Business & Technology Nexus

Dave Stephens on technology and business trends

Procurement and New Product Design

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“Normal” Procurement organizations help engineering teams by negotiating for components in a pre-set design configuration. But new techniques are emerging where the line between engineer and Procurement professional blurs, and the art of design and procurement fuse into a discipline bound to produce strategic advantage.

Fresh off my rant on the state of US automakers, let me run with an example in that realm. How should an procurement/engineering design team in charge of something fairly straightforward, say the muffler & assembly on a new Mustang, do their job? How should the team develop its plan, validate it, and move into full production? And then how should that subassembly team interact with other subassembly teams & with the overall Mustang design effort?

First, the muffler team puts together candidate designs. The candidate designs will probably share some common components, but will also have uniquenesses. Components will largely come from a CSM system – the automaker will want proven materials for most of the new platform to ensure “buildability”.

Right up front, during this highly creative and adaptable design phase is when a company’s supply base can help the most. By treating the design exercise as a procurement problem just as much as as engineering problem, companies can make much better choices. The process is straightforward: evaluate component pricing, capacity constraints, and other risk factors for each of the designs. Solicit lots of supplier ideas and feedback, and then settle on an approach that provides the best customer value.

The tricky part, of course, is determining what customers actually do value. About all I care about the muffler is that it doesn’t break…

IMHO, now is not the time to run a reverse auction on your helpful suppliers. Just get ballpark prices, and negotiate terms later. You can guess the eventual prices using linear performance pricing as I’ve discussed in a previous post.

Oh, and of course your team will have started out with a budget for the subassembly, so you will have boundary conditions on your designs. No super-charged, zero emission mufflers made out of titanium please..

Next each subassembly team needs to be coordinated in what is a massive, massive undertaking. It’s a nearly impossible set of variables to manage, as trade-offs at a high-level on the car (dent-resistant material, weight requirement, etc) can generate huge swings in the subassembly design.

But many car makers have this process down to a science.

(After settling on a preferred candidate design you’d then build a prototype, perhaps try a light production run, and do everything possible to “prove” you can build in the volumes required for full production.)

McKinsey has called the particular approach I’ve described multi-design benchmarking, or MDD. It’s a practice where multiple designs are benchmarked on price, performance, and other factors, and where the procurement & engineering design team are one. If your German is good you can read about it here. Of course, the broader area has been promoted as a part of PLM solutions, such as those from UGS.

Happy driving! (Photo from Toyota)

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Written by Dave Stephens

03/23/06 7:25 AM at 7:25 am

Posted in Opinion

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