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The Design Is Done: Now What?

Purchasing is the unsung hero of the supply chain. After engineering finalizes the task of designing an end-product, purchasing has the chore of locating, pricing, and coordinating a bill of materials and then troubleshooting a hundred things before components hit the manufacturing line.

There are a lot of sources for components and assistance in the supply chain, but the most effective source simply makes a buyer's life easier.

Buyers' options are as varied as the products they source. In some cases, dealing directly with suppliers provides good pricing and good visibility into technology roadmaps. Customers want to be important to component makers, so this direct visibility also helps. One of the problems for buyers, though, is that they have to deal with numerous suppliers and manage all those relationships. If the customer isn't at the uppermost tier volume-wise, getting a supplier's attention could be difficult.

Another strategy involves distribution. Distributors carry anywhere from several to hundreds of product lines. Traditionally, distribution has been the preferred source for small to midsized companies that don't warrant supplier-direct attention. In some cases, suppliers transition customers to the channel because supply chain management is not the component maker's core competence — developing technology is. Distribution has the advantage of providing a single point of contact for many of the components a purchasing department needs.

Most buyers use a combination of supplier-direct and distribution for their sourcing. Other key players in the system are EMS companies and independent distributors. EMS companies buy parts in huge volumes and therefore get preferred pricing from suppliers. They can source commodities that are common to many customers and parcel them out as needed. EMS companies at various times have tried to manage customers' supply chains by sourcing from suppliers and managing inventory. This has had varying degrees of success, however: EMS companies have largely opted to focus on manufacturing and manage selective types of inventory.

Independent distributors are most often a source for hard-to-find components that aren't available from suppliers or authorized distribution channels. Their position in the channel for any given customer varies with market supply and demand and other factors.

In developing a bill of materials (BOM), buyers have a lot of options. The first line of assistance is buying tools that search for parts, compare performance and price, identify and locate inventory, and, often, ensure compliance with environmental and trade regulations. In theory, once a product's BOM is determined, a buyer can type the desired part numbers into a tool that automates the rest of the process. In reality, it's never that easy. Buyers often have limitations such as approved vendors, pricing parameters, end-of-life (EOL) issues, and lead times to contend with, so inputting a BOM is the first in a series of challenges.

Many of these tools have been developed by distributors or third parties. Some of them are positioned as BOM scrubbers — programs that take a BOM and eliminate unavailable or EOL components or flag errors in part numbers. These are usually subscription-based or fee-for-service. Research has found that many companies still use Excel spreadsheets for their BOMs, so most of these tools enable downloading and uploading, regardless of the format.

Distributors have developed tools that go one better: Some retain historic information for comparison purposes, automatically input contract prices, provide second sources for components that aren't available, and offer a variety of other services. Some enable instant purchasing. Most of these tools are free, as buyers are likely to fill any gaps with components carried by the distributor.

Buyers then have to consider a number of variables regarding the BOM. End-products are rarely assembled in only one location, so a BOM often has to be split apart and shipped to different locations. Component lead times have to be factored into these delivery schedules, which have to be coordinated so parts arrive at the right place at the right time. Forecasts have to be developed, and the number of parts ordered has to be as exact as possible so overages or shortages don't occur. MRP and ERP systems are available to manage a large number of these functions.

This phase of the supply chain process is the most complicated for component makers, buyers, and OEMs. The variables are infinite, and planning for these variables only goes so far. Risk management is now an issue that all parties are facing, and, as with parts themselves, there's a variety of options to choose from. In upcoming blogs, I'll look at how buyers integrate this function into their responsibilities and where the most effective solution resides.

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17 comments on “The Design Is Done: Now What?

  1. kilamna
    December 20, 2012

    I find it odd that engineers would not 'use' procurement to get the components and subsystems needed to build at least the final prototype. So that the design is not finalized until it is clear that the cost-price targets can be met. Many organizations have procurement active during the development stage.  

  2. Barbara Jorgensen
    December 20, 2012

    Good point: engineering and purchasing are working more closely together, and the overlap depends on how the product moves forward. I am hearing engineering is still heavily involved through prototyping and even small-volume production. But volume/fulfillment decisions are still managed largely by purchasing and that leverage isn't typically used for engineering (low volume high mix)  orders. Theoretically, costs should go down once purchasing takes over because they are the volume/price negotiating experts. It's good to hear purchasing is involved in development: it makes for fewer problems down the line.

