Author's Corner
In his white paper, PK Das, Engineering Services Director - US Sales & Client Relations, explains the impact of outsourced engineering services in relation to the ongoing global supply chain disruption.
Please click on the video to the right to learn more about PK, his paper’s key points, and his motivation for writing on this subject.
To discuss this white paper in more detail, please reach out to PK using the information provided at the bottom of the page.
As the age-old cliché goes, change is the only constant in the world. Everything evolves or adapts eventually, and perhaps, it is going to be the same with the Global Supply Chain. The worldwide supply chain aftershocks that started in China due to COVID-19 have continued to disrupt this vital global ecosystem across manufacturing and engineering industries.
The initial trade restrictions might have appeared to be short term, but the ubiquitous supply crunch that followed looks to be all set to stay for the long haul.
Consequently, the pandemic havoc has unmasked many of the great weaknesses in the world’s lopsided supply chains, beyond just parts shortages. For example, unforeseen cascades of events from shipping containers being left out at the wrong time and at the wrong spots, to congested ports with vessels but no takers, to a reduced number of operational vessels due to lockdowns everywhere – all have culminated in a full-blown scarcity of containers that are simply the lifeblood of today’s world trade. As a result, not only are freight costs rising, but there are unbearably long lead times for the overall manufacturing scene.
Manufacturers around the world, for far too long, have become dependent on China (known as the “World’s Factory”) or just a handful of other cost-effective alternatives at best. Widespread shortages of critical components caused by the domino effects of factory shutdowns and the unavailability of skilled workers have simply exposed the underbelly of such unsustainable monopolistic dependency on one single source today.
One obvious solution to such an imbalance would be the diversification of sources. However, reducing absolute reliability on China would be much easier for certain products than many others. For instance, while many common household goods are relatively painless to source, finding suitable alternative sources for sophisticated equipment, advanced medical electronics including semiconductor chipsets, high-density printed circuit boards and display monitors, as well as modern automotive ECUs, would mean considerable time and money spent for a proven vendor development process. If alternative suppliers are not readily available, a company might have to keep an unreasonable quantity of inventory in stock, which would be costly.
Foley & Lardner, a leading corporate law firm suggests, “The most well-documented shift, in light of the pandemic and an ongoing trade war, has been the move away from China. Of our survey respondents, 59% have either already withdrawn from the country, are in the process of doing so or are considering it. Of the various North American manufacturing representatives, 47% of respondents moving out of China are looking to Mexico, 23% to Canada, 12% Vietnam, 9% to Brazil, and 9% to India as an alternative.”
As per a recent survey conducted by Ernst & Young, “All automotive and nearly all (97%) industrial products companies said the pandemic has had a negative effect on them.”
For a manufacturer, these are all part of a messy challenge that has disturbed the very delicate balance between the engineering functions and daily production obligations. Whether in discrete manufacturing or process industry, it is having a significant impact on engineering outsourcing activities.
Engineering depends on a healthy production life cycle within manufacturing. However, when normal production gets affected, R&D activities get hampered and decision making becomes uncertain. This lack of clarity from clients’ R&D leadership is a real challenge for engineering service providers.
That said, there are also definite advantages to these changes. Engineering outsourcing services companies can rejig their menu of offerings to accommodate several new services like should costing, parts rationalization, reverse engineering, vendor evaluation support through production part approval process (PPAP) within their product design services spectrum, as well as manufacturing engineering services (M.E.S.) within their industrial engineering portfolio.
Manufacturers can also collaborate with their hi-tech and advanced engineering services partners in developing a digitally networked ecosystem where all the data would be stored in the cloud through RPA, IoT, big data analytics, etc., and can be simultaneously accessed by all stake holders through a universal blockchain. There are many factors to consider, and there may not be an easy fix. The ability to respond quickly to everchanging geopolitical climates, natural disasters, and the ongoing pandemic is imperative. As digital transformation progresses forward, and technology disrupts markets globally, change remains as the only constant. It is the time for the world’s industry leaders to welcome this opportunity to adapt to this new paradigm shift.
References:
https://www.ey.com/en_us/supply-chain/how-covid-19-impacted-supply-chains-and-what-comes-next
https://www.cogoport.com/blogs/container-crisis-an-auto-response-to-the-global-lockdowns-of-covid-19-pandemic
https://www.foley.com/en/insights/publications/2020/09/global-supply-chain-disruption-future-strategies#4
https://hbr.org/2020/09/global-supply-chains-in-a-post-pandemic-world
