MANUFACTURING
How OEM engineering leaders can create
and scale a “future-ready” competitive edge
The demands only keep mounting for leaders in industrial OEM (Original
equipment manufacturers). To viably compete, they must contain costs and
protect margins. To grow globally requires robust, efficient, international supply
chains—and adherence to local regulations across emerging markets. To be stateof-the-art, OEMs need to methodically invest in and adapt to dynamic, evolving
technologies.
When these demands exceed the bandwidth of in-house experts, OEM companies
risk results that diminish company value. These risks include the winning of fewer
deals, lower aftermarket service revenues, sub-optimal working capital, inferior
asset uptime and less-satisfied customers.
The good news is that engineering leaders at many OEM companies avert these
risks—and successfully build and scale a ‘future-ready” competitive advantage—
by using advanced delivery models for support services. This combines leaders’
strategic vision with efficient, cohesive processes in ‘industrialized’ engineering
support operations. This ‘industrialized’ engineering support can help protect
hundreds of millions of dollars in asset lifecycle value—and help acquire more
operating flexibility and innovation, insights into new technologies, and local
knowledge to conform to regulatory standards in new geographies.
Overview
engineers have to develop new machines that suit difficult
and varied local operating conditions.
Market pressures facing industrial OEMs have thrust
engineering leaders into the spotlight. They operate globally
within complex business environments that require continuous
productivity and cost savings. Design and engineering functions
are core to creating “competitive advantage” because they help
to preserve margins and customer value in the short -term, and
reinforce and build an edge for the future through engineering
innovation. This is a delicate balance to maintain, since
engineering and manufacturing leaders in capital-equipment
OEMs face multiple strategic and operational challenges, and
often near-impossible demands on their attention and priorities.
3. Entering new geographies: Emerging-markets
infrastructure projects drive today’s new demand for capital
equipment. Yet new geographies also present a variety of
different regulatory standards and design challenges. It’s
a harsh trade-off for OEM engineering leaders cultivating
these new markets. Engineers are further pressured by
escalating standards for equipment capability, as well as by
safety concerns such as equipment reliability, robustness,
and safe-failure mechanisms.
4. Adapting to new and evolving technologies:
Among strategic challenges: Cost and margin pressure,
Competition pushes incumbents to invest in new
entering new geographies, and adapting to new and evolving
equipment technologies to conform to new performance
technologies. Operational challenges such as lack of in-house
standards. Adapting to new technologies further strains the
capacity, sourcing and supply-chain issues further compound
engineering design teams of aerospace engine component
the difficulty.
manufacturers. OEMs must innovate reliably despite time,
OEMs typically try to address these challenges by increasing
efficiencies within each area of the equipment lifecycle –
engineering, sourcing, manufacturing and services – with
each functional team working to achieve its own objectives in
resource and supply-chain constraints. Too often, their
use of new materials and processes could lead to quality,
repeatability, and reliability issues that would undermine
their quality reputation and profitability.
isolation. This approach often results in siloed improvements,
The operational challenges further complicate solutions to the
with sub-optimal overall return on investment and delays in
strategic ones:
new product introductions—which ultimately lead to lower
market share and dissatisfied existing customers.
Engineering leaders face significant
strategic and operational challenges
Multiple strategic issues faced by industrial OEMs have
significant implications for engineering leaders:
1. Cost/margin pressure: While capital-equipment OEMs
have long felt cost pressures given the “design to
requirement” nature of projects, this pressure has intensified
lately. According to Genpact research, nearly 80% of
industrial manufacturing CEOs have implemented a costreduction initiative over the past 12 months, and 70%
expect to trim further in the next 12 months.
2. Pressure from competitors: Established global players
1. Supply-chain issues: OEMs that globalize their product
development must adapt and localize their engineering and
design practices. Therefore, speed to design and deliver is
crucial—and this requires optimal development processes.
Also, since strained supply chains are expected to support
close to 100% equipment uptime, excellence in service and
parts management is another key OEM differentiator.
2. Inadequate in-house capabilities: There is a significant
shortage of “in-house capabilities” to support innovation in
OEM equipment design, and in the “long-tail” aftermarket
equipment lifecycle. This gap is likely to widen with current
OEM operating models, due to greater demands on design
engineers within the capital-equipment industry. Within
the oil & gas sector, for instance, a significant share is
“design and build” rather than repetitive mass production
encounter stiff competition from strong local players in new
that would lock in efficiencies. Cost pressures mount due
geographies who often know the regulatory authorities and
to volatile demand and the scarcity of skilled engineering
their preferences. This has drastically reduced the time OEM
resources.
