PURCHINEERING – optimal cooperation between engineering and purchasing
Keep a grip on your development costs
To stay relevant in the global competition, companies have to keep product costs as low as possible. First and foremost, this can be made possible through an optimal cooperation between engineering and purchasing. This is where the so called PURCHINEERING strategy in combination with strategic parts management comes into play.
To reduce production expenses effectively and long term, the right decisions have to be made early. For example, about 70% of influenceable costs in the manufacturing industry can be ascribed to planning and development, which later on can no longer be controlled.
During development, there are often wildly differing perceptions between company departments about what constitutes the most suitable components: While the purchasing department favors the product with the lowest price, the engineers want the technological finest product.
The PURCHINEERING strategy as part of Strategic Parts Management wants to close the gap between engineering and purchasing: PURCHINEERING describes optimized cooperation between purchasing and engineering (hence the name: PURCHINEERING). Through this strategy, several company processes are optimized: Uniform definitions for purchasing processes to avoid maverick buying, decision guidance on the use of external or self-constructed components (Make-or-Buy analyses), choice of ideal suppliers regarding global production facilities, consolidation of suppliers and components, reduction of process costs for C-parts, End of Life information, as well as early prediction of future product manufacturing costs.
Avoiding Maverick Buying
Many companies don’t have a standardized purchasing process. This leads to a so called “Maverick Buying” of components. In this case, the acquisition of components isn’t handled centrally, since different departments acquire them directly without talking to the purchasing department.
The consequences of Maverick Buying are considerable: Missing price comparisons, badly led price negotiations, a multitude of different suppliers, missing framework contracts as well as small purchase quantities cause much higher costs than necessary. With strategic part management, purchasing has a comprehensive view of the whole part space and can define preferred parts and suppliers. This way, engineers have reasonable restricted freedom of choice for their components.
With Maverick Buying, the acquisition of components has no central management (left). A clearly defined purchasing process through a central purchasing department pays through the optimized use of scale of price, consolidation of different suppliers and similar components.
Answering the question: Make or Buy
Many companies manufacture the bulk of their components themselves, despite available supplier parts. An increased usage of supplier parts frees production capacities, allowing companies to concentrate more intensively on their core competencies. Before deciding on Make or Buy, there must be an accurate analysis, which parts need specific know-how resp. which parts can be acquired externally without problems. A broader view can be quite rewarding: Through investigation in the external parts world and the usage of identical or similar products from international manufacturers, production costs of more than 40% can be avoided.
Global Sourcing – the choice of the ideal supplier
The following happens quite often: Products are developed in one country. The components are ordered from a cheap local supplier. But then those parts have to be send half around the world to the real production site, consuming all achieved savings.
That’s where the purchasing strategy Global Sourcing comes into play: Its aim is to use international supplier sources. The choice of the supplier shouldn’t be made exclusively based on prices, since transport can quickly become more expensive than the wares themselves. To minimize transport costs, only suppliers should be considered that have international sales locations and can deliver directly to your production sites.
Strategic Parts Management helps companies to choose those global suppliers and to create long term relations and prospects. The corresponding countries are therefore recorded in the data base with the suppliers. Through this, it is readily apparent how many international sales locations a manufacturer has that allow direct delivery within foreign countries.
Product & supply transparency
The choice of the right component for a product demands a lot of different information and features. Purchasing agents and engineers receive support in their decision process through a comparison of technical and economic properties of their ideal component.
To provide an additional overview on alternative components and suppliers, geometrically similar parts that fit the currently displayed component are automatically researched in the background. Afterwards, the search results can be compared directly with their alternatives and reviewed for their suitability.
C-parts represent only 20% of purchasing volume but 80% of purchasing costs. In regard to process costs, their purchasing price is therefore disproportionally high. The realization of supplier and part consolidation through C-part management leads to substantial savings on purchasing costs.
With the so called Kanban concept, price, warehouse location and storage are agreed upon in advance with the supplier. Components necessary for the production are taken on demand from stock that is refilled regularly by suppliers. The actually installed components are billed monthly. Without no longer required tasks like market research, licensing procedures, requesting quotations and bid comparison, order letters, purchase controlling, incoming goods inspection as well as large parts of bill auditing, process costs can be reduced by ca. 60%.
To exploit the full potential of Kanban, purchasing agents with parts management can tell at a glance, which components are Kanban compatible and which Kanban supplier is suitable.
Discontinued components that have been integrated during the product development can cause tremendous costs. Expenditure and risks are immense, primarily thanks to time consuming searches for alternatives (as well as their possible incompatibility and later necessary, comprehensive design modifications).
Part discontinuation happens all the time. After all, manufacturers want to provide their customers with innovations. It’s therefore important that engineers are well prepared for these instances and won’t suffer any nasty surprises. End of Life information for products and information on successor parts provide engineers with the necessary planning certainty for their new designs.
Cost dummies / Design2Cost
To ensure a company’s continued competitiveness, the determination of future product manufacturing costs gains more and more significance. Early cost estimates should therefore already be conducted within the planning stage. This allows to determine product costs and if necessary the search for cheaper components of comparable quality. Based on general quote requests for standard and supplier parts, this is further supported by a cost analysis. The early cost estimate also extents to price analyses of already existing or similar parts (self-constructed, standard or supplier) in the ERP or PLM System.
With Strategic Parts Management, prices of standard and supplier parts from international component manufacturers can be determined quickly and simply. In addition, this enables the creation of a rough cost calculation. To evaluate self-constructed parts, a geometric similarity search function allows to extrapolate the future costs of the product as close as possible, based on prices of existing similar parts within the ERP.
The comprehensive PURCHINEERING strategy can be realized within the scope of a strategic parts management solution, if it provides integrations into the most common ERP, PLM and CAD systems. Through optimized cooperation between engineering and purchasing, this allows companies to reduce costs efficiently and sustainably during product development and therefore to consolidate their competitive power further.
This article has been published in similar form in the series 'Wissen Kompakt' of IT&Production. The CADENAS submission in the section "Product Costing" can be found in the special edition "Product Lifecycle Management & Engineering 2014/15" at: www.it-production.com/media_container/wissen_kompakt/PLM_2014.pdf