In this blog, I examine an important area of product development that involves supplier participation and direct materials sourcing, and see what our Best-in-Class companies are doing to be successful .
A well-known DARPA study found that 80% of product cost is fixed during design. This means that cost reduction leaders must enhance collaboration with their suppliers and more effectively use them to drive out cost during the early stages of product development.
Successful cost reduction leaders indeed recognize the value of early collaboration – both internally with other business functions such as engineering, quality and manufacturing and externally with suppliers. Without early collaboration, sourcing strategies are limited to “cost containment” techniques such as consolidating suppliers, combining volumes across plants and developing new suppliers in emerging markets. Cost containment techniques are of course essential, but purchasing must grow past its transactional origins.
Today’s purchasing organization is involved with all of the concerns of the corporation – meeting cost and quality targets, as well as development timelines and launch dates.
Leaders extend the influence of purchasing within their organizations by closely linking its activities with product developers and other functional groups. This opens up the door to more strategic opportunities to cut costs. Shared processes can be streamlined, specifications can be harmonized so that parts can be standardized and re-used, and value analysis can yield cost saving specification improvements.
When purchasing becomes united with other product development participants with a common PLM platform the benefits are much bigger than part cost containment:
Program Management is improved. Supplier part costs can be managed against the product BOM, allowing program managers to assess the cost of development programs and changes. And, supplier tasks and deliverables can be managed as part of the overall program, giving managers visibility into schedule and delivery risks.
Changes are propagated to the supply chain. Purchasers and suppliers can participate in the product change process. This means that the impact of changes on the supply chain can be known before business decisions are made. In addition, it means that the entire supply chain can be working against the same version of product specs, reducing the risk of quality issues and re-work.
The sourcing process is streamlined. The sourcing process can become a natural part of the product development and change processes. Design data is collected as part of the process. All authorized participants have access. No data needs to be located or re-entered into the system. PLM is the single source of all product data – including product data produced by the supply chain.
For direct materials sourcing, the importance of early collaboration is evident. The use of PLM to manage these interactions is the route that the most successful companies take. PLM is a powerful tool to foster collaboration and integration between your organization and your supplier base.