Is this the future of purchasing?
Purchasing and suppliers helped Quantum design a T-Rex disk drive that is twice as fast and 30% smaller than its predecessor. From L to R: Gayle Russi, commodity manager, Jim Hickling, director worldwide procurement;, John Chandy, new-products materials manger, Yukimasa Wantanabe, GM at MKE.;Part of Harley's new-product development squad. From L to R: Greg Smith, Purchasing lead for the Softail platform; Leroy Zimdars, director of development purchasing; and Dave Rank, engineering lead for the Softa
By Tim Minahan -- Purchasing, 3/12/1998
John Chandy is not your typical buyer. As manager for new-products purchasing at Quantum Corp., Chandy gives little thought to whether parts will arrive at his company's assembly plants on time. He rarely signs purchase orders for mass-production materials. And he spends even less time haggling with suppliers over price.Instead, Chandy is dedicated exclusively to Quantum's design and development process. Like half of the buyers at the Milpitas, Calif.-based manufacturer of disk drives and mass storage devices, Chandy is a degreed engineer. He has been the lead materials representative on several new-product development teams. In this capacity, he guides design engineers toward new sources of supply and steers them away from parts with questionable quality or suppliers that could pose capacity problems during full production.
"At Quantum, [purchasing] not only acts as a liaison between engineering and suppliers, but is key in determining the feasibility of a design and influencing the design team into the most effective choices of suppliers and materials," says Chandy.
Giving purchasing such input into new-product development is not typical among businesses today. However, it is becoming more common. Pressures to shrink design cycles and reduce development and manufacturing costs have such industry leaders as Chrysler Corp., IBM Corp., and Harley-Davidson Motor Co. putting purchasing in the design lab. And other manufacturers will likely follow suit.
The reason? Procurement professionals have in-depth knowledge of the supply base and its cost drivers. Such insight can be vital for companies looking to design new, high-quality products at lower costs and in less time than competitors.
"Purchasing has an understanding and appreciation of suppliers, their processes and capabilities that can prove valuable to our engineers," says Dave Rank, the engineer who heads the platform team for Harley-Davidson's Softail line of motorcycles.
Says Eric Botto, a design engineering program manager at Quantum, "Having a materials person as an integral part of a cross-functional design team allows the engineer to get immediate information on suppliers and processes. That way he can make adjustments to use more readily available and more producible products in his design, which is crucial with a fast cycle time schedule like ours."
Indeed, more and more companies are finding that enrolling purchasing and suppliers as regular members of the design team can yield some significant results. Some examples:
* Integrating buyers and suppliers into design helped Chrysler slash new-vehicle development cycles by more than 40% and reduce costs dramatically. One example: Chrysler brought its Neon subcompact car from concept to market in just 31 months for a total cost of $1.2 billion--about half what it costs rival automakers to develop similar models.
* At IBM, co-locating purchasing in the design lab has helped halve product development cycles for computer hardware, software, and related peripherals in less than two years.
* Quantum's cross-functional design teams reduced development cycles for two new disk drives by 15% and cut the bill of materials costs for the drives by as much as 30%.
* Harley-Davidson says purchasing's input will help slash design cycles significantly.
A solid blueprint for design
Granted, involving buyers in the new-product development process is nothing new. Nearly 83% of procurement professionals responding to a Purchasing survey last year said purchasing was represented on their companies' cross-functional design teams. However, leading manufacturers say simply tapping buyers for input on designs is not enough. To invoke truly dramatic results, such as those mentioned above, purchasing resources must be dedicated to new-product development on a full-time basis.
Leroy Zimdars, director of development purchasing for Harley-Davidson, says such thinking was key to the motorcycle manufacturer's decision to station more than 20 purchasing "engineers" at its Product Development Center (PDC), which opened last year near its powertrain plant in Wauwatosa, Wis.
"We knew if we did not separate the development from operations activities, we'd always run into problems where there's never enough time to get to the development piece," says Zimdars. "The plant drives purchasing in the direction of supporting ongoing production needs, and development activities get put off or pushed aside."
Under Harley's new structure, purchasing engineers at the PDC, many of whom have engineering degrees, are focused on one of seven product categories: machined components and raw materials; finished components; castings and forgings; electrical and fuel systems; chassis systems; plastic, composites, and rubber components; and special projects, including sourcing potential subassemblies. Purchasing is pulled from these "centers of expertise," to work on concurrent development or platform teams with design engineers, manufacturing support, and marketing personnel.
