Keywords: Partnership, Global Delivery, Outsourcing, Offshoring, Software Development, Component Engineering, Manufacturing and Supply, ZEISS, Change Management, Tata Consultancy Services.
At the onset of the recent financial crisis, the Carl Zeiss Group initiated a group-wide framework agreement with Tata Consultancy Services (TCS) for engineering services to help reduce costs and support sustainable global business growth. The first step was for the company's various business units to identify which types of its work packages could be outsourced in any form.
The company's Semiconductor Manufacturing Technology business unit, for example, determined that it could outsource product development tasks. Industrial Metrology identified that it could outsource selected software development. The Microscopy division, in turn, determined that it could outsource complete development, manufacturing, and supply of an assembly group for microscopes intended for the Indian market.
The companies went through a mutual change process, resulting in learning and adaptation on both sides. Today, ZEISS either outsources or uses global delivery for certain product development tasks, some of its software development and testing, and development and manufacturing of specific components. ZEISS and TCS consider the cooperation to be very successful and TCS hopes to expand related activities in the future.
A Leading Optical and Optoelectronic Manufacturer
The Carl Zeiss Group is a privately owned group of companies offering optical and optoelectronic components and products as well as services for industrial, research, medical, and consumer markets. It has both technology-oriented business groups and business units representing various product ranges. The company invests 9 percent of turnover in innovation, and employs 10 percent of its personnel in R&D. ZEISS has some 30 production locations around the world. The Group's sales of over four billion euro yield over 10 percent EBIT.
As Dr. Ulf Lehmann, senior VP Global Supply Chain at ZEISS, explained to ARC Advisory Group, during the financial crisis year 2009, the company started investigating procurement categories could achieve cost or efficiency savings. The company determined that project and other engineering services was one of those categories. Based on this, it looked for a supplier in India that could provide these services. This was based both on the availability of appropriate resources in that country and because, strategically, an Indian supplier would fit well in the regional portfolio. Asia -- particularly India, China, and Southeast Asia -- represents an increasingly important market for the company and it understood that for ZEISS to grow in Asian markets, it required the dedicated engineering support of local experts.
ZEISS selected Tata Consultancy Services to provide the needed services. The two companies signed a framework agreement in September 2009.
Optimizing Outsourcing Decisions
ZEISS realized that to increase efficiency, it would have to carefully design outsourcing packages. It determined that some work could be outsourced domestically, but not transferred to global delivery. Work considered for outsourcing does not require critical competencies or intellectual property, but may need local resources and intense cooperation. Work considered suitable for global delivery can be done in a more independent manner, requiring less regular interactions. Shortly after signing the framework agreement, the company initiated a "make-or-buy" analysis on clusters of activities.
Outsourcing Product Development
Based on this analysis, it determined that certain product development activities could be considered for outsourcing; some even for global delivery. In 2011, the company worked with TCS to establish a dedicated product development team.
Software and Component Sourcing
After the global economic crisis, the need for outsourcing diminished. However, ZEISS still wanted to outsource some software development to free up key development resources. In 2012, it initiated a software development project with TCS that involved a total of thirty software engineers. TCS currently develops code for software testing. Dr. Frank Stietz of ZEISS expressed satisfaction with the cooperation and looks forward to upcoming milestones at which time new code will be delivered.
Another business group needed a suitable alternative supplier to design, develop, manufacture, and supply a new hardware component assembly, the AirLock/LoadLock system, in which a vacuum chamber receives and transfers samples for electron microscope experiments. Based on a detailed cost/benefit analysis, TCS was chosen because of its strong capabilities in engineering and manufacturing.
Both companies met regularly while the localized assembly was designed and put in place. TCS took over sourcing excellence and quality control according to ZEISS standards. ZEISS engineering supported the process by clarifying critical dimensions and finishing requirements, selecting materials, documenting the process, and training teams for assembly inspection and testing. To date, a prototype has been qualified and quantity production of the assembly group is currently in the ramp-up phase. According to Mr. Lehmann, the business unit realized the anticipated savings of 15 percent in acquisition costs from these efforts.
Lessons Learned and Further Plans
According to Lehmann, looking back, there were concerns expressed and mutual adjustments made during the early phases of the cooperation between the two companies. The geographical distance, culture differences, and gaps in know-how and experience raised concerns. ZEISS' internal barriers had to be removed and TCS had to deliver the specified work packages, rather than just provide "time and materials."
As with any company that implements major change programs, ZEISS discovered that top management support for the initiative is necessary to overcome resistance. Specifically, management must emphasize and communicate the importance of the change for the corporation. ZEISS put a change management program in place, actively involving team members, coaching them in the new way of working, and convincing them of the benefits. On-site visits and regular communication helped bridge cultural and know-how gaps. ZEISS is convinced that one critical success factor is to set aside sufficient time to explain, clarify, and communicate the reason for the changes. When either ZEISS or TCS personnel discover challenges, ZEISS requires these to be flagged at an early stage to give the alliance the best chances to react and minimize the cost related to overcoming the challenge.
Based on the current level of satisfaction, the two companies are planning to identify new opportunities for collaboration. For example, the companies are currently planning the localization of additional printed circuit boards and other sub-assemblies. Dr. Thomas Rohe, Senior Director of a ZEISS Product Center said: "TCS turned out to be a capable partner, not just for engineering services, but also for manufacturing complete modules. Due to the good experience with the Airlock project we will continue to collaborate with TCS."
Globally, ZEISS' objective is to maintain or expand its current outsourcing levels to encourage continued buildup of knowledge and know-how within the alliance.
The successful cooperation between ZEISS and TCS, demonstrates the latter's capabilities in product design, engineering, manufacturing, and physical supply chain management. TCS's global engineering framework and local presence in Germany also contributed to the success. The success to date between the two companies demonstrates that effective outsourcing can extend beyond traditional work packages to include design, manufacturing, and supply of complete product assemblies for local markets.
The lessons learned cooperating across continents reinforce what other companies have found: communication should receive greatest attention, with the goal to reach a shared understanding of specifications, performance indicators, methods, and a work philosophy.
ZEISS' experience in managing change of processes and ways of working also confirms what others have found: extended top management support for change management and communication is required to change habits and convince personnel of the importance of the change.
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