MANU FA C T U R I N G

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 state-of-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.

OverviewMarket 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.

Among strategic challenges: Cost and margin pressure,

entering new geographies, and adapting to new and evolving

technologies. Operational challenges such as lack of in-house

capacity, sourcing and supply-chain issues further compound

the difficulty.

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

isolation. This approach often results in siloed improvements,

with sub-optimal overall return on investment and delays in

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 cost-

reduction initiative over the past 12 months, and 70%

expect to trim further in the next 12 months.

2. Pressure from competitors: Established global players

encounter stiff competition from strong local players in new

geographies who often know the regulatory authorities and

their preferences. This has drastically reduced the time OEM

engineers have to develop new machines that suit difficult

and varied local operating conditions.

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:

Competition pushes incumbents to invest in new

equipment technologies to conform to new performance

standards. Adapting to new technologies further strains the

engineering design teams of aerospace engine component

manufacturers. OEMs must innovate reliably despite time,

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.

The operational challenges further complicate solutions to the

strategic ones:

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

that would lock in efficiencies. Cost pressures mount due

to volatile demand and the scarcity of skilled engineering

resources.

Despite such challenges, engineering leaders must deliver on crucial operating, commercial metrics

Priorities of key metrics also vary by geography…

…and by industry sector

Operating metrics

• Numberofsalesordersinprocessandhoursrequired

• Estimatedhoursperorder,projectvs.actualexpended

• Availableman-hoursperproductvs.backloghoursperproduct

• Numberofchanges,pre-andpost-release

• ProductorcomponentMTBF(meantimebetweenfailures)

• Fieldorcustomercomplaintsvs.totalitemsshipped

• Engineeringhoursaddressingcomplaintsvs.totalavailable

Commercial metrics

• Proposalswonvs.totalsubmitted

• %ofcorporaterevenuefromproductsdevelopedinthepast4years

• Warrantyexpenseasa%ofshipped$

• Retrofitorrework$as%ofshipped$

North American companies

• Provideflexibleengineeringcapacity

• Localizeindustrybestpractices

• Meetgovernmentregulations

• Realizecostsavings

• Gainaccesstoemergingmarkets

Driver of high importance Driver of medium importance Driver of low importance

European companies

• Realizecostsavings

• Provideflexibleengineeringcapacity

• Managetechnologyproliferation

• Giveaccesstonewtechnologies

• Meetgovernmentregulations

Japanese companies

• Realizecostsavings

• Localizeindustrybestpractices

• Gainaccesstoemergingmarkets

• Decreasetimetomarket

• Managetechnologyproliferation

Offshoring driversAviation

and Aerospace

Power generation

Oil and Gas

AutomotiveMedical 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 (Frequencyofrefresh)

A probable outcome: Sub-optimal design engineering erodes company value in multiple waysForcapital-equipmentOEMs,engineeringperformancecorrelatesstronglywiththecompany’soverallratesofreturn,cashflow

and risk.

Forexample,sub-optimaldesignengineering(seefigure1)thatiseithererroneousoruntimelydrivesdownOEMwinratesand

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

flowanddelaytime-to-market.Designengineeringissuesalsoshowupasfielddowntime.Thisisnotonlyextremelyexpensivetofix

within tight time parameters—it is especially aggravating to customers, and contractual clauses that stipulate these occurrences raise

OEMs’ overall risk exposure.

Best practices build ‘future-ready” engineering organizationsOEMs 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

costs, speed time to market, and improve equipment uptime

through value redesign and advanced engineering support.

In Genpact’s experience, a portfolio of best-in-class

‘industrialized’engineeringsupportservices(seefigure2)should

include these five:

• Poor win rates due to inaccurate/untimely design support at the proposal stage

• Lost AMS revenue when design issues lead to excessive equipment downtime

• 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

• Opportunity cost: core engineering skills and time should be invested in strategic product development/innovation, rather than on non-core tedious design changes

• 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-cashcycle,andinflateworkingcapitalneeds

• 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

Figure 1. How suboptimal engineering can erode company value

Company value

FCF

Risk

Capital

Return

Revenue

Cost

CAPEX

Working capital

Company risk

• 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-

party vendor creates a detailed design, supports prototype

development and engineering release, performs should

costing, and secures supplier approval for the complete

design feasibility.

