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Insourcing and Outsourcing in Innovation

Link, the Dutch magazine on technology, innovation and marketing, picks up on the discussion of crossovers and cooperation in innovation. Its editor in chief, Maarten van Zaalen, quotes a member of the jury for the Dutch Industrial Suppliers Awards 2013: “Suppliers just profit. In fact they are always doing it wrong”. It appeared to be the attitude of the traditional engineer of an outsourcing company to its suppliers: a species that is becoming scarce.

In The Netherlands, industry is relatively open-minded when it comes to the cooperation of companies, suppliers, universities and final users. This trend seems unstoppable. Our economy needs new élan stemming from radical disruptive innovations on big social themes like sustainability, mobility, poverty and global unbalance. On top of that, the time-to-market of new products shrinks at an ever-growing pace. This urges the mobilization of all available knowledge and experience to enforce innovation and, therefore, to capitalize on contacts with sources outside the safe company walls. Buzzwords are ‘partnership’, ‘co-creation’, ‘outsourcing’, and ‘insourcing’.

TMC director for Electronics Roger Hacking explains the difference between insourcing and outsourcing. If a company is able to precisely define the new system module and is able to specify and manage all the interfaces, it tends to outsource the development of a system or module as a so-called black box to a system supplier; often at a fixed price. This covers the financial risks of the development, but not the quality and the lead-time.

The alternative is insourcing, which is especially done when a large part of the necessary knowledge and experience resides with the professionals of the company and the interfaces are complex and manifold. It is just too complex to outsource the development and additional relevant expertise will be insourced. The product development is then a white box. The company controls the ins and outs of the process. It may seem more expensive, but the outcome is in line with the initial desired outcomes.

“Insourcing”, Hacking states, “is about complex and critical projects with specifications that become clear along the road”. He refers to a TMC project for ASML: “Some time ago, in cooperation with experienced professionals, we created a quick reaction force for ASML to take care of the wafer stage integration of six euv prototypes. We calculated the expected changes in the design and estimated the unexpected changes to be covered within the given lead-time.”

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