The Hidden Costs Of Outsourcing – Be Careful And Be Wise

Every day, more organizations are embracing the concept of offshore outsourcing to reduce costs, increase efficiency and productivity, and enable employees to focus on the innovative and essential efforts that drive business.

IT departments were the first project adapters and outsourcing services. Now manufacturers, Original Equipment Manufacturers (OEMs), Original Designers (ODM), Independent Software Vendors (ISVs), System Integrators (SI) and Value Added Resellers (VAR) whose products rely on software and hardware embedded in numerous industries are exploring the benefits of offshore outsourcing to extend their R & D dollars.

What does really mean Original Equipment Manufacturing OEM vs ODM Original Design Manufacturing? An OEM company is responsible for designing and building a product according to its own specifications and then selling the product to another company that is responsible for its distribution. An ODM company is responsible for designing and building a product according to the specifications of another company.

After all, lower wages and higher productivity are a winning concept that should result in significant cost savings and improve a company’s bottom line. Unfortunately, outsourcing projects do not always work that way. And at the end of a project, no CTO of a company wants to raise costs and find that projected savings are not there.

R & D productivity depends less on improving tools and processes and more on sufficient human capital. Today’s R & D organizations, burdened with projects and faced with reduced lead-times, are recognizing the business imperative of benefiting from a global R & D strategy that includes offshore outsourcing. But as the heart of the company, the R & D department can not afford to make expensive outsourcing mistakes. The consequences for the company are very serious.

Smart businesses – aware that there may be hidden costs when outsourced – recognize potential barriers and take steps to get around them. Cultural differences can also affect a project in seemingly harmless ways. For example, in some cultures the questioning authority is frowned upon; even if the offshore team can have a better solution, they may not address it and instead follow the specifications.

Time differences can cause a project to run as well. When doubts arise, a team may have to wait until the team on the other side of the world agrees. When either engine is idling, it is burning fuel and wasting time. Both contribute to increased costs. It is important that an offshore supplier has staff with a strong understanding of English and American culture in key positions to keep communication down to the minimum.

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