Each development team has a purchasing lead who is responsible for contributing to the life-cycle plan for the new product and ensuring it meets all quality, cost, and timing targets. This lead also integrates the appropriate purchasing engineers and suppliers into platform activities.
Currently, five suppliers have dedicated engineers to work with Harley's development teams on a full-time basis. A handful of other suppliers interact with these teams at the PDC a few days each week. And Harley plans to station another dozen suppliers at the PDC by year-end.
Rank says this tightly knit development environment provides Harley's design engineers with a new insight into the intricacies of suppliers' capabilities and limitations.
"In the past, engineers would design in a favorite supplier or one they read about somewhere, giving little thought to the existing supply base or whether the supplier could support that part during full production, " says Rank. "[Under the new structure] we're able to learn the idiosyncrasies and process capabilities of our suppliers so we can design in such a way that takes advantage of the strengths and weaknesses of a given process."
Early supplier input is key to Quantum's new-product design and development process. And the company has established a multi-faceted sourcing strategy to keep it closely aligned with key suppliers.
Commodity management is handled by a senior procurement person, with management expertise and/or an engineering background, who is responsible for managing suppliers for a particular commodity, material, part, or chip. These commodity managers provide cross-functional leadership and strategic direction for their particular commodity, and are the resident experts on individual suppliers' processes, production capacities, technologies, and cost structures. This is possible, in part, because Quantum has consolidated nearly 95% of its $3.5 billion materials spend with 50 suppliers--with some components, such as motors and bearings, coming from just two sources.
Such intimacy with the supply base gives Quantum added leverage when negotiating new contracts, and allows the disk-drive maker to closely align its new-product designs with the future technologies and capabilities of its suppliers.
"Dealing with a few key suppliers enables us to establish a long-term development process for bringing new technology, investment, and capacity online," says Jim Hickling, director of worldwide procurement at Quantum. "These suppliers are working with us and our engineering people on technology roadmaps that extend out as long as four years."
Buyers in Quantum's new-products purchasing group--which, as the title suggests, are dedicated exclusively to the design and development process--use these roadmaps to determine which suppliers and technologies will best fit with new designs. Based on these roadmaps and input from commodity managers, Quantum involves the proper suppliers in new-product development at the conception stage. This helps ensure that all new designs include the best technology and are easy to manufacture. One example: Lucent Technologies, a major supplier of read channels, coupled with Quantum's design team two years prior to launch of a new disk drive.
Quantum uses cross-functional teams to design and develop new products. These teams, which include representation from purchasing, engineering, marketing, and quality are general managers of the new product, overseeing it from conception to mass production.
A lead materials representative on each team works with design engineers and commodity managers to determine which suppliers and technologies to integrate into future products. As the senior general manager on the team, the materials rep is responsible for ensuring the product comes in under cost and on time. Quantum emphasizes the importance of the material rep's role by tying his bonus to how effectively the product team meets its targets.
Materials reps get support from new-products program managers. These senior buyers, most of whom have a technical background, handle the tactical side of product development, managing materials and acting as the key link to suppliers.
"The program managers work very closely with the engineering teams in support of buying material, dealing with suppliers, attending status meetings, and ensuring the material is available for each development build," says Jim Paglia, manager for new-products development at Quantum's facility in Shrewsbury, Mass., and the materials rep for a new product scheduled for launch later this year. "Program managers also need to guarantee--by working with the commodity managers--that suppliers can meet our volume demands and cost requirements when we go into mass production."
IBM has also gone to great lengths to integrate purchasing and suppliers into its new-product development process.
At the center of this strategy is IBM's technology and qualification group. Although it is comprised almost entirely of engineers and technical personnel, the technology and qualification team is a purchasing group that reports directly to Gene Richter, chief procurement officer for the Armonk, N.Y.-based producer of computer hardware, software, and peripherals.
"The technology and qualification group's role in life is to connect the supply base with development and design," says Javier Urioste, director of procurement policy strategy and international operations at IBM. "This occurs not only at the design level but at the laboratory development point in our process--even before design."
Group members work with design engineers to mesh IBM's future demands for technologies such as logic, memory, and visual displays with the technology roadmaps of its suppliers. The same purchasing/ design team partners with IBM's engineering councils to qualify suppliers and components that will be integrated into future designs.
Another way IBM has tied its purchasing team to the new-product development process is through its global procurement support organization. Comprised of buyers with tech-nical backgrounds, this group, which reports to Urioste, is responsible for tracking high-tech trends, from the latest semiconductor technologies to what new wafer fabs are being built to which competitor is buying from which supplier. The development group uses this data to determine the direction for future designs.
