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Electronic Design

Do Your Homework When Outsourcing Design Services

Long-lasting relationships are the ones that pay off.

There was a time when you developed your product from scratch. You designed the packaging and circuits, developed the board using off-the-shelf components, and programmed it in-house—and you were still competitive.

Today, whether you're building a board for a cordless phone or an embedded controller for a packaging machine, design complexities and short product lifecycles are probably taxing your engineering department beyond its capabilities.

If you've considered contracting out or outsourcing some of the design stages of your latest project, you're not alone. Whether you outsource to an engineering design firm down the street or overseas, your success will be determined by how much effort you put into finding the right contractor.

Even when the process seems to go right, unexpected things can happen, no matter the size of your company. Major computer companies, such as Dell, Apple, and Sony, have successfully outsourced the design and manufacture of system boards for several years. The result has been more affordable computers with the latest technology.

Yet according to a March 21 Business Week article, "Outsourcing Innovation," Motorola selected a Taiwan company, BenQ Corp., to design and manufacture millions of mobile phones. Last year, BenQ decided to sell the phones in the fast-growing Chinese market under its own name. Needless to say, Motorola cancelled its contract. Keep in mind that you needn't go overseas to have the same thing happen to your company.

The benefits from outsourcing your design projects will be determined by the quality of your chosen engineering services firm—and how closely you work with that firm. It's not always easy to determine the quality of services you'll get, but you can start by asking for references.

In addition, rights to intellectual property (IP) are often at stake, making the element of trust crucial in developing a long-term relationship with the provider you select. David Cook, group director of marketing for services at Cadence, suggests that the root of a good customer relationship is trust. Trust develops over time, building from the confidence that a design service team is available in clutch situations, understands your specific needs, helps you understand your project better, and doesn't steal IP or products.

Engineers seeking quality design work from an outside contractor should be aware of two dangers. First, unless they have a long-term relationship with a contracting firm, its lack of familiarity with their operation may make it difficult to get things done in a snap at crunch time. Second, unless they prepare adequately (e.g., develop a detailed functional spec) before giving the job to the contractor, they could encounter mistakes and rework. This will certainly add to the project's overall costs.

"Our experience regarding quality has been rather mixed," says a principal IC designer from a semiconductor company in San Diego. "It has taken considerable time to get contract design services up to the standard we expect, and it takes some effort to maintain the standard. We've been somewhat dissatisfied with contract IC layout services and have on occasions had to start again using internal resources. Design and layout contracting requires internal resources to manage the contract, so it's not totally an incremental resource."

According to Glenn Smollinger, principal design engineer at Halliburton Energy Services, all too frequently companies make the decision to outsource based on a short-term reduction in development costs. This decision is often made by those in the company who don't appreciate the technological return on investment for internal development.

"On one of our biggest projects, both the mechanical and electrical designs were outsourced," says a design engineer in the medical science industry. "Marketing decided that we needed this project done quickly, but engineering says it would take a year or two. So marketing went out and found a company that claimed it could take one of its standard products and make a custom board for our device in a few months. The first project schedule planned to have this device in production in December 2004."

From there on, his project went to "hell in a handbasket." On the electrical side, it was as though the design contractor completely ignored the specs. The power supply needed to sustain a 25-ms power loss and hold data in RAM for three minutes. During the first design review, the contractor's design engineers said that the device couldn't handle one in 10 specified requirements.

Fixing this resulted in a serious schedule delay. Once prototypes were built, the software programmer assigned to make the board work went to another job, and it took weeks to find another programmer. Today, the project is over six months late, and the primary project electrical engineer quit the company. On the mechanical side, when asked to move a hole or connector, the contractor typically made a totally unrelated change.

Bob Erko is the chief engineer at Tennant Company, a manufacturer of industrial cleaning equipment, and he offers some advice. He has had reasonably good success with outsourcing circuit board layouts, test fixture designs, PC software applications, and other manufacturing tasks. But he warns that the choice of a contractor can easily add as much risk to a project as stretching to implement unproven technology.

"While it's tempting to use new contractors when implementing new technologies, this is really layering risk on risk," he says. "The results can be unpredictable. I'd recommend proven contractors with new technology or new contractors with proven technology. Layer the new on new, and you could be in for a bumpy ride."

Do a little homework. "The quality of the work performed is obviously dependent on whom you've selected to do the work, but also on how well the engineering or manufacturing groups specify the service to be performed," says Hugh Ferguson, senior electrical engineer at Datakey Electronics Inc. Outsourcing, he adds, will reduce the workload on some engineering resources. But it also will require using formal processes to specify and develop the final deliverable. Though using a formal process will take more up-front time, it will lead to better outcomes.

After the up-front work, outsourcing is no longer a one-way street. According to Amos Young, engineer for AMI Semiconductor, a complex design often will require the communication and cooperation of both the customer's and contractor's design engineers.

Changing blocks is a good design example because a shift in signal level in one block may require the redesign of another block. Amos has had high-quality results in outsourcing, but he believes open communications and contractor training are absolutely necessary to achieve that high level of satisfaction.

An engineering design is IP. So who owns it? Most companies want IP rights to stay in-house.

"We don't outsource critical designs, especially when there's new IP," says the San Diego IC designer quoted earlier. "In general, we use outsourcing to handle peak and overload conditions on straightforward design or layout tasks, not to generate important new IP."

According to Halliburton's Smollinger, one design contractor supplied finished assemblies and claimed the design rights. Could a similar situation keep your company beholden to the contractor?

