Is outsourcing the right solution for your company?

The drive to control costs by outsourcing tasks deemed “non-core” competencies presents many challenges to electronics manufacturers. One function that is increasingly being targeted for outsourcing is printed circuit board design.

Many consumer and commercial PCB designs can be successfully outsourced to external design teams. In this case the manufacturability is well-established and cost is the critical driver. This is not the case with high performance/high reliability products where performance and reliability are key. In the case of high performance or high reliability applications, the subtleties of component placement, trace routing and signal integrity require precise, interactive communication between the engineer and board designer. This communication is most effectively done “shoulder-to-shoulder” in front of the EDA tool.

Outsourcing sensitive PCB designs such as medical and military products can further complicate this situation due to regulatory or security requirements that make outsourcing burdensome on project engineers and a source of risk for the project. In addition, the security of IP is always a factor when sensitive design data is transferred outside the corporation.

The major drivers for outsourcing PCB design are comparable to many other outsourcing situations – accelerating product development, lack of experienced internal resources and a need to control overhead costs (Figure 1¹). Outsourcing is a business trend made possible by the convenience of international trade and the speed at which data can be moved via the Internet. While manufacturing and services such as IT support and customer service have been the most prevalent targets for outsourcing, design-related activities are being outsourced at an ever-increasing rate. While outsourcing full product development has been common for decades, outsourcing specific engineering services is less common.


When a company evaluates an outsourcing service, the OEM needs to answer two questions: What is the strategic goal of outsourcing, and How do we want this relationship to change the organization? This can range from simple efficiency improvement to transforming the way the entire enterprise handles PCB design. As shown in Figure 2², the value that an outsourcing relationship brings directly impacts the complexity of the relationship. A relationship that is intended to improve the efficiency of a single engineering unit or project requires a less complex relationship than does a relationship that affects a fundamental way in which PCB design is done.


The next task is to determine the potential for successfully outsourcing PCB design. Certain elements must be present to make outsourcing a sensible alternative:

• Qualified contract labor must be available outside the company.
  
  
• Significant cost savings must be achievable.
  
  
• Quality of work or product must be maintained (or the costs of refining the outsourced product will undermine the original savings).
  
  
• An IT system that permits easy submission and tracking of outsourced work must be in place.
  
  
• A standards-based work culture must be in place (so the outsource work provider clearly understands what is required of them).
  
  
• Internal staff must closely monitor outsourced staff to ensure timely delivery.

Of course, meeting all these criteria isn’t always easy, so not every company that undertakes outsourcing will be successful. See Table 1 for keys to PCB design outsourcing success.


Outsourcing Benefits and Risks

Regardless of the outsourcing goals and their potential benefits, companies must weigh the benefits against the potential risks. Any time a company decides to outsource a service to another party, whether it is across town, halfway around the world or onsite, the company loses some measure of control. Possible benefits with outsourcing include:

• Allowing a business to focus on core activities.
  
  
• Reducing costs through a reduction in full-time employees.
  
  
• Quantifying task costs.
  
  
• Having access to the latest technology and expertise.
  
  
• Increasing capacity for growth.
  
  
• Making the company more flexible to change.

On the other hand, outsourcing risks include:

• Longer delivery time frames for products.
  
  
• Miscommunication issues.
  
  
• The inability of outsource provider to perform.
  
  
• A compromise of intellectual property.
  
  
• Unforeseen political problems affecting the trading partners.

Table 2 lists several traits of an effective outsource relationship.


PCB Design Outsourcing Models

A growing number of companies in North America and beyond are ready, willing and able to provide PCB design services. The challenge is to select the right outsource model and develop a successful outsource relationship.

The following models include outsourcing opportunities in North America and other countries, specifically India and the Pacific Rim because these modes of outsourcing are the most prevalent in the PCB design field, and this mode of outsourcing has garnered the most attention from the press.