Despite such challenges, engineering leaders must deliver on crucial operating,
commercial metrics
Operating metrics
• Number of sales orders in process and hours required
• Estimated hours per order, project vs. actual expended
• Available man-hours per product vs. backlog hours per product
• Number of changes, pre- and post-release
• Product or component MTBF (mean time between failures)
• Field or customer complaints vs. total items shipped
• Engineering hours addressing complaints vs. total available
Commercial metrics
• Proposals won vs. total submitted
• % of corporate revenue from products developed in the past 4 years
• Warranty expense as a % of shipped $
• Retrofit or rework $ as % of shipped $
Priorities of key metrics also vary by geography…
North American companies
European companies
Japanese companies
• Provide flexible engineering capacity
• Realize cost savings
• Realize cost savings
• Localize industry best practices
• Provide flexible engineering capacity
• Localize industry best practices
• Meet government regulations
• Manage technology proliferation
• Gain access to emerging markets
• Realize cost savings
• Give access to new technologies
• Decrease time to market
• Gain access to emerging markets
• Meet government regulations
• Manage technology proliferation
…and by industry sector
Offshoring drivers
Aviation
and
Aerospace
Power
generation
Oil and
Gas
Automotive
Medical
devices
Realize cost savings
Access to new technologies
Provide flexible capacity
Access to emerging markets
Government regulation
Localization of product
Time to market
Technology proliferation (Frequency of refresh)
Driver of high importance
Driver of medium importance
Driver of low importance
A probable outcome: Sub-optimal design engineering erodes company value in
multiple ways
For capital-equipment OEMs, engineering performance correlates strongly with the company’s overall rates of return, cash flow and risk.
For example, sub-optimal design engineering (see figure 1) that is either erroneous or untimely drives down OEM win rates and
aftermarket service revenues. The long lead times of capital-equipment projects leave room for cost creeps, which arise mainly from
insufficient value engineering and multiple changes in design specifications. Also, longer design engineering cycle-times slow cash
flow and delay time-to-market. Design engineering issues also show up as field downtime. This is not only extremely expensive to fix
within tight time parameters—it is especially aggravating to customers, and contractual clauses that stipulate these occurrences raise
OEMs’ overall risk exposure.
Revenue
• Poor win rates due to inaccurate/untimely design support at the
proposal stage
• Lost AMS revenue when design issues lead to excessive equipment
downtime
Return
Cost
• Cost creeps, mainly due to lack of value engineering and
redesign skills at scale, erode margins under fixed pricing models
• Scope creep due mainly to expensive design rework
FCF
CAPEX
Company
value
Capital
• Opportunity cost: core engineering skills and time should be
invested in strategic product development/innovation, rather than
on non-core tedious design changes
Working
capital
• Sub-optimal design leads to excessive inventory levels, while
modular design helps to reduce the amount of components
and spare parts needed
• Longer design engineering cycle times delay the overall
cash-to-cash cycle, and inflate working capital needs
Company
risk
• Revenues and contracts are at greater risk when equipment
uptime and field performance are sub-optimal
• OEMs that operate globally face higher risks overall from contract
penalty clauses, local competitive challenges, shifts in foreign
exchange rates, and geopolitical instability
Risk
Figure 1. How suboptimal engineering can erode company value
Best practices build ‘future-ready”
engineering organizations
OEMs can gather resources to manage these challenges by using
domain-specific “industrialized” design and engineering support.
The best practices and industrialization, achieved through right
target operating model, can help reduce engineering and design
• Concept Design and Finalization: This includes a
competitive benchmarking and teardown analysis,
conceptual design that includes digital mock-up and
quality function deployment, preliminary design, complete
engineering analysis, and defining the sourcing strategy.
• Detailed Design, Prototype, and Release: Here the third-
costs, speed time to market, and improve equipment uptime
party vendor creates a detailed design, supports prototype
through value redesign and advanced engineering support.
development and engineering release, performs should
In Genpact’s experience, a portfolio of best-in-class
‘industrialized’ engineering support services (see figure 2) should
include these five:
costing, and secures supplier approval for the complete
design feasibility.
