Smart strategic outsourcing of product development: Ask the right questions

(October 8, 2010) — Mark Danna, Owens Design, discusses the key questions that should be asked when selecting a strategic outsource partner particularly in the area semiconductor and solar manufacturing equipment development.

In many companies, the recent economic downturn has resulted in an overall reduction of manpower and the loss of key technologists. As budgets tighten, equipment companies are being forced to come up with innovative ways to cut the costs and speed up the time for new tool development. More then ever, solar and semiconductor equipment manufacturers will need to rely on the strategic outsourcing of non-core competencies to remain competitive. The problem for most companies is finding and selecting the “right partner.” What are the right questions to ask potential partners and what do their answers tell you about their abilities to respond to your particular needs?

This article will discuss the key questions that should be asked when selecting a strategic outsource partner particularly in the area semiconductor and solar manufacturing equipment development. Some of these questions and answers should be asked not just by the potential customer, but by the strategic outsourcing partner as well.

What do you want in an outsourcing partner?

Some of first questions a company needs to ask when picking an outsourcing partner have to with determining the kind of company with which you want to form a strategic alliance. In preparation, it’s important to look at your own company’s attributes. What is the key problem that you and your company are trying to solve? What is unique in this particular project that this strategic alliance will address? What strengths does your company bring to the table and how do they directly relate to this particular project? What particular strengths does your company have and which strengths do you want to leverage with the outsource partner? What kind of relationship do you want to have with this partner?

Consider these important outsource provider attributes: the potential outsourcing partner’s areas of expertise and their past experience. Does the potential partner have experience working on projects in your particular industry, or are they new to the market? How many projects were similar to the one your company has in mind? Have they demonstrated successful collaboration on a particular project? What is their philosophy of project management? Do they have a history of being responsive and communicative with clients? Do they have a history of accountability and delivering on time and at cost? What is their record of customer satisfaction in terms of repeat customers? What is the breadth of experience and size of their engineering staff, and how long have they been working together as a team? Getting the answers to these questions up front can help your company quickly narrow down its potential pool of partners, as well as saving a great deal of time, money, and frustration. Other factors to consider at this point include your potential outsourcing partner’s size and global presence. Ask yourself, what attributes do we need to leverage from the partner company to ensure success on this project?

In most cases, it is the size of your company that really determines the ideal size of an outsourcing partner. If you are a small start-up, partnering with a large outsourcing company is probably not the best choice, since you will be only one of many customers and probably not the most important (i.e. largest contributor to their bottom line). In general, it is best to pick a partner where economic benefits from the partnership are comparable to those of your own company.

Your potential partner’s global presence should also be of concern. If, for example, your company’s project involves overseas manufacturing, does the company have a presence in the area, in case manufacturing issues arise? Where are your key market regions? If your company is depending on your outsourced partner for service, support or parts, whether it is capable of supporting you in those regions can be critical to the market success of your project.

What kind of outsourcing partnership?

Determining the kind of relationship you want with your outsourcing partner is also highly critical to the success of any project. Knowing up front what role you want your partner to play in the process can make it easier to optimize your outsourcing decisions. It can also help avoid delays and cost overruns. As such, this question is one that should be asked up front by both partners in any strategic outsourcing agreement.

There are generally two approaches to outsourcing. In one the outsourcing partner accepts the project as presented and simply executes on the specifications presented. In the other, the outsourcing company works with its partner to clarify the scope of the project and actively contributes to the developmental and possibly the manufacturing process. The first approach may work if the project under consideration is relatively simple and straightforward. The more complex the project, however, the more the second approach becomes the optimal solution. This is also the type of approach that most often results in a long-term win/win relationship for the two companies.

What’s the problem?

The next thing to look at is the actual problem you are trying to solve and what’s involved in the project your company is considering outsourcing. Here, there are three things to look at: the technical capability of your potential partner; where you are in the development cycle; and what process will be used to determine the scope of the outsourcing project.