Concept design and finalization

Technical documentation

Engineering process and IT optimization

Detailed design, prototype, and release Sustenance

• Businessopportunityidentification

support

• Concept design

- Digital mock up

- QFD

• Preliminarydesign

- Technical risk assessment

- Predictiveanalysis

- 3D design modeling

• Engineering analysis

• Sourcing strategy

• Productdocumentation

• Processdiagnostics

• Reliabilityengineering

• Value engineering

• Ongoing sourcing analysis

and support

• Design changes

implementation

• Regulatorycompliance

documentation

• Engineering IT e.g. CAD

• Detailed design

- BoM,toolingandmfg.process

- Test cases and protocols

• Prototypeandrelease

- Pilotassessment

- Verification and validation support

- Firstarticleapproval,engineeringrelease

- Manufacturing release and master data

update

• Should costing

• Supplier approval

• Fielddatamanagement

• Processredesign

alongwiththeintegrationofengineeringITtools(such

asProductLifecycleManagementsuites)andthedesign

software(CAD)forautomationandconsistency.

Industrialized engineering support can significantly benefit

OEM engineering organizations in major industries such as

aerospace, power generation and oil & gas equipment. In

Genpact’s experience, clients that use this approach can:

• Reduceengineeringanddesigncostby15%-20%

• Reducetimetomarket,upto20%

• Improveassetuptimeby10%-15%

While engineering support solutions teams apply new

efficiencies to OEM operational challenges through proven lean

Six Sigma processes, OEM engineering leaders are freer to focus

on core growth and differentiation strategies.

• Sustenance: This phase includes reliability engineering

analysis, value engineering considerations, ongoing sourcing

performance management support, and implementation of

design changes throughout the equipment lifecycle.

• Technical Documentation: This module helps engineering

functions deal with crucial and frequently cumbersome

technical documentation across the product development

lifecycle. This module also supports field data management

andregulatorycompliancedocumentation,suchasRoHS

and WEEE compliance.

• Engineering Process and IT Optimization: Overall

engineering process optimization is crucial for a scalable,

cost-effective, and world-class design engineering

organization. This often includes an engineering process

diagnostic study and redesign/reengineering if necessary,

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

sourcingprocessesandeffectivetransactionalprocurementactivities.Thisvalueengineeringsolutionyielded$8.72million

in direct cost savings, expedited availability of direct materials, and better sourcing effectiveness.

Figure 2. Best practice ‘Industrialized’ engineering support portfolio

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,toalignwiththeassemblyprocess.ThecompanyhadlimitedCADandtechnicalwriting

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.

ConclusionThisWhitePaperdescribesthecomplexandescalating

challenges that face OEM engineering leaders, and pose

significant business risks to enterprise reputation and value.

The paper further details how leaders use best practices to

carve a proven path to success and build a scalable “future-

ready”competitiveadvantage.InarelatedWhitePaper“A

newcompetitiveleverforOEMER&Dleaders:‘industrialized’

operating models for support functions,” Genpact will show

howtherighttargetoperatingmodelcanhelpER&Dleaders

develop more agile engineering functions that lead to better

decision making, faster pivots when markets shift, and nimbler

growth pursuits.

About Genpact

GenpactLimited(NYSE:G)isagloballeaderintransformingandrunningbusinessprocessesandoperations, 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, regulationsandgrowthforhundredsoflong-termclientsincludingmorethan100oftheFortuneGlobal500.Ourapproachisdistinctive–weofferanunbiased,agilecombinationofsmarterprocesses,crystallizedinourSmartEnterpriseProcesses(SEPSM)proprietaryframework,alongwithanalyticsand technology, which limits upfront investments and enhances future adaptability. We have global criticalmass–60,000+employeesin24countrieswithkeymanagementandcorporateofficesinNewYorkCity–whileremainingflexibleandcollaborative,andamanagementteamthatdrivesclientpartnerships personally. Our history is unique – behind our single-minded passion for process and operationalexcellenceistheLeanandSixSigmaheritageofaformerGeneralElectricdivisionthathasservedGEbusinessesformorethan15years.

Formoreinformation,visitwww.genpact.com.FollowGenpactonTwitter, Facebook and LinkedIn.

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