Purchasing unlocks supply treasures
Communication of expectations to both purchasing and other functions is critical when moving purchasing deeply into the design process, says Greg Smith, materials manager for prototype development at Harley-Davidson Motor Co.
By Kevin R Fitzgerald -- Purchasing, 3/11/1999
Imagine this: Purchasing "engineers," working side by side with both internal design engineers and design engineers from major suppliers, perform a "virtual build" of a new product, let's say a motorcycle, while engineers from smaller suppliers participate via computer hookup. All systems and parts come together in a simulated, cyber mock-up of the product being developed. And purchasing has an equal say with engineering and manufacturing on all aspects of product design.Sound far-fetched? Not at motorcycle manufacturer Harley-Davidson Motor Co., which has changed its basic approach to new-product design to fully leverage the resources of its "value chain," as development purchasing director Leroy Zimdars refers to the company's suppliers. Zimdars says that Harley already has begun to perform such virtual builds to a limited degree, and they will become routine in coming years.
Top management at Harley-Davidson became so convinced of purchasing's potential value that the company tore its purchasing structure apart a couple of years ago and assigned purchasing pros to work exclusively on product design and development. The company also built a new product development center, where purchasing engineers work closely with Harley design engineers and supplier engineers.
While ahead of most companies, Harley-Davidson's new approach to product design is by no means unique. Leading original equipment manufacturers (OEMs) are pushing purchasing deep into the design process in an effort to optimize the value that both purchasing and the supply base can deliver to new-product design. This approach has begun to revolutionize both purchasing's technical contributions and how the purchasing function itself is deployed and perceived.
The potential payoff from these changes: Lower costs, higher quality, quicker development cycles and, perhaps most important, access to innovative technology that, unbeknownst to customers, often lies hidden deep in the structures of supplier organizations. When discovered and fully exploited in new-product designs, these technological treasures can result in better performing products, ones that often can command premium prices while increasing customer satisfaction.
Purchasing's strategic role
At Harley and other leading manufacturers, purchasing's new design responsibilities are part of larger strategic business plans. Top management at Harley wants to dramatically increase production and sales of motorcycles over the next few years. To reach these ambitious goals, the company realized it had to develop technologically innovative products faster, at lower cost, and with higher quality than in the past. Early involvement by purchasing and suppliers was seen as critical to success.
"Purchasing's increased involvement in product development is a major milestone of our overall supply management strategy," says Garry Berryman, VP purchasing. "This ties into a company-wide cross-functional strategic plan known as Plan 2003. Purchasing is very much integrated into our corporate strategy at Harley-Davidson."
Strongly driving the increased role of suppliers in OEM design is the outsourcing trend. In recent years manufacturers in all industries have been focusing on their "core skills" while shifting other work to suppliers that are expert in very specific technologies or manufacturing processes. The evolution of engine design and development at Pratt & Whitney is an example.
Traditionally, like most other OEMs, Pratt & Whitney did everything involved with design and production of its engines. But the economics have drastically changed. "Two-thirds of the engine is purchased," says Ed Hood, commodity manager, fan and compressor air foils. "We're an engineering and manufacturing company, so we've been preoccupied with our own shops, yet three-quarters of the cost is now outside the company. This is what attracted me to commodity management--I can have a great impact on the cost of what we're doing."
Al Mulvey, VP purchasing at Pratt & Whitney, points out that purchasing's more strategic role will result in a push for suppliers to continue to do more. "Suppliers have a new responsibility," says Mulvey. "Traditionally, suppliers viewed customer satisfaction as giving the customer what he wants. In this new reality, pushing back and telling the customer what he needs is becoming a more sought-after trait in suppliers."
At appliance manufacturer Maytag Corp., purchasing also is being pushed deep into the design process as part of a larger strategic business plan. "Maytag's strategic mandate is 'profitable growth through innovation and execution,'" says Terry Carlson, VP procurement and a member of Purchasing's Editorial Advisory Board. As an example of how purchasing can enhance the design process, Carlson points to Maytag's highly successful Neptune washer. "Purchasing organized and orchestrated the early design involvement of five different Emerson Electric Co. divisions in the Neptune design," he says. "It resulted in a consumer 'wow' in terms of product performance, and it was launched on time and within budget."
New structures needed
Manufacturers that have taken major steps toward supplier integration into design typically make major changes to the basic structure of purchasing in order to truly affect the design process. Harley-Davidson may be the most dramatic example of such restructuring.
About two years ago, Harley broke purchasing into three groups: corporate, development, and operations. Development purchasing is staffed with about 30 purchasing "engineers" who are totally dedicated to product development work. They work side by side with Harley-Davidson engineers and supplier engineers in the new-product development center that was constructed to accommodate a team approach to design.
Harley uses a product platform model for product design and development. Design teams are responsible for all design and development activity for a particular platform. There are four lead members on each team, representing purchasing, engineering, manufacturing, and marketing.
Before the restructuring, "engineering determined what the product looked like," says Zimdars. "They got some input from marketing and some from styling, but there wasn't much interaction between the engineering team and purchasing or manufacturing."
Now, purchasing is on equal footing with engineering. "In this new structure, each member has an equal voice on the future of that platform," says Zimdars.
For the purchasing lead on the platform team, new responsibilities go far beyond traditional purchasing. "The purchasing lead isn't only responsible for purchasing, he or she also is responsible for equal input on all aspects of the platform," says Zimdars.
Pratt & Whitney also reshaped purchasing to get it more involved in design. Purchasing was broken into two groups: commodity management and supply management. "Supply management focuses on the tactical aspects of purchasing--ordering, bringing in the parts, etc.," says Hood. Commodity managers at Pratt & Whitney handle strategic activities, such as long-term supplier agreements and joint ventures.