The most common form of PCB design outsourcing is through the use of service bureaus. PCB design service bureaus have been in existence for some time and have flourished as EDA software tools have become PC based and affordable.

The PCB design service bureau model is similar to many other outsourced services. A specification is generated, sent for quotation and a supplier is selected. The service bureau model requires the development of a comprehensive data package that includes items such as mechanical descriptions, BoM, layout instructions, product requirements, CAD, deliverables, schedule, etc. The more detailed this data package, the more likely the service bureau can produce an acceptable design.

India has done an excellent job of marketing its PCB design services. Indian firms have succeeded in winning business in part because India has chosen to pursue aggressive educational programs in computer science, engineering and English proficiency. As a consequence, the number of PCB design bureaus located in India has steadily increased.

While India has received the most attention, it should be noted that similar programs in China and the Pacific Rim have yielded great success in grabbing a share of the global PCB design market as well.

Choosing which work to outsource and which supplier to send it to are the first two decisions an engineering manager needs to make. The key to success with this kind of outsourcing is making sure that what you send to the service provider is something that is easily definable and considered non-core.

Since service bureaus use pools of designers that work on multiple designs over multiple shifts, there is no guarantee that one designer will work on a design and the revisions, and subsequent related designs. This limits the ability of the service bureau to learn what an engineer wants beyond the documented specifications and ultimately limits efficiency.

The required data package can be complex, as it must communicate not only technical specifications, but also the “intent” of the design. It is the communication of intent and any changes to that intent that present the biggest challenge to the service bureau model. The lack of face-to-face, interactive communication limits the flexibility of this model.

The more basic a product is, the more likely a high reliability OEM is to outsourceit successfully, keeping the more complex, innovative projects with an internal PCB design team.

An alternative type of PCB design outsourcing has emerged that is addressing some of the challenges of the service bureau model. Onsite sourcing is where an OEM engages an external company to staff an internal PCB design team. This is different from independent contractors or temporary staffing arrangements in that highly experienced designers are retained as full-time employees of the service company that manages the resources. The company gets a person who knows the subject matter, doesn’t require any training and can be productive immediately. This approach can save the company significant time and money.

The PCB designer becomes part of the design team and develops solid technical relationships with the electrical engineering team. The engineer and PCB designer can sit together at the EDA tool and work interactively, in real time, at any time. This is an advantage that someone remotely located in the next town or a country 12 hours away by air simply doesn’t have.

The company only pays for service when required. This may be hourly or per project. When the company no longer needs the services, it doesn’t have to pay severance, deal with layoffs or risk a lawsuit. The company doesn’t have to maintain a staff position or worry about that person leaving for another job. By not carrying an additional staff position, overhead is reduced.

The company doesn’t have to pay benefits, such as insurance or retirement, and it doesn’t have to deal with taxes or other government reporting requirements. Not only does this save the company money in taxes but also in accounting and record keeping.

The principal challenge with onsite PCB design outsourcing is that there needs to be a significant commitment to work flow. Unlike a service bureau, an independent contractor or temp who expects a significant discontinuity in assignments, experienced PCB designers demand stable workflow for extended time frames. The stable workflow is also necessary to maximize the “learning the product and process” benefits of an on-site design team.

Keys to Outsourcing Success

Since any outsourcing model carries with it many inherent risks, engineering managers considering or being pushed to outsource should understand what typically makes outsourcing successful.

Clearly define the scope and schedule for your project. This might seem obvious, but any successful outsourced project always starts with a clear statement of what you are hoping to accomplish. Define project requirements upfront. Service providers need accurate, complete information to present a realistic proposal and to quote a reasonable price.

Be specific about the deliverables that you expect the supplier to provide. Give suppliers as much information as you can about deliverables and the way in which the work is to be done. Also, be clear and realistic about schedule requirements.

