Recommendations on outsourcing of engineering work.
As part of a team of designers who work in a contract engineering firm, I am often asked to justify the cost of retaining a design office to supplement in-house engineering resources. As an engineering manager, you should not be asking “Can we afford to?” but rather “Can we afford not to?”
On a strictly dollar-for-dollar basis, your in-house engineers will likely cost less per hour than retaining an engineer from a design office, although the difference is much smaller than you may think once you account for all associated expenses. Benefits, employment insurance, pension plans, and health taxes are just some of the additional expenses to consider if you want to compare apples-to-apples, or engineers-to-engineers.
There are a number of benefits which arise from retaining a design office on a project-by-project basis, going beyond a strictly dollar per hour comparison. By hiring an engineering firm, you are obtaining the assets of a whole team of engineers and designers who are able to exchange ideas and share resources in an efficient and timely manner. This team will have experience and knowledge in a variety of fields that they can apply to each specific project. This often results in net savings due to reduced design time and lower manufacturing costs. Some argue that the hours spent by the design office to learn your specific standards and practices will outweigh these savings. This argument only has validity the first time a project is outsourced to a given firm. On subsequent projects, it becomes a null issue. In fact, this unfamiliarity can sometimes turn into an advantage, as the firm may introduce more efficient practices, which, up until then, had not been considered.
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Another benefit that may be realized is a reduction in fixed internal costs. By only keeping the minimum manpower required to support your company’s day-to-day operations and hiring supplementary manpower as required, savings can be made in a number of areas: personnel expenses are minimized; hiring, training and other associated employee turnover costs are reduced; and continued investment in equipment such as computers and furniture is lessened. Imagine the benefits of having an engineering department that can be virtually expanded and contracted at will. Working with a good design office gives you this capability.
Of course, it does not always make sense to outsource. If idle resources are available or if resources can be shifted to accommodate a new project, then this can sometimes be the preferred option. Perhaps the project time line can be extended such that more internal resources will become available as the project progresses.
Maybe the most important benefit of engineering outsourcing is the potential to reduce project timelines. With additional resources only a phone call or email message away, improved delivery dates can be met with little or no additional costs. No company wants to lose customers because they are unable to meet tight delivery targets. And no company can afford to lose customers. Which brings us back to the original question, can you afford not to consider engineering outsourcing?
This article was authored by Matthew Davidson, P.Eng. Mr. Davidson is a professional engineer with many years experience in machine and product design.