At Maytag Corp., the $4 billion/yr appliance manufacturer, the structure of the company's development organization was changed to include "resident design resources" from both supplies and Maytag's purchasing group, says Terry Carlson. Also, Carlson began reporting directly to the company president and chief operating officer, to enable him to be in a stronger position to push changes through the company's structure.
Donnelly Corp., a supplier of window systems, mirrors, and interior trim to auto manufacturers, also shifted purchasing resources into its development organization. Buyers also work closely with "advanced" engineers in selecting suppliers for new technologies or designs, says Jeff Wincel, VP of corporate procurement and materials.
Spot cost drivers early
Early supplier involvement in design can have a major impact on controlling costs. Engineers, by nature, tend to focus on the technological and performance aspects of a product. By integrating purchasing and suppliers deeply into the design process, at the very beginning of the process, OEM manufacturers have avoided a lot of future cost, especially manufacturing cost.
Example: Pratt & Whitney now brings suppliers into the design process very early, partly to ensure that designs take cost of manufacturing into account. "We want to get the input from suppliers as to what would make a part more friendly to manufacture, and ultimately more cost-effective--cheaper to make, cheaper to inspect, etc.," says Hood.
Hood emphasizes the importance of early supplier involvement: "You can have a great impact on the cost of the engine, the design of the engine, and all future cost streams if you catch things early enough in the design."
Ed Crow, senior VP of engineering at Pratt & Whitney, concurs: "I keep getting told to design to cost. It's hard to know how to design to cost when you don't know what process you're designing to. As such, early supplier selection is important."
Donnelly also has reduced cost from early purchasing involvement in design. "From a cost standpoint, early involvement allows for affordable cost targets," says Wincel. "Early involvement gives you adequate time to achieve those targets, through supplier participation."
Implementation: The tough part
The best laid plans can come apart quite quickly when manufacturers change their basic approach to an activity as strategically important as product design. Integrating purchasing and suppliers into design can be threatening to engineering, which traditionally completely "owned" product-design activities. Key to success in this transition is backing from top management and clear communication of the changes in responsibility for all parties involved.
At Harley-Davidson, management knew that clearly communicating the reasons behind the new design structure was critically important. "We created an understanding that purchasing and suppliers are part of the product development team," says Zimdars. But in hindsight, more and clearer communication would have moved the process along more quickly.
"Major reorganization drove substantial growth in development purchasing," says Greg Smith, materials manager, prototype development. "This occurred over an 18-month period; you cannot staff such a group overnight. During this period, we constantly shuffled roles. We made an honest effort, but our communication could have been more solid to keep everyone aware of our organizational change."
A threat to engineers? No
Increased involvement of purchasing and suppliers in design encroaches on turf that engineering has traditionally ruled with an iron hand. Handling this change can be tricky and dangerous, and purchasing pros stress that the concerns of engineering must be handled up-front, in a very open manner.
Zimdars believes that it's critical to clearly define new roles that both purchasers and engineers will play, and to spell out "what the purchasing engineers expect of engineering, and what engineering expects of purchasing."
"It can become restrictive from their viewpoint," says Hood at Pratt & Whitney. "They want to have complete freedom to design and only deal with the technical issues of the engine, and those are considerable. When you throw the added complication of someone saying, 'that feature you're designing will drive the cost up,' it's not always easy for them to accept. There's a lot of professional give-and-take," says Hood.
At Harley-Davidson, engineering didn't resist the change, says Zimdars, but there was "concern that suppliers would provide support that was not technically capable," he says. "They didn't want supplier salespeople coming into the PDC (product development center.)."
At Harley, which is further down the road in this area than most companies, engineering now better appreciates what suppliers can bring to the table. "As we're evolving, engineering leadership is seeing that we have to leverage our suppliers' technical capabilities much more. We shouldn't be designing forgings, for example, when we've got forging suppliers who can do it for us."
Pratt & Whitney's Mulvey believes that engineering has evolved in the design area, as well as purchasing. "Enlightened engineers want to address all aspects of design--performance, cost, weight, etc.," he says.
New purchasing skills
The new design responsibilities required of purchasing create a natural need for a new breed of purchasing professional, one who is technically competent, has multifunctional skills, is capable of working in a team atmosphere, and is able to take control of a design project and manage it through to completion.
At Pratt & Whitney, Al Mulvey has made a concerted effort to hire purchasing pros with backgrounds in engineering and other technical disciplines. "I'm one of those examples," says Ed Hood, who has an engineering background.
At Harley-Davidson, "skill sets have been redefined for all purchasing pros, in order to be consistent with our supply management strategy," says Zimdars. "In development purchasing, a stronger competency in engineering or product development helps."
At the time that purchasing was restructured at Harley, several development purchasing engineers were hired from product design and process engineering positions within the company. "Those not having a formal technology background either have significant experience with associated commodities or are strengthening their technical skills," adds Zimdars.
At Donnelly, too, the "need for technical skills has increased in importance," says Wincel. "Traditional buying and selling does not occur anymore, but strategic technical sourcing does." Donnelly has shifted technical resources from other departments into purchasing.
Maytag's Carlson agrees that "skills for purchasing are much more multifaceted and sophisticated as the game changes. There's more emphasis on the ability to discover, link, and manage supplier resources with our appetite for technology. There's also greater need for leadership talent," he adds.
Carlson points out that purchasers who have design responsibilities must seek out and nurture leading-edge technology. "Purchasing's role must increasingly evolve from that of selecting suppliers, negotiating parts price, and scheduling deliveries to becoming the 'innovation search arm' of the business," says Maytag's Carlson. And the goal of Carlson's search is, ultimately, customer satisfaction. "We are looking for suppliers that can connect their products and technologies with consumer needs."
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