Finally, global commodity councils manage IBM's purchases across 16 major product families such as memory, logic, and power supplies. Council members, who are typically degreed engineers, are experts in their respective commodities and technologies. They also are responsible for rating suppliers on five basic parameters: technology leadership, quality and service, manufacturing cycle times, communications, and contract flexibility.
Procurement engineers from the commodity councils or the technology and qualification group are assigned to IBM's new-product development teams, depending on the technology or sourcing needs of the team. Purchasing's goal: Steer design engineers to suppliers that have top quality and a proven track record in manufacturing.
"Procurement emphasizes driving commonality and standardization of component parts and assemblies in new designs," says Urioste. He says using common components can speed design cycles and cut development and manufacturing costs.
Not all propeller heads
Just because top companies are hiring more buyers with technical backgrounds, doesn't mean they want procurement professionals to forget their roots. Leading buying groups realize that the true value of integrating purchasing into new-product development lies not in a buyer's technical knowledge but in his understanding of the supply base, its capabilities and its limitations.
That's why Harley-Davidson has designed all its procurement squads--at both developmental and production sites--to include purchasing engineers with backgrounds in engineering, operations, purchasing, and finance. Greg Smith, materials manager at the PDC, says mixing buyers with various expertise allows for a "cross-pollination" of skills and continual knowledge transfer.
"We want to have a broad mix of talents," says Smith, who is also the purchasing lead for Harley's Softail platform. "That way, as we're working on new products and working to develop our supply base, we will have the internal expertise to help each other with the various issues that come up."
Quantum has made similar efforts to ensure that procurement talents are infused in the design process. For example, all new-products program managers have at least 10 years of procurement experience.
Including purchasing veterans in new-product development not only yields better designs but also eases the transition of new products into production.
Harley-Davidson, which by 2003 plans to increase its capacity to build more than 200,000 motorcycles per year, plans to smooth the transition between designing and manufacturing a new product by closely linking its development and operations purchasing organizations.
Harley is in the process of dedicating an operations purchasing representative at each of its five manufacturing sites to support upcoming platforms. This operations rep is expected to work in conjunction with his developmental counterpart to rectify any supplier or manufacturing issues prior to a new-product launch. For example, Smith currently is collaborating with the Softail operations purchasing rep at Harley's York, Pa.-based assembly plant to ensure there will be no glitches when the next generation of Softail motorcycles rolls off the manufacturing line.
Quantum also has gone to great lengths to ensure that new products go through a quick and trouble-free ramp-up to full production. This is critical, particularly when making consumer disk drives. Production ramp-ups for these devices can go from zero drives per day to 30,000 per day in less than six weeks.
"In the disk-drive business, if you're late to market, you're dead," says Hickling, adding that the life cycle for some disk drives can be as short as five months. "And if you hit the market ontime but with poor quality or poor technology, you're also dead."
In order to head off any problems transitioning new products to production, Quantum's materials rep or new-products program manager meets with his manufacturing counterpart at the beginning of the development phase. In the case of hard disk drives, Quantum has outsourced its production to Matsushita-Kotobuki Electronics Industries Ltd. (MKE) of Japan. As a disk drive is being developed, Quantum's new-products materials squad meets with MKE engineers and buyers to discuss sourcing strategies, suppliers, and any capacity issues that the future product might encounter.
"What we attempt to do at that point is get a consensus agreement with MKE's purchasing people around that sourcing plan," says Paglia. Quantum provides MKE with updates on material availability and other sourcing issues throughout the product development process.
When a disk drive is ready for production, Quantum's new-product group transfers ownership of the drive to an operations team--comprised of purchasing, marketing, logistics, and a manufacturing engineer--which is responsible for managing the product for the remainder of its life cycle.
The above examples represent merely the beginning of an industrywide shift toward viewing purchasing as a strategic function. While buyers will continue to be key links between suppliers and the manufacturing line, their extensive knowledge of the supply base will become more critical to companies' successes in other operational areas, such as new-product design and development. As more and more businesses begin to realize the value of this knowledge, buyers will find themselves not at the end of a pipeline signing purchase orders but at the forefront of product development.
"Purchasing is now in an equal role with engineering and manufacturing," says Zimdars. "Buyers are equally responsible and equally accountable for all design activities. So being an active member of the development team is a major responsibility, but it's also an opportunity to contribute."
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
