Asset Publisher 4 Strategies 64 Methods Innovation breakthrough Whether as a result of monopolies or patents, or because specifications are excessively geared to a single supplier, companies sometimes find themselves in a position of complete dependence. When this happens, the only solution is an innovation breakthrough that fundamentally changes the rules of the game. The problem here is getting the creative juices flowing again. After all, there was a good reason for the product being designed the way it was.
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The procedure for identifying savings potential by benchmarking the production processes comprises four steps: Preparation for benchmarking: First, both the production steps that most strongly impact the product price and the suppliers taking part in the process benchmark need to be identified. Existing suppliers and new ones may be included. Involvement of the suppliers: As the next step, an invitation to tender is sent out to the chosen suppliers.
Identification of best practice costs: The offers from the various suppliers are compared in detail. The first thing to check is which production steps are the main cost drivers. Summarizing the least expensive production steps, together with a comparison of external data sources, determines the best practice process.
Implementation of savings potential: Part of the savings potential is achieved directly in negotiations with suppliers. In the case of complex changes in production processes, the suppliers need to submit an implementation plan.
For procurement, the benefits of process benchmark are a high level of price transparency and fact-based decision making. The database of best practice process costs created during the benchmarking procedure can also help determine future target prices for new products. A crucial factor for successful process benchmark is the involvement of production and engineering at an early stage.
Advances in technologies, richer application of analytics, and broader acceptance of eSRM and ePDM solutions and practices have made market-driven capacity management between companies and external suppliers possible for even low-volume made-to-order highly specified parts.
Collaborative capacity management enables continuous communication and collaboration among suppliers, procurement, and logistics. Four elements are essential: Internet-based solutions enabling communication of demand and capacities Assurance of critical capacities and simulation of production program scenarios Integration of the supplier into the program-planning process Embedded make-or-buy analytics Procurement breaks down planned demand for a given period usually six months into smaller segments usually several weeks and loads this data onto the solution, updating the planning forecast routinely as better insight becomes available.
Internal and external suppliers also upload their capacities into the solution by capability by line, machine, location, and time and economics. The application then optimizes the best make-or-buy award allocations, which allows the combined network capacity to be applied in the most efficient manner. Procurement then reviews the suggested scenarios with operations and executes as agreed. The early and rapid detection of potential bottlenecks or underutilized capacities improves both cost management and supplier utilization.
A company needs to have its own inventories and those of its suppliers fully under control, and timely knowledge about all stock, in order to optimize its inventories to the benefit of the company and its suppliers.
Knowledge of complete inventory levels avoids excessive levels of safety-buffer stock, for example, and identifies little-used articles. At the same time, production losses and the resulting disruption need to be prevented. A well managed inventory depends largely on efficient IT systems. Incompatibility of systems between locations has a negative impact on inventories because the information is often inadequate.
If existing systems do not supply integrated stock data, alternative solutions such as an Internet-based platform, for example, should be able to provide an integrated view at least for the most important items. It is particularly important that manufacturing has access to its own receiving warehouses and, if need be, its own central warehouse.
When falling sales indicate that a product life cycle is nearing its end, the company has to go back to the drawing board and either modify the product to bring it back into line with customer requirements, or put a completely new product on the market. Before a product is launched, it has to be developed and market tested.
A product goes through five typical life-cycle phases, each of a different length: Introduction phase: Sales rise slowly, depending on the marketing push. However, no profit is earned at this stage due to previously incurred product development costs and ongoing spending on communication.
The introduction phase decides whether and how well the product is accepted by the market, and ends when break-even is reached. Growth phase: Profits are made for the first time. This phase is characterized by rapid growth that is accelerated by further intense marketing activity, and ends as soon as the sales curve becomes digressive.
Maturity phase: As the product no longer requires intense advertising, and economies of scale are able to take effect, the highest profits can now be recorded. Later in this phase, however, profits decline because of increasing competition.
