A Decision Making Model for Outsourcing and Offshoring of Product Design and Development within the Automotive Industry

  • Steven Simplay

    Student thesis: Doctoral ThesisDoctor of Philosophy


    The automotive industry has become multidimensional and extremely complex over the last two decades, with organisations developing global strategies; vehicles being developed in multiple locations and the aggressive expansion of the product portfolio. Outsourcing and offshoring in manufacturing of sub/complete assemblies has attracted attention from researchers who are still analysing this dynamic and multifaceted sector, whereas research studies concerning strategic decision-making in product design and development are only gradually progressing through the pipeline. Outsourcing and offshoring of product design and development requires organisations to re-evaluate their business models and further change the mind-set to ensure successful engagement and also to be able to retain their competitive positions.
    Automotive organisations can become complacent and incorrectly assume that their business models can withstand new challenges, therefore losing their competitive advantage and, furthermore, facing complications with maintaining robust outsourcing and offshoring strategies. This creates a complex and challenging environment within the automotive industry where product design and development requires a new organisational decision-making strategy compared to the last two decades where operations were constrained within the boundaries of an organisation.
    The literature in the area of outsourcing, offshore outsourcing and offshoring of product design and development within the automotive industry is inadequate, and many of the empirical findings and contributions from this research study is new knowledge, although some results are consistent with findings reported from other non-automotive sectors. The literature examination also identified a number of gaps on how automotive organisations amongst Original Equipment Manufacturers, Engineering Service Providers and First Tier Suppliers are outsourcing, offshore outsourcing and offshoring their product design and development activities. This has identified that organisations are using trial and error outsourcing and offshoring models at great expense and these organisations have failed to meet their expectations.
    This study further identifies a gap in the literature where decision-making models concerning product development and design within the automotive industry are unexplored. There is a lack of attention to the various stages required for an automotive organisation to make strategic and firm decisions when outsourcing, offshore outsourcing and offshoring. This includes drivers and challenges experienced; the decision-making process; and the solutions implemented on outsourcing, offshore outsourcing and offshoring their product design and development activities.
    In this new context, product design and development presents fresh challenges to the automotive industry. These challenges consist of managing external organisations; working with different cultures across international countries; managing a wide range of skill competency; and managing the delivery of engineering solutions from more than one location. This requires organisations to fully understand which activities can be outsourced or offshored to either an external organisation or a wholly-owned subsidiary.
    This study is designed to examine how automotive organisations amongst the three segments; 1) Original Equipment Manufacturers; 2) Engineering Service Providers and 3) First Tier Suppliersare currently managing their product design and development activities including the extent to which they are outsourced, offshore outsourced and offshored and the mechanisms involved with strategic decision-making. The three segments all contribute to the product design and development activities within the automotive industry.
    This study is designed in three phases: Phase 1 consisted of interviewing 50 automotive organisations with a total of 99 in-depth interviews. Phase 2 consisted of six in-depth case studies to further understand the complexity when automotive organisations outsourced, offshore outsourced and offshored their product design and develop activities. Phase 3 consisted of developing the strategic decision-making model for the three automotive organisations in the three segments, and was further tested through 10 focus group workshops.
    The study findings have identified that a lack of strategy was implemented within the automotive organisations when making key decisions on outsourcing, offshore outsourcing and offshoring of product design and development. The decisions were disconnected from a strategic and operational perspective, were based on increasing engineering resources and short-term economic benefits. The organisations’ focus was distant from the product design and development activities which ended up with these organisations facing challenges with understanding their own activities. The drivers for all three automotive segments, when outsourcing, was the need to increase their engineering resources to fulfil the product cycle plans. When outsourcing, costs also became important to ensure value in relation to the product design and development was achieved. However, when the three automotive segments offshore outsourced or offshored, their product design and development cost was a key driver followed by increasing the engineering resources.
    There were hidden costs which were only exposed during the journey and consisted of additional training both internally and externally; additional resources were required for the projects; reworking of product design and development activities and sensitive activities were back-sourced due to their uniqueness and competitive advantage. The automotive organisations based in all three segments lacked the ability to make key strategic decisions and the management teams lacked the experience to provide solutions to the challenges in this new global, complex environment. For example, it involved managing external organisations that were responsible for near core product design and development activities which had always been undertaken internally.
    The strategic decision-making model developed in this work is a tool that automotive organisations should use when considering outsourcing, offshore outsourcing and offshoring their product design and development activities. The methods used within the model are well known to the automotive industry. The model addresses the challenges an automotive organisation experiences on operational and strategic levels to ensure both short-term and long-term perspectives are taken into account. The strategic decision-making model is titled “A strategic decision-making model for outsourcing/offshoring outsourcing and offshoring of product design and development within the automotive industry”.
    The novelty aspect of the empirical findings was the in-depth analysis of the drivers; the challenges; the decision-making model and the associated process necessary to achieve the decisions at each stage of the model. Further novelty was derived through the development of the strategic decision-making model, which is a new development in the automotive industry
    Date of Award2015
    Original languageEnglish
    Awarding Institution
    • Coventry University
    SupervisorRichard Anderson (Supervisor)

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