By Robert L. Carman, Principal
Outsourcing has become commonplace and in many cases required in order to keep the financial burden of staying near the cutting edge of so many associated technologies, both product and manufacturing process based. The problems with outsourcing are frequently tied to the management and implementation techniques and processes. We forget that in the old vertically integrated company, most of these capabilities were the source of our competitive advantage, and we don’t establish the proper relationships to allow the new multi-company enterprise to retain many of those competitive advantages. Scott Elliott wisely suggested that we treat key suppliers as family, but what does this entail?
First procurement is not just soliciting a bid to a list of specifications and a limited order of parts with the goal of finding the lowest costs for each of these items. It starts much early with the identification of potential providers and then the understanding of the business goals, objectives and short fallings of each of those providers. The next step is to start a dialog with each of these potential providers that identifies all the benefits to each business of the pending “collaboration.” Only after the basis for a win-win relationship has been established are specific business needs (like design reviews, part specifications and required numbers) ever discussed. Note that this approach implies that everything within each business can become a basis for the growing relationship. As an example, smaller businesses frequently don’t have large personnel departments, legal staff or procurement staff. Making these services available to the smaller supplier could drastically change the nature of the pending business relationship and the future for that small supplier. However, further note that this suggestion is going to work much better in a longer-term relationship in which the long-term strategic thinking and goals of both businesses are frankly discussed. Now, rather than meeting the very near term need, technology investments combined with process changes (both business and technical) become not only possible, but also desirable.
To emphasize the extent to which this concept can be carried, consider suppliers who are starting with raw materials, and adding just enough value to create more “common” parts. This is the area where traditional procurement is deep rooted. Machine shops come to mind in the mechanical part world. By placing a traditional procurement you “know” everything about your product, the customer requirements and needs to make it the most competitive in the marketplace. But to you really know what is possible? By starting back at the product design/modernization process, the possibilities e.g. of replacing forged and machined parts with modern castings or 3D metal “Printing” processes might enable great reductions in part count, assembly costs, increased reliability, etc. Different tooling or manufacturing set-ups might make another major change. Just-in-time pull manufacturing address a completely different set of issues which can be of great mutual benefit. These newer technologies have their islands of knowledge and execution skills, but frequently some suppliers would like to incorporate these skills and processes within their business. While internal investments will satisfy the pending needs, cash flow usually restricts activities and greatly limits success. All of these limitations disappear with receipt of a purchase order, properly tailored to share the risks associated with fulfillment of the order between the buyer and seller. Once developed, unlimited use by the supplier can provide great competitive advantages while preferred pricing to the original buyer serves his competitive needs as well. Notice that this approach removes the requirement of ultimate mass production needs from the initial relationship, opening possibilities to all kinds of businesses.
In my career, I was able to take 99% of the cost of both development and production out of very complex mechanical system in part using this kind of thinking for all suppliers of the ultimate product. It is also straight forward, albeit somewhat different, to apply these ideas to either electronics or service orientated businesses.