the analyst says

Engineering Support Is Critical to Successful Supplier Relationship Management

By Marc Halpern, Garner Group Research Director - C-Commerce, Design and Manufacturing, Strategies and Applications

Coordinating engineering across four business processes and supporting it with strategic sourcing, manufacturing and procurement can increase manufacturers’ payback from supplier relationship management. Manufacturers increasingly invest to enable engineering collaboration that empowers their engineers to work across a supply chain with other engineers via the Web. Enterprises that coordinate the engineering effort with procurement and manufacturing have successfully:

• Reduced the time needed for design by more than 20 percent.
• Reduced the workload of the engineering change process by more than 40 percent.
• Produced higher-quality products, with fewer post-production engineering changes.

Collaboration enables these benefits because it helps engineers across supply chains to coordinate work efforts at any stage of a product life cycle through:

• Timely communication of decisions and changes.
• Easy access to product information in a secure environment.
• Support for interactive work.

However, such investments will provide low value if the engineering, procurement, strategic sourcing and manufacturing organizations at each enterprise are not working together. Engineers across the supply chain may deliver higher-quality designs in less time through collaboration, but opportunities for higher margins during product growth may be missed if engineering choices are insensitive to procurement and manufacturing costs. For example, engineers might not select parts or materials that allow procurement to meet cost targets when negotiating prices with suppliers. Other parts that perform the same function might offer cost advantages. If you later switch to lower-cost materials and parts, you will lose time and money making the necessary engineering changes.

Conversely, procurement and manufacturing groups can negatively affect product quality by not including engineering when they make decisions to substitute parts and materials that reduce cost or streamline production. They may not realize that their choices may be incompatible with engineering judgment or cause product packaging problems.

You can avoid these risks if your supplier relationship management (SRM) strategy addresses at least four key business processes spanning engineering and the rest of the enterprise. These processes should be supported by links between engineering collaboration software, product data management applications and supply chain management (SCM) offerings, including sourcing applications.

Product Definition

As part of the core SRM function, engineers select parts and materials from preferred suppliers during product definition. In a sourcing application, an engineer would do a parametric search on parts based on characteristics important to the success of the design. Characteristics could range across part dimensions, color, material and weight, in addition to technically deeper engineering attributes. Engineers should first check preferred suppliers and list candidate parts. Ideally, sourcing software tells the engineer where the enterprise uses the parts or equivalent parts elsewhere, ranked by desirability. Desirability might be based on quality metrics for the parts, volume of business with the supplier, a supplier’s business viability and any possibilities to leverage volume discounts through part aggregation.

Best-in-class sourcing software should enable engineers to download computer-aided design (CAD) models of parts that can be added to product assembly models - these models can describe materials to be added to product recipes. This would be proactive validation of the procurement selections, which would occur before orders are placed with suppliers. If engineering cannot choose a preferred supplier, it should notify procurement and explain. IT should make sure that sourcing software offers a consistent, normalized view of product data that conforms to enterprise needs. Engineering should not need to interpret inconsistent product data from different supplier Web sites, which would make part comparisons difficult.

Engineering collaboration is an important element of SRM. Enterprises pursuing SRM should enable a "virtual whiteboard," which allows engineers to interactively share, capture and organize ideas across the supply chain. This whiteboard enables engineers to interactively sketch concepts, add notes and allow other employees, partners, customers or suppliers to annotate existing concepts or add to them. Ideally, the whiteboard can accept models, drawings, documents and spreadsheets from CAD systems or office automation software. This would be valuable if an original equipment manufacturer (OEM) needs to work with suppliers to customize parts.

Engineering Change Processes

Enterprises must manage engineering change orders in coordination with trading partners and internal personnel from the procurement, purchasing, manufacturing and maintenance departments. Software makes the engineering bills of material (BOMs) available to all approved subscribers within an enterprise and across its supply chain for viewing and markup. Workflow capabilities capture change approval processes that might span engineering, procurement, manufacturing and strategic suppliers. Before approving a change that began in engineering, procurement should ensure that suppliers are able to fulfill the need or suggest equivalent parts.

Likewise, workflow should ensure that engineering approves part or material substitutions proposed by procurement. Software should also support publish and subscribe capabilities that notify partners, customers and suppliers who need to know the engineering changes. The notification would provide a means to document the nature of the change, explain reasons for the change and define which parts are affected. The changes could be described in CAD models, documents, drawings, spreadsheets or notes that the user attaches to BOM entries. If a supplier submits an engineering change request, change management software should provide the means to analyze the differences between the current product definition and the original.

