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.


Continuing the focus on automotive, an automotive OEM is implementing PLM to improve its overall cost analysis when collaborating with its massive supply base of 2,500 suppliers. The OEM is targeting productivity improvements in excess of 30 percent, which will result largely from improvements in cost analysis and cost tracking/data retention within a single information environment. Cost analysis improvements are expected in the range of 75 percent by suppliers providing more accurate quotes as the result of improved visibility into product designs.

One global consumer products manufacturer formerly relied on traditional paper documents to interact with suppliers around the world, which resulted in inefficient information sharing in the supply base, causing excessive costs, delays and pricing problems. By implementing online sourcing and improving suppler communications, the company was able to collaborate earlier with suppliers so that all product data and changes were visible in real-time to all key participants. Furthermore, the move to online quotations resulted in an estimated $200,000 of annual savings in shipping costs and created additional savings through early supplier product data collaboration, information sharing, reduced product iterations between OEM and supplier, and shorter overall time to market.

A major supplier of industrial systems used strategic sourcing to establish what it calls "global commodity management," whereby its internal buyers across specific areas share information within the team and also work more closely with approved suppliers. Using this approach, the company is on its way to achieving its goal of shortening the request for quote (RFQ) process time by 75 percent, reducing warranty costs by creating and tracking quality metrics for suppliers, strengthening relationship with key suppliers, and reducing overall cycle times through better communication with suppliers.

As noted earlier, the largest gains are achieved when communication is improved early in the new product development process, when concept designs are just being formed. By collaborating more effectively at this stage through strategic sourcing, a manufacturer of electronic controls, for example, was able to significantly reduce product launch costs by improving on-time supplier PPAP (production part approval process) from 28 to 90 percent over two years. Conservative tangible cost savings from this area of the solution alone is resulting in savings of $1.5 million annually.

Finally, a major high tech company leveraged TCM to perform "design for supply chain." By providing a single, unified environment for internal design engineers and external suppliers, the company has been able to drastically reduce communications errors in the earliest design stages. As a result, design change iterations have been drastically reduced, saving the company more than $10 million per year.

Conclusion

Strategic sourcing and total cost management provide product companies with benefits by transforming suppliers from parts-makers to partners in the product lifecycle. With purchasing expanding its focus from solely pricing to strategic alignment and information exchange, companies are realizing improved profit margins and earnings per share through cost reduction, quality improvement and rapid product innovation.

About the Author: Rohit Tangri is director, Product Management, at MatrixOne.

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