achieved great outstanding, as well as Chinese regions in manufacturing. Strong changes have happened a few years ago, for example Eastern Europe is taking a leadership in sw/IT activities thanks to strong knowledge and cheap costs of labour.

  7. saranyatil
    June 15, 2011

    All the points are to be noted while outsourcing is done. I feel IP should be given the highest importance if we are choosing a new third party R&D company if we have not previously worked with. Today even if the details of the smallest of the smallest part is not kept confidential, It will take the product for a toss.

  8. Prasad Bhatt
    June 16, 2011

    @Tirlapur: A trustworthy vendor with fool proof credentials is absolutely essential for a company planning to outsource part of its core IP. To protect its IP, the company needs to execute Confidential Non-Disclosure Agreements (NDAs) and  Intellectual Property Rights with the service provider and their key project architects and leads. Also, ensure the service provider has a mechanism to get audited by a company and/or an external audit agency.

  9. Prasad Bhatt
    June 16, 2011

    @ mfbertozzi:  I do agree even if all aspects are okay from the partner side, there is a need for key stakeholders in company to be convinced about the partner’s value add. Continuous communication needs to go out to the internal team and any apprehensions regarding the partner’s value add need to be communicated, evaluated and addressed upfront. Additionally, there is a need to have governance meetings with the partner on regular basis so that there is transparency and good visibility into the program's health status. This will help overcome any doubts on the ability of the partner to achieve the end goal.

  10. Prasad Bhatt
    June 16, 2011

    @ Mr. Roques: The above guidelines are valid for existing and new suppliers/partners. It is always good to re-validate existing suppliers and make changes to address any deficiencies.

  11. mfbertozzi
    June 16, 2011

    Thanks Prasad, I am convinced track you have outlined is really important, assuming for example meetings on regular meeting act for mutual mindset exchange and speed-up relationship between customer & outsourcing provider in order to achieve targets agreed as common goal.

  12. stochastic excursion
    June 16, 2011

    In addition to audit records the outsourced provider should have good references that can vouch for its track record in both project management and execution.  This should include how well stakeholders were engaged and the process refined as a result.

  13. Anna Young
    June 19, 2011

    Prasad,you have broken down in a nutshell 4 good points  for selecting the right outsourcing partner.

    Your outline eliminate any formed concern over R&D third party service providers, and emphasis on a clear parnership and team work – provided the right safeguards in the selection processes are followed.

    Thanks for the tips

  14. Mr. Roques
    July 18, 2011

    There's huge potential for SW/IT developments in latinamerica. I don't know why this industry hasn't caught up with the industry. It makes perfect sense.

  15. Mr. Roques
    July 18, 2011

    I know of a case that one supplier worked with rival companies and to create a a good working relationship between the supplier and each company, they created two divisions, one for each. They were in two different floors, each project is handled by completely different people, etc.

    Added costs, but assured them a trusting relationship.

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