Nevertheless, this is when the product has the highest market share. Saturation phase: Begins as soon as market growth ceases. Both sales revenue and profits decline. This phase can be extended through modifications and product re-launching.
Degeneration phase: The market shrinks. It is no longer possible to stem the fall in sales revenue, and market share is inevitably lost. Profits also fall, and the time has come to readjust the product portfolio. In both cases, the basic technical structure of the product remains largely unchanged. Usually only those components subject to short innovation cycles for example, electronics or fashion trends are replaced.
To ensure that product upgrades can be carried out on reasonable economic terms, the milestones of the product life cycle are defined in advance with suppliers. The total life-cycle concept then determines in detail how sales revenue, and in particular the costs for upgrades, are shared between the company and suppliers over the complete product life cycle. The suppliers are closely involved in the process of making cost cuts and, in return, the savings are shared. Sharing in the savings gives the suppliers a strong incentive to help find new cost-cutting ideas, and to communicate these to the customer.
To achieve a spirit of partnership and open cooperation between equals, it is essential to initiate a process of systematic communication with the suppliers identified as the best candidates. Communicating clearly and directly the intention of sharing savings is highly recommended.
As a first step, all the ideas contributed by the suppliers are collected; sending suppliers a standardized form makes the process easier. Where a large number of suppliers and individual contributors are involved, consider making the form conveniently accessible online. Besides a description of the idea, the form should include other important information such as the amount of potential savings, the possible timing of implementation, the likelihood of implementation, and the effort and expense involved.
Having just this basic information will make it quick and easy to select and prioritize the ideas. One of the most important factors for success is ruthless and rapid prioritization and selection of the ideas. During the creative brainstorming process, it is perfectly legitimate to consider any and all concepts, but spending too much time discussing flimsy ideas ties up valuable resources and gets in the way of successful implementation. The selected ideas are then reviewed in terms of feasibility in a discussion process that includes the engineering, quality, production, and controlling departments.
Often, an idea will have to be ruled out because the supplier has failed to consider the bigger picture or certain knock-on effects. But if nothing is standing in the way, a business case and an implementation plan can be drawn up and the appropriate responsibilities defined.
Special importance should be attached to the subsequent control of implementation—many companies develop lots of ideas with their suppliers, but subsequently fail because neither takes ownership.
Sooner or later, a bottleneck occurs, no matter how long the company has been working with the same supplier, and no matter how closely the relevant departments at the two companies work together. A supply bottleneck can easily trigger hectic troubleshooting, but the first thing to do is examine the situation in greater detail. What was the actual cause of the bottleneck? Was it just an unfortunate coincidence that caused production to break down? Or was there some systemic flaw that could reappear at any time?
In order to prevent future supply bottlenecks, the first step is the most important one: conduct a detailed analysis of the circumstances. Quite often it turns out that the bottleneck affects only a few critical parts. Future procurement strategy should focus on gaining as much freedom of action in the supplier market as possible. In exactly the same way, the hurdles created by regional oligopolies can be overcome through the abolition of import duties for example, on steel from Asia.
If illegal cartels or price agreements are suspected, an individual company can report its suspicions to the antitrust authorities. Similarly, close cooperation with the competition authorities in advance of a planned merger has the aim of preempting too much concentration on the supplier side and hence excessive supply power. The customer needs to take timely action to nip these kinds of efforts in the bud.
Left to its own devices, a company generally has little power to influence the political status quo. So it is important for it to know exactly what it wants to achieve and then work consistently toward this goal by lobbying in industrial associations, mobilizing others who share the same views, and carrying out targeted media work.
If undertaken correctly, political framework management has the ability to shift the balance between supply and demand power like no other strategy. A tried-and-tested product benchmark process can be broken down into four steps: Identification of comparable products: The initial step is the identification and procurement of comparable products from competitors.
