Procurement Engineering from supplier point of view

First guess probably everyone has when he think about procurement engineering is cost saving for OEM/customer. Sure, this is not the only value for the customer there are some more. But one advantage might not be present immediately. The benefit for the supplier!

I had the chance to experience the value from the other side, from the supplier point of view. In automotive industry already about 10 year ago the word “Simultaneous Engineering” has been used. The way it worked is almost the same as modern procurement engineering processes can be used nowadays. Sure, there is a wide spread of processes being used. Some OEMs selected just one supplier and went through the entire development process till the end. Other decided for a totally different approach using many more parties in the process. Let me give you an example about the last mentioned method.
A new engine should be developed. There are market analyses and other high level activities. But let me talk about some developing levels lower. Let me provide some insides about component / module level.
Teams are created with the following team members. The Lead of the “Simultaneous Engineering Team” was the module owner which used to be the designer for the components. In the background he used some junior designers which did a lot of CAD and FEM tasks for him. The lead was responsible for all relevant items from OEM point of view like timeline, features, costs etc.
Another person was the development engineer from the internal manufacturing asset for the product. A senior engineer with all the detailed process knowledge as well as quality and cost knowledge. Quite often in automotive industry OEMs have own manufacturing capabilities but also purchase a bunch of the volume from suppliers. For risk mitigation but sure also to stay competitive and keep capacity for upside volume potential.
The internal opinions have been supplemented by selected strategic partners from the outside. About two to three additional suppliers used to be invited for the process. How these suppliers being selected? Well known partners from previous projects got the chance to quote on a price for the same prototype design concept including initial specifications related to that. The once with the best and reliable package got the chance to receive a prototype contract in order to buy tools and produce samples for further tests. Sometimes all received a prototype contract sometimes for slightly different concept designs sometimes for exactly the same design.
Since directly connected process which are needed to evaluate the quality of the component also internal machining & assembly people have been invited.
Based on demand and progress of the project a regular meeting took place on different locations (ones a month up to once a quarter). All parties of the team where selected as the host of the meeting.
During the meetings different designs and options being discussed. First manufacturing results as well as hurdles and chances related to that being presented. As a result cost drivers, risks and mitigation measures can be used for next development steps or also for upcoming serial production.
All the above mentioned actions need money therefore the most important questions is the result. After so many years it is very difficult to me to make a reliable total cost calculation. But I do remember the manufacturing costs comparison which makes any total cost discussion obsolete.
The old design which have been sold in millions of engines in the market had a price level of around 75€. The new design with much higher technical requirements ended up in a price of about 50€. This means about 33% price reduction. Assuming a volume of about 1.5 mio units a year this means savings of around 40 million €/year. Main levers of success were the given cost targets which have been aligned with design features related to their value. Simply “Design to Value”.
The benefit for the OEM is obvious but what is the outcome for the supplier? Having the chance to produce samples upfront of quoting a serial production part provides you strong confidence and good chance of making money and no losses. Furthermore you be able to convince the customer to change features because you be able to provide cost related to certain design elements. And even if there is no design change possible you can easily explain your price and argue about the cost structure. E.g. if there are very difficult features which are not allowed to have any material faults you need 100% x-ray with costs related to that. Also the ability to convince the customer of your production and quality concept can provide significant advantage.
Probably you ask now the question where is the link between Simultaneous Engineering and Procurement Engineering? I personally think the described approach is one face of procurement engineering and it is used since many years, sometimes without knowing that this is procurement engineering. New is just the systematic approach and the identification of all the different application scenarios using dedicated people. By providing more and more use cases like that one to the audience we can share experience and accelerate the process being more and more systematic with a wider range of applications.

In a nutshell: Managing the interface between OEM engineering and the supplier in a professional interactive way, guarantees benefit for both parties. Lowest cost for highest value with reliable production process = profit for both.

Leave a Reply

Your email address will not be published. Required fields are marked *