Turning Suppliers into Partners: Total Cost Management Through Strategic Sourcing

Learn how to expand your company's purchasing focus to include strategic alignment and information exchange with your suppliers in order to improve profit margins and gain a competitive edge.


PLM technologies enable companies to manage all information about their products, from initial concept through to manufacturing and after-market service, within a single information environment that ties together all product-related processes, data and non-product documentation across a company's value chain of customers, employees, partners and suppliers. All elements of product data (computer-aided designs (CADs), engineering requirements, product schedules and plans, analysis results, sourcing plans, product quality management, and manufacturing inspections) are incorporated and tied to the processes and tasks undertaken by internal and external teams.

The following are the critical components of a PLM-based strategic sourcing and TCM solution:

*Supplier Information Management: Purchasing personnel need to track and update supplier profiles, while suppliers can access and update their own profiles. This enables purchasing to:
- Track supplier business units and locations
- Maintain approved supplier lists (ASLs)
- Track supplier process capabilities and certifications
- Publish supplier standards
- Maintain commodity teams and councils with buyer desks

*Supplier Development Planning: Purchasing and suppliers should have the ability to access a single environment for creating, reviewing and sharing development plans. In addition, development managers and individual production facilities should be able to report and track key supplier metrics.

*Information Security: For each product part or sub-assembly, buyers must be able to assign supplier responsibilities (i.e. design, manufacture or test). The solution should also control the levels of a bill of material (BOM) and the types of data that a supplier can view. Administrators should also have the option to configure role-based access to specific information where general rules do not apply.

*Product Quality Planning: Solutions should offer part quality plan templates with work breakdown structure for suppliers to achieve process standardization and predictability. Detailed templates should allow for plan scheduling and completion dating, with plan dashboards for viewing status and tracking issues.

*e-Sourcing and Sourcing Templates: Further standardization can be achieved when solutions include request for quote, proposal and information (RFx) templates in support of commodity, program and BOM-based sourcing, particularly if the templates allow for customer, purchasing and supplier input in addition to automated online tools.

*Cost Management and Estimation: To understand the product cost drivers in the supply chain and the various categories of costs that go into each assembly, the system should be flexible and able to capture detailed cost breakdown information for each item. Calculations and roll-ups of this information must be supported.

*Decision Support and Analysis: Sourcing analytics are needed for profitable decision-making and award justification. Solutions should provide simple reports and dashboards that dynamically roll-up line items and calculations.

*Sourcing Program Management: Once the savings opportunities are identified, the team should be able to implement a project plan to capture and drive the savings to the bottom-line faster with detailed work breakdown structures.

*Single, Unified Environment: Given the large number and varied locations of people and organizations involved when strategically sourcing, the ideal solution must provide a single information environment accessible by all stakeholders. This is the only way to ensure that the right people view the right information exactly when they need to view it in real time. Of utmost importance is the ability to execute the sourcing process in parallel with much of the upfront product design phases. Without this capability, the opportunity for supplier innovations to positively influence product design cost reductions is greatly hindered.

Strategic Sourcing and TCM in Action

Companies using strategic sourcing can expect, on average, to improve buyer productivity by 15 percent, reduce material costs by 2 to 5 percent, lower overall product costs by 5 to 10 percent, and shorten sourcing cycle times up to 50 percent. Moreover, the potential improvement in profit margins is higher using strategic sourcing versus traditional purchasing methods and approaches. Following are several examples:

A major supplier of automotive systems implemented a strategic sourcing solution with two major goals in mind: to gain a single source of product information for collaboration with each of its 120 suppliers, and to improve product quality and launch speed by enabling earlier collaboration between its engineers and suppliers during prototype development. In less than one year, the company achieved a more strategic relationship with each of its 120 key suppliers and reaped a return of two-and-one-half times the entire project cost.

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