Knock. Knock. Three case histories on buyers' role in design
Savvy negotiating can only go so far. If buyers want to truly impact the cost of products they need to take their place at the design table.
By James Carbone -- Purchasing, 3/15/2007 2:00:00 AM
When it comes to lowering materials cost, there is only so much a purchaser with savvy negotiation skills can do, according to Kurt Doelling, vice president of supplier management for Sun Microsystems.
"I can have a world-class negotiator who can take a dollar part and find a way to buy it for 95¢," he says. "That's good, but I'd rather have someone who is an average negotiator, but can figure out a way to come up with a 50¢ part that is going to meet the same requirements as the dollar part."
The need to significantly reduce materials cost rather than just shaving a few cents off the purchase price is one reason why Sun and other OEMs involve purchasing up front in the design of new products. After all, up to 80% of the cost of a new product is determined in design. To have a serious impact on cost, purchasers must be involved early in design rather than just negotiating with suppliers after the design has been finalized. They must make sure that unnecessarily costly components and materials aren't designed into new products from the get-go.
They do this by steering designers to promising new technologies, to parts that have been used in other designs and to suppliers with whom their companies already do business. After all, the more parts that are purchased from a single supplier, the greater leverage purchasing has when negotiating new agreements.
Purchasers involved in design also like to steer design engineers to standard parts rather than a custom solution whenever possible. Standard components are less expensive and are often available from multiple suppliers. That usually means that there will be ample supply if the OEM sees a big upside in demand for its equipment.
While cost is a big reason to involve purchasing in design, it is not the only one. Many OEMs do so to make sure their company's technology roadmaps are tracking with suppliers' roadmaps and vice versa. Purchasers who are involved in design also need to make sure that new, robust technologies that will eventually become mainstream get designed into new products, rather than older technology parts, which may soon go end-of-life.
The following are case histories of three OEMs that actively involve purchasing in design. For these companies, procurement's involvement in design is an integral part of their overall strategic sourcing strategy.
Case histories of three OEMs where buyers work with designers:
Sun Microsystmes: Buyers take aim at costs
Motorola: Time-to-market is key
Other Related stories:
Buyers link hands with designers
Buyer involvement at Lucent slashes cost
Delphi builds bridges to designers & suppliers
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