Since engineering change processes quickly generate many revisions and configurations of products, parts should be clearly and consistently associated with the configurations and revisions. This decreases the chance of confusing parts and BOMs from one product revision or configuration to the next.

Enterprises should establish a process for documenting the history of approvals and reviewing and updating the history. This may require that they link engineering change management (ECM) software to SCM software. For example, a change might require modifications to requests for quotation (RFQs) and requests for information (RFIs) that SCM or sourcing software manages. In addition, a change might require the identification of a new supplier, since current suppliers might not be able to handle the change. SRM processes should trap those cases and alert those who need to know.

Production Planning

Engineering and production must manage the "handoff" between them to best control wasted costs, such as scrap and rework. Enterprises must work with their suppliers to accurately and completely translate the BOM as defined by engineering (and captured in product data management software) to the enterprise resource planning (ERP) system used by production - whether manufacturing is internal or outsourced to suppliers. BOM translation should be validated to ensure that the ERP system recognizes part names and accepts the format of data after translation. Parts that fail validation should be reported to suppliers and their customers. Effectivity, which refers to rules that describe dates or conditions when a BOM includes or omits parts, should be clearly communicated across engineering production and procurement. If a supplier makes substitutes for parts that become obsolete or modifies a BOM to satisfy local manufacturing conditions or government regulations, engineering should be notified and included in the approval process for those manufacturing adjustments. The differences between released BOMs and parts lists for products "as built" should be clearly identified interactively or in online reports.

If a product is widely successful, your suppliers will need to deliver higher volumes of parts to satisfy growing demand. They may recruit additional suppliers, replace existing ones or work with current suppliers to increase their capacity. Engineering needs to work with procurement to evaluate the parts so they can jointly determine how to increase material flow. When faced with growth, collaboration with suppliers helps engineering manage part redundancy or obsolescence as suppliers’ parts go through their own life cycle. Engineering and purchasing organizations must work together to identify possible replacements for suppliers’ parts nearing retirement.

Collaboration between engineering and sourcing must follow their products’ life cycles past the growth phase and into decline. Engineering departments must work with the marketing and purchasing organizations to reduce commitments to suppliers over time as demand for a product decreases, signaling its likely retirement. Also, computer-based simulation techniques are gaining popularity in helping large enterprises to predict and improve the performance of manufacturing operations. Such simulation techniques can proactively detect potential collisions of tools with fixturing during machining operations or disruptions in material flows on the shop floor by modeling the factory and production cells. To support these efforts, suppliers of manufacturing machinery and fixturing should provide libraries of CAD models for parts that can be accessed through parametric searches, such as clamps, tables and cutting tools. This would serve discrete manufacturers, process industries and asset-intensive industries such as mining and power generation.

Service

The service life of products extends beyond production life. This requires planning with suppliers to ensure that replacement parts are available for the expected service life of a product. Engineers across the supply chain must agree on the suitability of replacement parts that should have equivalent functionality to originals. They also need to document service procedures and complementary responsibilities to satisfy warranty conditions.

To support these objectives, an SRM strategy should include the following engineering support:

• Assistance in the management of "as maintained" BOMs, which document replacement parts and associate them with originals for reference.
• Workflow support for approval processes, so that engineers across the supply chain can participate in custom maintenance activities.
• The ability to maintain and access online technical manuals, catalogs of replacement parts and service wizards.
• A means of tracking the status of maintenance and service procedures to coordinate efforts throughout the supply chain.
• The ability to reconcile maintenance and service requests with warranty responsibilities across the supply chain.
• Documentation of the historical record of field service and rework activities.
• Feedback to each supplier on the performance of its products throughout each product’s service life, for the purposes of improvement.
• A way for the manufacturer to monitor the performance of parts - and the suppliers of those parts - throughout the service life of product.

A best-in-class SRM strategy coordinates the efforts of engineering with procurement, sourcing, manufacturing and service groups throughout a supply chain. However, the software functionality required to support engineering differs significantly for each of four key business activities - product definition, engineering changes, production planning and service. No single application provides it all. If you’re planning to improve your SRM capabilities, you should adopt a suite of software with the required engineering support.