When judging the technical capabilities of a potential partner, one wants to look at several different factors. The first of these is experience. What other projects has your potential partner done for other companies? How big were those projects? Is your project something larger and more complex than the potential partner has ever handled, or is it well within the scope of previous projects they have successfully completed? Your potential partner’s size comes up again here. What other projects are they currently handling? Do they have enough existing resources to take on your project as well? When looking at their resources, it’s worth asking about the team that will be working on your project. How do they stack up in terms of experience, not only on an engineering level, but in terms of project management?

Next, you want to look at where your company is in the development cycle for the product it is considering outsourcing. Are you at an early research and development (R&D) stage, where you are going to want your outsourcing partner to help in product development, or is this a proven product concept that the company is interested in moving into production? As many a company has discovered when trying to take a new product from design to manufacturing, different skills are required at different points in the product development cycle. Does the outsourcing partner you are considering have the skill set that matches the problem you are trying to solve?

One should also consider whether the outsourcing partnership is designed to resolve a specific, well-defined problem, or whether it is one that will require more strategic input from the outsourcing partner. Here again, one wants to look at experience of both the company and the team assigned to work on your project.

It is also a good idea to explore the potential partner’s typical processes for clarifying the job scope and product delivery, including specific project deliverables and metrics. At Owens Design, for example, any project goes through three stages: project initiation, prototyping, and market validation.

The project initiation phase starts with preliminary project discussions with the objective of verifying project fit. It is during this process that both parties need to make sure there is solid alignment in the areas of technology expertise, resource availability, and overall commercial scope. This is when agreement is reached on issues such as design concept, hardware and software functional requirements, tool specifications, delivery schedules, and most important a fixed price to design and build a prototype.

The second phase, prototype development, involves finishing prototype design followed by building the tool and validating that the tool meets specification. To be a real value-add step in the development process, the design validation process must test the tool at real-world operating conditions. It is important that both parties put time and effort into this test phase or there will be a strong potential that the tool will not perform up to expectations in production.

In the last stage, market validation, the customer validates the tool in a real production environment and based on that experience, changes are made, if required. This last phase extends to any future upgrades and, if required, process support — things one should ensure are covered by your outsourcing partner during your initial discussions.

Who owns the intellectual property (IP)?

This is another one of those questions that should be determined very early in any partnership discussions, since failure to determine it upfront could have fairly significant consequences. This area involves some extremely important issues, including design rights, manufacturing rights, and overall issues of intellectual property. Concern also must be taken regarding the use of the outsource partner’s IP, if any, in the design of the new tool. This type of IP must be identified upfront with an agreed licensing arrangement. If this type of agreement can not be reached, then you might need to find a new partner. Finally, partner exclusivity around certain technology might be potential selection criteria for your company. Questions should be asked about relationships with potential competitors and other uses of the developed shared technology.

What are the final deliverables?

It’s important to remember that any final product encompasses more than just the hardware and software. Does one’s outsourcing partner provide software and hardware documentation. How will follow-on production be handled? If the tool volumes justify, can the tool be moved to a low cost region to reduce manufacturing costs? Is there a field support plan? (Here is where your outsourcing partner’s global reach comes into play.) How will warranty issues be handled between the two companies? Who stocks spare parts and consumables? Does your outsourcing partner have the capability and intent of fixing any software bugs that are discovered in the field? These are all critical issues that can significantly impact the customer satisfaction of your product’s users.


Picking the right outsourcing partner is one of those critical decisions that can significantly impact the success or failure of a particular product in terms of production cost, quality and time to market. Asking the right questions at the beginning of the process can minimize the risks involved. There are really two sets of questions that need to be asked. The first set is internal to the company seeking an outsourcing partner and focuses on the attributes needed in that partner and the kind of relationship desired. The second set involves the project itself — its scope, the development process, ownership of particular responsibilities, intellectual property confidentiality, costs, timelines, and final deliverables. Getting the answers to these questions at the beginning of the outsourcing process will go a long way in helping ensure a positive and mutually profitable partnership.

Mark Danna, senior director of marketing, Owens Design, Fremont, CA USA. Contact Mark Danna at [email protected] or (510) 770-3441.

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