In this post I’m going to lay the foundation required to introduce you to a new direct sourcing solution if you’re a manufacturer – regardless of industry – who manufacturers, or outsources the manufacturing of, complex parts and assemblies. (In other words, if you’re in aerospace, automotive, defense, heavy machinery, high-tech, medical device, or diversified manufacturing, you may want to read these posts carefully.) This isn’t to say that it’s not useful for the sourcing of simple parts or assemblies, or that it can’t be used for indirect materials (with some caveats), just that the true power of this solution is not recognized unless you’re sourcing (at least moderately) complex parts and assemblies.

This is a distinct solution from the standard sourcing suites that is offered by the likes of Emptoris, Iasta, and Procuri; the on-line marketplace solutions like Alibaba or the manufacturing focussed MFG.com; and even the PLM focussed solutions of Agentrics and UGS. Not to say that these are not great solutions, the first set are great solutions for indirect materials and simple direct materials; the middle set are often perfect at identifying potential suppliers and, especially in the latter case, for sourcing simple parts or assemblies; and the latter set are really good for PLM management within your company, but in one way or another, all fall short when it comes to complicated manufacturing and the sourcing of complex parts and assemblies, especially when you’re global.

The reason that this is the case is that sourcing an assembly is not like sourcing a straight-forward commodity, raw-material, or service. It’s not just a matter of performing your market intelligence to come up with a should cost model, executing spend analysis to identify the potential savings opportunity, posting an RFI to identify potential suppliers, creating an RFP to qualify suppliers, sending out an RFQ to get initial bids, (potentially) running an auction to determine final bids and the suppliers eligible for an award, and using decision optimization to determine the final award, which is then contracted. Sourcing a complex part or an assembly is much more involved.

When you’re sourcing a complex assembly or part, both you and your suppliers have a lot of complexity to deal with. First of all, you need to know how many basic parts exist in the sub-assemblies and sub-parts, how many instances of those basic parts exist, and what raw materials and manufacturing processes are required to make those parts. Then you need to identify and find all of the specifications and drawings and make those available, in a secure and controlled way, to your potential suppliers in formats that they can understand and work with. Then you need to enable collaboration between your sourcing professionals, design engineers, the potential suppliers’ production engineers, and the potential suppliers’ sales professionals. The potential suppliers’ production engineers will invariably have questions on the design, process, and materials and require clarifications to determine what will be involved to make the part. Then the potential suppliers’ sales professionals will no doubt have questions regarding the precise specifications and quality requirements of the raw materials so that they can provide accurate quotes based upon the feedback they get from their engineering team. (Does the bolt have to be hardness 5, or will hardness 4 suffice?)

Then something will invariably cost more than you expect, or can afford to pay based upon what marketing thinks sales will be able to sell the product for, and your combined sourcing and engineering team will have to collaborate with the combined sourcing and engineering team of the (potential) supplier(s) likely to get the award to come up with a new design or manufacturing process that will meet costs. During this process, a plethora of new documents and versions will be created and need to be tracked in a manner that is instantly accessible by all parties as soon as they are available. Then you’ll actually have to collect the quotes at the basic part level and be able to automatically roll them up into quotes for the sub-assembly and assembly and be able to compare, at each level, across suppliers to determine which supplier gets the assembly, which suppliers get the sub-assemblies, and which suppliers get the basic parts. And if you are sourcing a complex assembly with hundreds, or thousands of parts, this is no easy feat.

Furthermore, this is not something you can easily do with a standard sourcing suite, even if its on-demand and even if it is augmented with an on-demand Product Information Management (PIM) solution such as that offered by Arena (even though this is a great solution for PIM – and works great even for complex parts during a joint design phase), marketplace, or traditional PLM solution.

This is because standard sourcing suites are not designed for the management of design drawings, CAD/CAM models, and PLM and also since very few handle complex bill-of-materials with hundreds or thousands of parts (as they are designed to handle events with small to moderate sized bundles well), marketplaces are not designed for complex sourcing, and traditional PLM is not designed to be collaborative on-demand over the web.

(You might point out the UGS solution, which I wrote about in this post back in March, and it’s a good solution, but when you get down to it, it’s a relatively weak integration between separate suites of products built at different times for different purposes with different toolsets on different platforms compared to a solution built from the ground up to tackle the direct PLM-based sourcing of complex assemblies head on. Considering the number of mergers and integrations the UGS solutions have gone through, it’s impressive that they took the solution as far as they have. Whereas the UGS solution model is good for those companies who already have one or more of the tools that have been integrated and need an easy stepping stone to get to the next level, the from-the-ground-up model is probably a better way to go for those innovative companies that do not have any of the solution sets or are willing to change the way they look at PLM and Sourcing and take a new, integrated, approach.)

Furthermore, when you are dealing with the sourcing of complex assemblies, it’s usually not the raw material costs you’re concerned about, since these are fairly constant around the globe, but the production costs – which usually boils down to the labor. Auctions have little value beyond the most basic components (such as screws, nuts, and bolts) since the only wiggle room the supplier will generally have is their margin. There are not a lot of (complex) constraints, as you don’t have a lot of leeway, so complex decision optimization is usually not required – it’s really just looking for the lowest landed cost, which is easily computed, while making sure any diversity or dual sourcing constraints are met. So, beyond RFx and (at most) simple optimization, for the most part, you don’t need complex sourcing functionality. And where you are concerned about raw material costs, you’ll do a spend analysis project outside of the individual assembly sourcing events to benchmark your expected costs, which will then be fed into each sourcing event. As for contract management, the contract is fairly simple – provide the required assembly in the designated quantity at the designated time – since all the details are in the appendices which consist of the design documents and CAD/CAM models. So, tracking the design documents, the award, and a single attachment that represents the standard terms generally accomplishes the required level of contract management. And the project management that is required is not really sourcing project management but PLM project management – sourcing project management is just a subset that consists of the quoting phase and final award selection.

Thus, if you are a manufacturer – be it aerospace, automotive, defense, heavy machinery, high-tech, medical device, or diversified – there is a good chance that your current solution for sourcing, if you have one, is likely not meeting all of your needs. Furthermore, to meet your more complex needs, you likely need a new type of direct sourcing solution that was designed to manage your PLM needs from day one. In part II, I will introduce this solution to you. Stay tuned.

(P.S. In order to prevent anyone from ruining the surprise, and to insure all related discussion is centralized in one place – in the forthcoming post II, I’ve disabled comments for this post. Thank you for your patience.)