Things get worse before getting better : outsourcing NPD activities

To sustain the pace of new product development (NPD), manufacturers are increasingly outsourcing parts of the NPD process, such as design and engineering. However, by outsourcing design and engineering activities, things often get worse before getting better in terms of cycle time, development costs, and design quality. In the beginning of the outsourcing relationship, investments in formal controls are needed to boost project performance, but also to improve collaboration quality. The highest level of collaboration quality is achieved when the supplier’s work and intentions are fully aligned with those of the manufacturer. The manufacturer can invest in training and collocation, which are exemplar input controls, and monitor project procedures and outcomes, referred to as process and output controls. Having realized full alignment, the supplier’s engineers will be able to encourage each other to act upon the manufacturer’s objectives through informal controls. From that moment on, the manufacturer can reap the full benefits of outsourcing NPD activities. Based on a case study at a shipbuilding company engaged in design and engineering outsourcing, and using a system dynamics model, this study shows that collaboration quality indeed increases the project level benefits of outsourcing design and engineering activities in terms of time, costs, and quality. This implies that it is important to attain the best collaboration quality as quickly as possible. The results show that process controls have the greatest impact on collaboration quality, however, only when the supplier’s workforce remains stable. From the moment that new engineers join the supplier’s existing workforce, the manufacturer’s use of input controls becomes most important to boost collaboration quality.