Category Archives: Product Management

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.

Build to Order (Supply Chain Management)

Recently, on Procurement Central (WayBackMachine), Dave Stephens indicated that he saw “a growing link between “Long Tail” thinking (excelling in variety vs. going for the homogenous blockbuster) & demand-driven supply chains” and indicated that he would like to see a fellow blogger tie the threads together. Although I might not be entirely sure how to wind them up with spring-loaded precision , I’m pretty sure how to connect them. And the first answer is “Boeing” and its 787. Specifically, instead of building a complete aircraft from a bill of materials, Boeing will instead attach fully completed subassemblies from its suppliers.

So how does this tie “long-tail” and demand-driven? The answer is the sub-assembly. By switching to this model, Boeing is indirectly engaging more suppliers as its tier 1 suppliers will need to engage more suppliers to build the subassemblies. Furthermore, by reducing its assembly time, it can essentially build its aircraft on demand. Thus, we have a connection.

Of course, the big question is how do they intertwine? Hard to answer, but we get another connection if we look at Dell. Dell is now using a number of suppliers for many components, long-tail. Furthermore, it builds computers, and orders components, based on user demand, demand driven.

So now that we have connected the threads, how do we begin to twine the two threads? I could be wrong, but I believe the answer is, as the title of this post suggests, “build to order”. What do I mean by this? Design your products not as integrated wholes, but interconnections of components. Furthermore, make sure the connectors are standard, then you can switch out subcomponents, just like PC enthusiasts can switch out memory chips, video cards, and even processors. Then work with a number of suppliers capable of providing different versions of the components (long tail), order components based upon continually updated forecasts (demand driven), and assemble the final product to customer specifications (build to order).

I’ll admit its not the whole answer, but I think it’s a good, innovative, start. Feel free to share your views or e-mail me.

The Operations Research Process

Operations Research is “the use of mathematical models, statistics and algorithms to aid in decision-making. It is most often used to analyze complex real-world systems, typically with the goal of improving or optimizing performance. It is one form of applied mathematics.” (Wikipedia)

The quest for improvement has been a continual one and operations research has been one of the areas that has been traditionally focused on improving operations across the company, particularly in production, operation, scheduling and physical systems.  As such, there is a wide body of knowledge upon which can draw to improve procurement and sourcing operations when properly applied and modified.  Even Six Sigma’s (Strategic Sourcing) toolbox makes extensive use of techniques and processes that have their foundations in operations research.

But today we are going to talk about the basic process.  There are many good overviews of operations research on the internet, but one of the best sites I found was the “Operations Research Models and Methods” site (formerly at http://www.me.utexas.edu/~jensen/ORMM/) that was maintained by Dr. Paul Jensen at the University of Texas.  On the site, he overviewed the basic Operations Research Process, which, simply put, is:

(1) Recognize the Problem
(2) Formulate the Problem
(3) Construct a Model
(4) Find a Solution
(5) Define the Process
(6) Implement the Solution
(7) Repeat and Refine

Essentially, the operations research process is your basic problem solving process, like the introductory problem solving process you might encounter if you were studying (cognitive) psychology, the art of mathematics, or (classical) engineering.  Furthermore, it neatly captures the key steps you will have to work through as you attempt to improve and evolutionize your sourcing process.

(1) You first have to define what your primary problem is and what your key goals are.  Are you spending too much money?  If so, where.  Are you spending too much time on the process?  If so, why?  Etc.

(2) Then you have to formulate and frame the key problem.  For example, you believe you’re spending too much on your high volume direct materials or you are spending too much time in your data collection process.

(3) Once you have precisely formulated the problem to solve, you need to model what you believe the solution should look like.  Many individuals and organizations skip this step and go straight to the solution identification step.  However, if you don’t know what the solution should look like, you risk selecting the wrong solution.  For example, if you believe you are spending too much, you might select a (reverse) e-Auction platform.  However, if current raw commodity prices are high, this might not save you any money.  Conversely, if you instead sought out a strategic supplier who would work with you to improve processes and component reusability, you might save a bundle.  Always understand what the solution should look like and what it should accomplish before selecting a solution.

(4) Often this step will be accomplished in practice by selecting a readily available technology, methodology, process, or model from the public domain or commercial marketplace.  Don’t try to reinvent the wheel, chances are your problem is not unique and someone else has already solved it for you.  For example, the inventor and followers of TRIZ (an innovative problem solving methodology that we will discuss at a later time) have collectively reviewed over 2 million patents and discovered that less then 4% contained a new concept and only 1% contained a revolutionary discovery.  The rest were merely improvements on existing solutions and processes.  In other words, there is at least a 95% chance that a solution to your problem already exists, and at least a 99% chance that a solution to a similar problem exists that can be adapted to your problem.

(5) Once you have a selected a solution — be it a technology or a new methodology, you need to define how it is going to be integrated into your current operational processes.  This step is easy to overlook, but if the introduction of a new process or technology disrupts your daily operations, you will not realize the full benefits.

(6) Once you have identified the right solution and determined how to successfully integrate it into your operational processes, you need to implement it and reap the rewards.

(7) Finally, you need to monitor the process, measure the improvements, and look for ways to continually improve it.  Innovation is a continual activity.  There’s always room for improvement, but if you do not look for it, I guarantee you will not find it.

We’ll discuss other problem solving methodologies in the future, including some from psychology, innovation, and the Six Sigma toolbox, but first we are going to review the core executable parts of the sourcing cycle where technology solutions can have the greatest impacts to set the stage for what is to come.

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