It is critical to identify within each area of the enterprise what would be more advantageous to outsource in order to better utilize the limited resources in the organization. Original equipment manufacturers (OEMs) in Western Europe, North America and Japan are improving their cost structures by relocating the assembly and production of their machines to lower cost regions such as Eastern Europe, India, and China.
The established OEM recognizes that the elements of the organization considered to have the greatest source of value are the engineering and design resources. It is within these organizations that the Intellectual Property is of greatest value. Those organizations that have taken the first step in lowering costs are now carefully evaluating where value is created within their engineering resources. It is patently clear that engineering each and every element of the machine is no longer regarded as a best practice in this business. This is simply wasteful in terms of the way engineering resources are used. An effective approach is to determine the area of the machine design that maps to the key competitive advantage, or is regarded as Intellectual Property.
Consider total cost
Automation solutions are maturing into integration platforms in which the impetus is to lower the total-life-cycle costs for OEMs. The underlying actuator and automation solutions used to control the mechanics remain an important factor to the OEM in delivering value to end-users purchasing machinery. However, integration of these components does not necessarily represent a core competency for the OEM. Taking on the integration responsibility of a multi-vendor component solution may result in a lower initial cost, but the overall lifecycle costs can be much higher, as the engineering design team to support this is required long past the shipment date. Support, service and engineering changes continue for over a decade, in most cases.
The machine building business has changed. The design of proprietary computing platforms and integration of the actuators and sensors are generally not considered value-adding activities in an OEM’s engineering operations. OEMs need to realign engineering resources such that their core competencies are focused on solving application-specific problems in their domains. OEMs that have made this transition are outsourcing the automation platform and are adding software engineering skills to their staffs.
An equally important issue facing the machine building market is that the internal expertise needed to develop modern-day machinery has radically shifted from a concentration on mechanical engineering to a convergence of electrical and mechanical skills referred to as mechatronics. However, software development capabilities are currently lagging in these organizations. While the cost of automation control platforms and hardware continues to decline, the hidden cost of software development is escalating rapidly. To alleviate this cost, OEMs require a supplier that offers easy-to-use software development tools, function specific software modules and portability from one generation of machine to the next.
Machine-building OEMs are in need of support services from automation suppliers more than ever. As many OEMs Lean out their engineering staff, these views may be superceded by the increased pressures to outsource non-core elements of the business, driven by the goal to improve profitability. Increasingly, OEMs are recognizing that the right type of automation supplier can minimize a wide range of costs in the business.
Machine builders should map out the value chain in their business processes. Apply the methods of Lean to eliminate wasteful activities that provide marginal value to the final design of machinery.
Sal Spada, firstname.lastname@example.org, is Research Director, Discrete Automation, at ARC Advisory Group Inc., in Dedham, Mass.