Concept design and finalization
Detailed design, prototype, and release
• Business opportunity identification
support
• Concept design
- Digital mock up
- QFD
• Preliminary design
• Reliability engineering
• Detailed design
- BoM, tooling and mfg. process
• Value engineering
- Test cases and protocols
• Ongoing sourcing analysis
• Prototype and release
and support
- Pilot assessment
• Design changes
implementation
- Verification and validation support
- Technical risk assessment
- First article approval, engineering release
- Predictive analysis
- Manufacturing release and master data
- 3D design modeling
Sustenance
update
• Engineering analysis
• Should costing
• Sourcing strategy
• Supplier approval
Technical documentation
• Product documentation
• Regulatory compliance
• Field data management
documentation
Engineering process and IT optimization
• Process diagnostics
• Engineering IT e.g. CAD
• Process redesign
Figure 2. Best practice ‘Industrialized’ engineering support portfolio
• Sustenance: This phase includes reliability engineering
along with the integration of engineering IT tools (such
analysis, value engineering considerations, ongoing sourcing
as Product Lifecycle Management suites) and the design
performance management support, and implementation of
software (CAD) for automation and consistency.
design changes throughout the equipment lifecycle.
Industrialized engineering support can significantly benefit
• Technical Documentation: This module helps engineering
OEM engineering organizations in major industries such as
functions deal with crucial and frequently cumbersome
aerospace, power generation and oil & gas equipment. In
technical documentation across the product development
Genpact’s experience, clients that use this approach can:
lifecycle. This module also supports field data management
• Reduce engineering and design cost by 15%-20%
and regulatory compliance documentation, such as RoHS
and WEEE compliance.
• Engineering Process and IT Optimization: Overall
• Reduce time to market, up to 20%
• Improve asset uptime by 10%-15%
engineering process optimization is crucial for a scalable,
While engineering support solutions teams apply new
cost-effective, and world-class design engineering
efficiencies to OEM operational challenges through proven lean
organization. This often includes an engineering process
Six Sigma processes, OEM engineering leaders are freer to focus
diagnostic study and redesign/reengineering if necessary,
on core growth and differentiation strategies.
Smarter value engineering for a leading energy OEM
A leading energy equipment manufacturer faced challenges with managing equipment outages at an optimal cost. This was
impacting customer-service levels across the globe. Genpact helped to develop and deploy an integrated solution of smarter
sourcing processes and effective transactional procurement activities. This value engineering solution yielded $8.72 million
in direct cost savings, expedited availability of direct materials, and better sourcing effectiveness.
Faster, accurate technical documentation for an aerospace OEM
A global aerospace engine manufacturer required crucial documentation updates to its engineering operations and
maintenance (O&M) manuals, to align with the assembly process. The company had limited CAD and technical writing
experts. Genpact provided complete engineering support, from understanding the assembly process to data inputs to final
delivery of accurate documentation. This led to higher manufacturing productivity and operations safety, faster time to
market, and the near-elimination of rework and rejection.
Conclusion
ready” competitive advantage. In a related White Paper “A
This White Paper describes the complex and escalating
operating models for support functions,” Genpact will show
challenges that face OEM engineering leaders, and pose
how the right target operating model can help ER&D leaders
significant business risks to enterprise reputation and value.
develop more agile engineering functions that lead to better
The paper further details how leaders use best practices to
decision making, faster pivots when markets shift, and nimbler
carve a proven path to success and build a scalable “future-
growth pursuits.
new competitive lever for OEM ER&D leaders: ‘industrialized’
About Genpact
For more information, contact:
Genpact Limited (NYSE: G) is a global leader in transforming and running business processes and
operations, including those that are complex and industry-specific. Our mission is to help clients
become more competitive by making their enterprises more intelligent through becoming more
adaptive, innovative, globally effective and connected to their own clients. Genpact stands for
Generating Impact – visible in tighter cost management as well as better management of risk,
regulations and growth for hundreds of long-term clients including more than 100 of the Fortune
Global 500. Our approach is distinctive – we offer an unbiased, agile combination of smarter processes,
crystallized in our Smart Enterprise Processes (SEPSM) proprietary framework, along with analytics
and technology, which limits upfront investments and enhances future adaptability. We have global
critical mass – 60,000+ employees in 24 countries with key management and corporate offices in
New York City – while remaining flexible and collaborative, and a management team that drives client
partnerships personally. Our history is unique – behind our single-minded passion for process and
operational excellence is the Lean and Six Sigma heritage of a former General Electric division that has
served GE businesses for more than 15 years.
[email protected]
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