The use of collaborative EDA tools allows multiple engineers anywhere in the world to examine and modify a design in real time. Because it’s interactive, engineers can run the modeler live while talking to each other on the phone. The problem with this method is the EDA tool cost and the cost associated with converting the entire organization to a new platform that provides the collaborative environment.

Evaluate a service provider as you would a full-time employee. When evaluating proposals from service providers, ask a lot of questions. Like hiring a full-time employee, selecting a supplier is a subjective task. Check references and ask for feedback from other clients who have used their services. Engage in a dialogue; if there are concerns about a supplier’s specific capability, voice these concerns early in the evaluation. Look for specific experience fit. Ideally, the service provider you select will have experience with the type of project you’re undertaking. You don’t want to be somebody’s guinea pig. This is especially crucial when outsourcing complex technical projects such as software development.

Though it might be tempting, never select a supplier based solely on price. Experienced buyers who have outsourced many projects and evaluated hundreds of proposals almost always recommend discarding the highest-priced and lowest-priced bids. Buyers report that their most successful projects are the ones in which they felt the supplier offered a balance of good value and quality results.

Review portfolios and samples. Examine the supplier’s previous work and make sure that it meets the expectations for quality and style. If after evaluating a supplier’s portfolio, references and previous experience you are still unsure of their capabilities, consider asking them to do a quick mockup or provide a basic outline of a work plan. A service provider who really wants to win your business might be able to give you a rough concept so you can better understand their approach to solving your problem. But never cross the line between asking for a mockup and insisting that a supplier provide you with finished work “on spec.” No qualified professional expects to work for free.

When engaging with a service provider for the first time, start with a project that is relatively small and simple in scope. This will give you a better idea of the provider’s style and capabilities before you entrust a critical project to them.

Tie payment to clearly defined project milestones. Just as you should be clear about project scope, make sure that you define a work plan for your outsourced project with clearly defined milestones. Having scheduled checkpoints where you review the status of the project as it works toward completion is an effective way to ensure that deadlines are met and that the final product meets your standards. A good guideline for PCB design projects is to pay no more than 20% to 30% of the total project price upfront, with the rest of the payments made based on the completion of the remaining milestones.

Negotiate ownership of work up front for any outsourced PCB design project. Be clear about who owns the resulting work product and any important components of that product. In addition, make sure the service provider understands how you intend to use the deliverables that they are agreeing to provide.

For technology projects it’s a good idea to specify a warranty or support clause so that you are assured of some amount of continuing support from the supplier after the project is complete. It’s much easer to negotiate a support clause before the service provider begins work, rather than after the completion of the project.

Get the outsourcing agreement in writing. During the course of a service engagement, the scope of the project, deliverables or even the agreed-on price may change. Make sure that you clearly communicate any schedule, scope or payment changes to your service provider and get confirmation from them – in writing – to confirm that they understand and agree to the changes. Similarly, keep a record of any agreement changes requested by the service provider and whether you accept or reject those modifications. Save copies of any email exchanges that you have.

These keys to outsourcing success are summarized in Table 3.


Remember, an effective outside resource is one that satisfies your business needs while enhancing the personal and professional strengths of you and your staff. Regardless of the outsourcing model used, the basic rules of outsourcing apply to outsourcing PCB design. By following some basic guidelines for successful outsource relationships and some specific requirements for PCB design, an OEM can achieve a higher degree of success than when the “toss it over the wall” approach is taken.

Ed.: This article was first presented as the SMTA Medical Electronics Symposium in May 2006 and is republished with permission.

References

1. D. Brown and S. Wilson, The Black Book of Outsourcing: How to Manager the Changes, Challenges and Opportunities, John Wiley & Sons 2005.
   
   
2. L. Brown and A. Young, Multisourcing: Moving Beyond Outsourcing to Achieve Growth and Agility, Harvard Business School Press 2006.

Joseph Zaccari is vice president of Stilwell Baker Inc. He can be reached at joe@stilwellbaker.com.