A New Outsourcing Trend in Manufacturing: Cost Estimating

Driven by the ever increasing pressures of a highly-competitive global marketplace, manufacturing companies worldwide are looking for ways to better understand, analyze and drive down the cost of their products. Over the past few decades, many Original Equipment Manufacturers (OEMs) have outsourced much of their manufacturing and design activities to outside contractors. Add to these now established cost-containment strategies the new trend of outsourcing cost estimating.

Technology and Internet security have advanced to the point where manufacturers can easily and safely electronically outsource the cost estimating of the parts and assemblies they manufacture. Using state-of-the-art Cost Estimating software systems, an OEM's cost estimating contractor may be only a few blocks across town, or thousands of miles away. Regardless of the distance factor, outsourcing cost estimating can provide numerous benefits to an OEM.

Following the need, leading the trend

Some developers of cost estimating software — here in the U.S. and offshore — have started to offer cost estimating services as an alternative to owning and utilizing their tools in-house. MTI Systems, one of the leading U.S. developers of manufacturing cost estimating software, has created a division dedicated to cost engineering consulting for OEMs. The company's cost estimating software products and services are being used worldwide, including Fortune 500 companies such as Caterpillar, IBM, Boeing and UTC.

MTI Systems' cost engineering consultants, working out of the company's West Springfield, Mass. headquarters, use the company's Costimator OEM cost estimating software to provide detailed cost estimates for clients. Costimator OEM covers hundreds of manufacturing processes including machining, fabrication, plastics, electronics and assembly. The system comes pre-loaded with average shop rates for over a dozen countries. Most of the data residing within the system comes from the 1,200 plus companies that the company has worked with since its inception in 1982.

The company's CEO and founder, Tom Charkiewicz, said that sales for the company's cost estimating software products have held steady, while sales in the cost estimating contracting services are increasing rapidly.

"We initially offered cost estimating services to clients who purchased our software but wanted us to help them get started." Charkiewicz recalled. "Today, the opposite is happening. We find many of our new OEMs clients don't have the time and/or resources to do the estimating themselves and would rather outsource the work from the get go."

Confronting inefficiencies, cutting expenses, compounding profits

Charkiewicz has spent his entire career in manufacturing. Before Founding MTI Systems, his manufacturing career included completion of a four year Manufacturing Apprenticeship Program and a Degree in CAD/CAM. He subsequently worked as a cost estimator for several large military and aerospace contractors to NASA and the DOD. Over his decades of experience in the manufacturing cost estimating field, he has seen innovations come and go. He strongly feels that the trend in outsourcing of cost estimating, driven by necessity and competition and enabled by innovations in technology and Internet security, is here to stay.

Given the intense global competition among manufacturers in the 21st Century marketplace, Charkiewicz said, OEMs need to identify and to understand the cost drivers in the parts they design, manufacture and procure. With the right software, a cost estimator can provide an OEM the vital data and reports needed to cut manufacturing costs and increase profitability in all phases of the product development lifecycle. The information helps engineers to design parts that meet target costs. The data also provides purchasing with defendable "should cost" figures, and enables management to analyze "make" versus "buy" decisions. Furthermore, Charkiewicz explained, the lack of dependable cost data at any point in the product development lifecycle often leads to missed cost targets, delayed product launches, time consuming re-designs, higher-than necessary manufacturing costs, and ultimately, lower than expected profits.

Despite the ongoing need for this time of cost data, said Charkiewicz, it is expensive to maintain an in-house cost estimating department capable of supporting an OEM. Dedicated and experienced cost engineers must be hired, or existing employees must be trained in the art and science of cost estimating. There is the expense of purchasing and maintaining the necessary software tools to produce the estimates. He added to these the reality of today's "graying" shop manufacturing workforce. "More and more engineers with years of practical manufacturing experience are retiring," he said. "Fewer are coming up through the ranks."

Given all these variables, Charkiewicz concluded, the outsourcing of cost engineering to an outside contractor is an attractive option to a growing number of OEMs. The manufacturer is able to shed the sometimes significant roadblocks and costs associated with maintaining an in-house estimating department while reaping the many benefits that a seasoned cost estimating service can provide.