  3. t.alex
    December 20, 2012

    So true. Typically companies would run all of these in parallel. Design, component selection, costing, manufacturing process are done together in serveral iterations until everything is right before mass producing. 

     

     

  4. William K.
    December 21, 2012

    One huge advantage of working in a smaller company is being able to steer purchasing decisions, and being able to stop purchasing from redesigning what has been designed. Having a product fail because purchasing made substitutions is damaging to one's career, at least it can be. Being able to send the PO to the supplier that provided a lot of support assistance is a great benefit as well. So it seems that the more independant  and farther removed the purchasing people were, the worse the substitution problems became. Component selection is a task for engineers, not for order placers. The possible exception would be in an organization where each person was soley accountable for their de3sign changes. Then, selecting the cheaper parts may be tempered by a detailed examination of what the tradeoffs would be.

  5. itguyphil
    December 22, 2012

    I am in the middle of an environment where there is pretty much zero QA involvement. Then on top of that the initial stages do not include the people that are involved in the end stages of projects.

    I can see how procurement gets the last order to DO and not have involvement.

  6. ahdand
    December 24, 2012

    Never stop the design process. Freeze it but never stop it since it will be a key factor and the design will have to keep on changing based on the new requirements.

  7. Himanshugupta
    December 27, 2012

    I do not think that you would like to change the design too ofter. As in engineering, do not try to touch it if its working. Making gradual improvement is fine though, which does not take too many resources and money.

  8. itguyphil
    December 27, 2012

    I'd like to add to that both design AND feedback. The feedback is what helps to keep the process going while involving everyone.

  9. Taimoor Zubar
    December 27, 2012

    Having a product fail because purchasing made substitutions is damaging to one's career, at least it can be.”

    @William: Good point. I think it's also important for people in the purchasing department to be technically sound so they have an idea about components they can substitute and to what extent they can be substituted. From what I have seen, people in the purchasing department tend to be good at managing vendors and negotiating with them to bring prices down but their lack of technical knowledge can cause some serious damage to the company.

  10. Taimoor Zubar
    December 27, 2012

    “So that the design is not finalized until it is clear that the cost-price targets can be met. Many organizations have procurement active during the development stage.”

    @Azmat: I agree. Many a times after a final design is ready the components have to be substituted because they are either not available through the approved vendors or are too expensive to use. And changing the components may degrade the overall quality of the design and affect the performance. All of this means rework on the part of design engineers and this problem can easily be avoided if, as you mentioned, every part is procured through the regular procurement process. However, this may result in slower deliveries and may cause delay in the design process.

  11. kilamna
    December 27, 2012

    I didnt think engineers were in the military mode: Just get it done on time. Then redo it.  

    Doing right the first time at least within schedule, spec, and cost, (preferably beat them) makes much morer sense. But that means that organizations have to be much more open and collaborative; most are not. 

  12. itguyphil
    December 31, 2012

    Another advantage of running and working in a smaller organization is more flexibility and the ability to run leaner than if there were more people & resources in the picture.

  13. FLYINGSCOT
    January 1, 2013

    It is great working in a small business where individuals can juggle the various supply demands to do what it takes.  Unfortunately to grow and deal with the required volumes to make a billion dollar company one is forced to use systems like SAP and these can be a nightmare ot install and manage.   Oh…..and they are not cheap.

  14. bolaji ojo
    January 1, 2013

    FlyingScot, That's the cost of being one of the “Big Boys.” At the medium scale level business can be both fun and energizing but when an enterprise starts looking at revenue above $1 billion then several other dynamics move in and one critical part of this is having to pay big bucks for enterprise management applications.

  15. bolaji ojo
    January 1, 2013

    Pocharle, The opportunity exists also for the individual to learn more than just one aspect of operations since the company may not have that many specialists.

  16. itguyphil
    January 22, 2013

    Which is great for job security and growth from that individual's perspective.

  17. ahdand
    January 26, 2013

    Himanshugupta: I dont think you need to change the design everytime or most of the time if you get the initial stages right. You need to analyze and understand what the requirements are before desiging the desing 1st.

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