The outcome is a list of relevant competing products. Evaluation of competing products: The individual products are compared, with the help of development and production. Each product is rated according to functionality, technology, usability, and compliance with specifications and dimensions. Products that fail to meet internal requirements are eliminated at this stage. Invitations for bids for existing products and alternatives: Suppliers are invited to tender offers for existing products and appropriate alternatives.
As part of the tender process, suppliers are advised of possible design solutions that could be adopted from competitors. Especially for alternative products, it is crucial that the process includes new suppliers along with existing ones.
Analysis of results: The final step is to analyze the results and identify potential cost savings. Individual alternatives need to be prioritized on the basis of feasibility and potential. For high-priority offers, the next steps of implementation should also be identified. Product benchmark allows various alternatives available on the market to be compared quickly and with relatively little effort.
The involvement of procurement, development, sales, and suppliers is crucial, but should be strictly limited time-wise. The results can normally be implemented rapidly, insofar as it has already been determined that comparable products are available from suppliers. Product benchmark should be carried out right at the start of developing a new product, so that any necessary design changes can still be incorporated in time.
What applies at the overarching corporate level applies equally to product complexity and, as a result, to the interaction with suppliers. More companies find themselves beset by the effects of increasing product complexity. Consequently, it is virtually impossible to obtain volume-based concessions from suppliers. When it comes to controlling product complexity in a systematic manner, a four-step approach has proved useful: Build variant trees: The aim is to generate transparency and help explain the complexity existing within product groups.
To this end, the factors driving complexity are identified. In the case of gearboxes, for example, these factors are as follows: Type: Manual, automatic, or double-clutch gearbox Mode of installation: Lengthwise, transverse, or rear engine Performance range: Torque above or below Nm In this example, around 50 complexity drivers can be found.
The existing gearboxes are then depicted in a tree structure, in accordance with their complexity drivers. The variant trees are enriched with additional data for example, prices of parts, quantities, warranty costs, and so on , so that a complete visualization is available by the end of the first step.
Develop a maximum scenario: This involves recognizing similar variants within the variant tree and identifying potential through amalgamation or elimination. Create a business case: In this step, the cost savings potential and income effects are compared with investment and resource requirements.
The procedure for identifying savings potential by benchmarking the production processes comprises four steps: Preparation for benchmarking: First, both the production steps that most strongly impact the product price and the suppliers taking part in the process benchmark need to be identified. Existing suppliers and new ones may be included. Involvement of the suppliers: As the next step, an invitation to tender is sent out to the chosen suppliers. Identification of best practice costs: The offers from the various suppliers are compared in detail. The first thing to check is which production steps are the main cost drivers. Summarizing the least expensive production steps, together with a comparison of external data sources, determines the best practice process. Implementation of savings potential: Part of the savings potential is achieved directly in negotiations with suppliers.
The Purchasing Chessboard PDF
Asset Publisher 16 Levers 64 Methods Change the nature of demand In cases where supply power is high, the second basic strategy is to change the nature of demand. High supply power exists whenever a supplier succeeds in establishing a monopolistic or oligopolistic position due to a unique technical advantage or exclusive market access. This position is far from being inevitable, and in fact is often brought about by the buying company itself—with or without its knowledge. Changing the nature of demand requires sounding out the limits—that is, determining to what extent the company can modify technical specifications to regain freedom of choice.
The major reasons for this are the consolidation in many supplier markets, rising energy costs, and growing resource consumption in many emerging markets such as China. To support companies that need to master the challenges in purchasing and achieve significant value propositions, the authors have developed the Purchasing ChessboardTM. The Purchasing ChessboardTM has been tested extensively. The relevant sectors included automotive manufacturing and supply, military equipment tanks , construction equipment, packaging, steel, transport, foodstuffs, pharmaceuticals, energy utilities, telecommunications and banking. In a recent purchasing survey accomplished by A. Kearney has developed the Purchasing ChessboardTM. This tool relies on the huge amount of experience and insights from over purchasing projects A.