Early Sourcing Involvement Yields Savings

Aberdeen: Companies that involve supply side in earliest design stages see lower costs, better performance

Boston, MA — May 16, 2003 — Companies that involve their sourcing teams and suppliers in the earliest stages of product design could see significant savings compared to enterprises that bring their supply side into design later in the process, according to a report from technology consultancy Aberdeen Group.

When companies involved their sourcing teams at the concept and development stage of the design process, they were able to realize average cost savings of 17.5 percent, Aberdeen found in its latest e-Sourcing Index (ESI), which is based on a quarterly survey of e-sourcing practitioners associated with the consultancy's ESI Advisory Council.

By contrast, those companies that waited until the pilot or prototype stage to bring their supply experts into the process saw costs savings of 12.9 percent, Aberdeen said in the report, "Integrating Suppliers Early Key to Cost Savings, Performance and Profits."

"These findings echo other Aberdeen and academia research that indicates that integrating sourcing and suppliers earlier in the design process can yield an additional 3 percent to 15 percent product cost reduction," wrote report author Tim Minahan, vice president of supply chain research at Aberdeen.

But the benefits of bringing sourcing teams into the design process early on go beyond costs savings, according to the researcher. "Early involvement of sourcing and suppliers has also been proven to drive 10 to 20 percent improvements in the quality and cycle time," Minahan writes, adding, "Companies that deliver products to market earlier can achieve significant revenue and profit margin advantages over competitors."

The analyst said that these results are not surprising, given that as much as 80 percent of a product's total cost is committed by the end of the design process. That means that suppliers can have the greatest impact on product cost, quality and performance when they are able to contribute their expertise in particular materials, parts, products and processes during the design concept and development phases.

"To drive such value, sourcing must become an active participant in the product design and development process, providing a critical conduit between a manufacturer's engineering organization and external supply partners," Minahan continued. "More important, supplier integration can drive revenue and profit growth by providing access to new technology and process innovations and by accelerating time-to-market cycles."

But despite the clear benefits of early supplier involvement, in practice it remains the exception. In fact, Aberdeen's latest ESI findings revealed that just 12 percent of the study group's members said their sourcing teams were involved in the earliest design stages, although Minahan does note that certain industries, such as high-tech and automotive manufacturing, are being more aggressive in involving their supply side in the early design stages.

The analyst suggests several strategies for companies seeking to drive earlier design collaboration, including, among others, developing cross-functional teams that align engineering and sourcing managers early in the design process and moving to integrate suppliers themselves into the early design stages.

For previous findings of Aberdeen Group's e-Sourcing Index, see the January 23, 2003, iSourceonline article, e-Sourcing Savings Up.

For more information on the e-sourcing market, see the Global Enabled Supply and Demand Chain Series article "Sourcing" in the February/March 2003 issue of iSource Business.