Outsourcing: A Profitable Decision for the Automotive Industry

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The continuously growing demands from the developing regions of the globe and a pressing need to develop economical automobiles are keeping manufacturers busy in seeking a profitable position in the market.

It has become mandatory now for manufacturers to look for cost-effective strategies to ensure a profitable business. While many European car makers choose to shed off several design activities to local engineering firms, the amount of benefits from this strategy is limited. Although there is no requirement to build a separate infrastructure and team, the cost of services does not have a significant difference.

outsourcing for automotive

Offshore outsourcing on the contrary is an attractive and a productive strategy that brings profitable outcomes and speeds up the development process. One of the best examples was set by the German auto giant Volkswagen, who outsmarted its competitors by applying the right marketing and product development strategies that fuelled creativity and substantial cost-savings.

Despite having a global presence, the VW group took all the benefits of eliminating non-core activities such as CAD modeling to engineering firms, which significantly improved their design department.

Outsourcing brings a lot of benefits apart from cost savings; it helps in speeding up the design and development process, allows manufacturers to have access to a global pool of talent and most importantly helps drive innovation.

However, being a design sensitive industry, automotive manufacturers are always skeptical to give important information to third-parties. This has given rise to the formation of offshore captives that work entirely under the manufacturer’s control.

Hiring an engineering firm to provide CAD related services is one of the famous tasks that manufacturers outsource. Since digital drafting and 3D modeling requires a team of skilled professionals, software licenses and hardware infrastructure, it adds substance amount of cost to the product development.

Its importance however is not less, as 3D models and drawings help engineers to realize the functionality of the parts and also assists in performing virtual simulations to gauge the performance. Whereas, hiring an outsourcing partner in low labor cost countries to take care of these activities can bring down the expenses to a great extent.

Core activities such as prototyping and physical testing can then be focused more, utilizing the plant’s resources to its maximum.

Additionally, several engineering outsourcing service providers also offer computer aided simulation and testing services as value addition to their existing services portfolio. Since simulation also requires a skilled staff and a professional FEA and CFD solvers, it is a viable outsourcing candidate that can further cut down the expenses. Moreover, the number of physical test trials reduces considerably through simulation, which helps automotive manufacturers to speed up the manufacturing process and time-to-market.

The use of outsourcing model is beneficial to both the manufacturer and the service provider; as for the automaker, the cost of producing a vehicle nearly reduces to half, while the outsourcing partner earns revenue, creates new jobs in his country and gets a global exposure.

Although many manufacturers usually believe in performing all the tasks in-house, the strategy to outsource non-core business activities will remain a decisive factor for automakers, in order to survive in a competitive market where low-cost economical cars is at the highest demand.

Mehul Patel
About the Author: Mehul Patel CFD specialist at Hi-Tech, is an expert at ANSYS FLUENT, OpenFOAM and many more. With more than 8 years of experience, Mehul has successfully planned, coordinated and executed CFD Projects for Aerodynamics, Combustion, Turbomachinery, Multi-phase flow & HVAC analysis. Mehul adept at co-ordination and QA/QC, handles a team of CFD engineers contributing to CFD projects for aviation, automotive, building design & construction, plant design and heavy engineering industries.
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