AMI's Young says that outsourced software is better than what his company can write in-house. But he asks, "Who owns the finished software? Who can make changes to it? Who documents the software and maintains the corrections to the documentation? Making changes to internally generated software is easy, but how easy is it to get company engineers and outside contractors together to make revisions, and what will they cost?"

Mike Panson, chief engineer at Engineering Design Systems, says that outsourcing keeps his small business thriving. But IP brings a lot of potential legal ramifications, he says. He avoids these complications by keeping IP in-house as much as possible and farming out other design tasks. When he does outsource IP designs, he solves the ownership problem by exclusively licensing the IP for the particular product for which it was designed.

Panson is right when he says IP ownership can get tricky. What makes this even more difficult is the copyright law, which says that upon creation of a song, painting, photograph, novel, article, software, or any creative design, the creator owns it.

Allan Ratner is a cofounder, counsel, patent attorney, and electrical engineer with RatnerPrestia P.C. He says that a signed, written agreement (e.g., work for hire) that gives someone permission to use a created work for a fee doesn't convey or guarantee ownership of the work to the purchaser. The authors of the work maintain ownership of it until they officially "assign" it to another party.

Licensing allows the creator to maintain rights to the property while allowing someone else to use it. Patents provide even more protection to the creator. But according to Ratner, if a contractor patented a design as a work for hire, the contractor's customer must also be named on the patent and would become a co-owner of the patent. Sound tricky? It is! If you're not sure about a project, contact an IP lawyer.

Chances are that if you have a design firm worth its salt, it will do everything possible to be fair and to maintain its customer base. This means simplifying the IP issues. According to Paul Russert, group director of services at Cadence, the best way to handle these situations is to include a list of all IP and its origins in the contract that's signed by both parties at the outset of a project. The contract will specify the relationship of all owners of IP, licensing, and assignments, if any. Of course, Russert adds, when only one piece of IP is involved, a solution is straightforward.

"IP ownership is clean when we own it or when the client owns it, but collaborative efforts have to be worked out deal by deal. We're the first to admit these are difficult but highly important conversations," says Cary Ziter, communications/engineering & technology services, IBM Systems & Technology Group.

Some design engineering firms define ownership according to client participation. Bill Cronin, VP of sales and marketing of WIN Enterprises, defines three levels. Exclusivity means that the client owns all aspects of the design. Product exclusivity provides that all aspects of the project remain the ownership of the client. Market exclusivity means that the product is partly owned by WIN Enterprises and can be used for designs in markets other than that of the original client. Specific terms of the agreement are client-dependent. A client often pays less for the design if it sacrifices some ownership rights.

Not every small design company has dozens to hundreds of employees offering a multitude of design services. But when choosing a design company, don't let size be a limitation. Small firms are coming up with innovative ways to expand their offerings and challenge the big guys.

Whether you call it an alliance or a virtual company, the concept is the same. John Gibbons, owner of JFM Technologies, describes his company as several "virtual partners" who work together as one, often using the Internet as a communications medium, to provide the design effort where it's needed for customers. His company of virtual partners can provide software, any area of electronic design, mechanical engineering, and packaging.

Visionary Products uses an "Alliance Network" to offer services to the likes of Sun Microsystems, Motorola, Lego, NASA, and others. "The Alliance Network is a result of our efforts to better support our clients through partnering with top quality organizations," says company president Morgan Taylor.

"This partnership provides matches between our engineering and design services and these specialized manufacturing processes, allowing us to offer innovative solutions, faster design cycles, and lower costs," he says. "With our engineering services, we have striven to build a solid internal engineering team with a breadth of experience and expertise. We maintain approximately 30 full-time engineers with backgrounds in electrical, embedded, wireless, drivers, mechanical, plastics, analysis, control, and manufacturing."

Formed in the aftermath of a corporate merger, CW Aerotech Services provides design engineering and other services to the aviation industry. Its executive vice president, Bob Wehr, explains that his company created a "virtual enterprise," which is a cooperative venture where two or more companies, focused on common objectives and goals, function as a single entity.

While formal structures are necessary for the security of participating companies, virtual enterprises can be established with sound, intelligent agreements. Virtual enterprises have the ability to form relationships where tasks are allocated to the organization that can best accomplish the task in minimal time with minimal resources.

Wehr says there's nothing new about this concept. His company adopted it from a NASA-NSF co-sponsored study entitled "Next Generation Manufacturing." NGM set forth premises by which it promoted the concept of "agile manufacturing." Wehr explains that although NGM was geared toward manufacturing, the premises set forth in the study work well for design engineering firms and other small businesses.

Design engineering services come in every size and flavor. To help you decide, check out Electronic Design's Design Services Directory at, Drill Deeper 10488.

Harry Selfridge, vice president of engineering at Encore Engineering, offers some good advice about choosing an outsourcing partner for design services. The tried and true techniques for doing a search still apply. Look for specialists rather than generalists. Talk to them directly, and ask detailed questions relevant to your project. Look for experience and education, as many self-styled "experts" simply muddle along using rules-of-thumb but have no real up-to-date engineering knowledge.

Engineers are a fraternity of sorts. Ask colleagues if they know the individuals or firms you're considering. Feed back any negative comments to those on your short list, and see how they react. The real professionals will have no problem admitting past problems and will be able to tell you how they overcame them. In the end, experience, education, track record, and honesty should guide the selection.

See associated figure

See associated figure

See associated figure

AMI Semiconductor


Code Corp.

CW Aerotech Services

Datakey Electronics Inc.

Engineering Design Systems Inc.

Encore Engineering



Halliburton Energy Services


IBM Systems & Technology Group

JFM Technologies

RatnerPrestia P.C.
Tennant Company

Visionary Products

WIN Enterprises


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