Daily Archives: June 30, 2006

Sourcing Based Product Lifecycle Management

Last month, the ISM awarded a number of individuals and organizations the R. Gene Richter Award for Leadership and Innovation in Supply Management. The recipients were primarily organizations that had demonstrated massive improvements in their sourcing and procurement functions which came about through concentrated improvement efforts. These improvements were the direct result of the adoption and consistent implementation of best practices across the sourcing and procurement functions in the organization. This week we are discussing the best practices that helped one or more of the recipients transform their organizations and win these coveted awards.

Today we are going to discuss how sourcing-driven product lifecycle management (sourcing-based PLM) and related best practices can take your sourcing organization to the next level, as it did for KLA Tencor, as described in the article Changing Directions in the latest issue of Inside Supply Management.

In addition to institutionalizing the five pillars of

  • strategic sourcing,
  • commodity councils,
  • negotiation expertise,
  • performance-based contracts, and
  • formal supplier management with supply base rationalization and supplier scorecards,

for the emerging supply chain department, the supply department extended the company’s product life cycle management (PLC) to include sourcing. A product is not allowed to leave the investigation phase before a strategic sourcing strategy is devised and accepted. This resulted in 40% to 50% cost reductions and more than a 50% improvement in lead time and availability. In addition, product performance, quality, and field reliability of the produced products were significantly improved.

When you consider that up to 80% of a product’s cost can be locked in during the design phase, and that strategic sourcing has been proven to significantly reduce procurement cycle times when properly implemented, it should not be surprising that early application of the sourcing process can have a significant impact.