Does your New Product Development process produce as many Sacred Cows, Scapegoats, and Sacrificial Lambs as it does next-generation technologies? Do you often see drop-deadlines missed and hear excuses like “you can’t put a timeline on creativity!” How often are you ready to launch the product only to hear about costs above budget, quality problems, and supplier failures? If you resist committing the following 5 Sourcing Sins, product realization will accelerate along with improved cost and quality. Sound too good to be true? Read on!
Sin 1. Outsourcing Your Sourcing
Strategic Sourcing is the first and often most complex slice of the product to market path. It can be a relief to let others do the driving, while you concentrate on the many other product to market challenges. You know, the way it feels to sit in the back of a limousine chatting on the cell phone, while the chauffeur handles the driving. It is tempting to entirely outsource your sourcing to Design-Engineering firms, Contract Manufacturers, and Sales Representatives.
Many Design-Engineering firms offer complete sourcing services, from prototyping to volume production. Engineering firms, by nature of their business, have a core competency and focus on engineering, not global strategic sourcing. They often have a relatively small selection of close relationships with good manufacturers. The problem occurs if all inquiries for their clients go to the same limited group of suppliers. Their short list may or may not include the optimal manufacturers for your product.
Similarly, Sales Rep firms carrying multiple lines, sometimes offer one-stop shopping, from sourcing to manufacturing. It is important to realize that the sales rep is there to represent a specific group of suppliers. The client’s inquiry will be directed to a limited supplier list, not necessarily optimal for a specific project. A comprehensive sourcing market survey is not part of the program. There is nothing unethical about it. Just understand the tradeoffs and limitations.
Contract Manufacturers, by nature of their business, have expertise in global sourcing. Do leverage a CM’s capability, but do not completely abdicate involvement with supplier qualification and selection. Clients divorcing themselves from the Strategic Sourcing process, lose the opportunity to build relationships and gain valuable learnings from DFMA supplier partnering. Do work closely with the CMs and other manufacturers along the supply chain, to optimize the design for manufacturability and cost.
“Ubering” your way through strategic sourcing by letting outside firms drive supplier selection sounds good but carries a high opportunity cost. No outside firm can understand the subtleties of the product as well as the clients’ internal engineering teams. Driving tends to be less accident prone when the blindfold is taken off.
Sin 2. Product Development Disconnect From Strategic Sourcing
Supply Chain and Procurement Departments often learn about new products being developed when a print arrives on their desks for quoting. 70% or more of costs and significant quality issues are designed into new products. Early supplier DFMA partnering, therefore, has the greatest potential to lower costs and improve quality. Tackling costs after a product has been designed leaves a supplier’s profit margin as the main cost reduction target.
Focusing Procurement efforts on dictating the level of supplier profitability limits the potential cost reductions and breeds resentment among key manufacturing partners. It’s never very effective to close the door after the proverbial horse has left the barn. In contrast, treating suppliers as partners in the value chain, with mutual benefit for achieving cost goals breeds loyalty.
New product development should flow throughout an organization, like a game of Rugby, not a relay race. During Rugby, the ball moves back and forth between the team members as they move down the field. In a dysfunctional product development process, one department completes its task and then passes the baton to the next silo. Not much interaction occurs between a team’s runners during a relay race. The next runner doesn’t find out they were passed a faulty baton until it’s too late to win. Ever get a baton thrown at you by an angry, finger-pointing teammate? Ouch!
Bottom line is if your new product development process does not include Strategic Sourcing you are doing it wrong. If your Design Engineering Teams are not working closely with Strategic Sourcing you are doing it wrong. If your suppliers are not qualified and selected through a formal Strategic Sourcing process, you are doing it wrong. Just saying!
Sin 3. Fad-Shoring A.K.A. Dumb-Shoring
Source selection should not be driven by a geographic bias or pre-conceived notions of lower cost countries. Corporate supply chain executives are on a never-ending quest to chase the latest low labor cost country. Each new book from academia or headline-grabbing article becomes a dog whistle, supposedly leading to low-cost sourcing nirvana. Or at least it does until the next book of the month comes out promoting sales per employee as the golden efficiency trophy. Oops, back to automation and layoffs, instead of pushing offshoring as a way to increase the “low-cost labor” headcount.
The cheapest labor does not automatically equal the true lowest cost source. When measured against the Total Cost of Ownership (TCO) standard Low-Cost Countries (LCC) may not live up to their reputation. Add up indirect costs such as IP protection, shipping, tariffs, lead times, lack of real-time technical support, and you might be surprised at the result. This is the age of JIT, short product life-cycles, and the necessity to respond quickly to customer trends. Tasks made more challenging by cultural, language, time zone, and physical distances.
“Competitive advantage” is shifting towards regional and local manufacturing, importing components as needed from countries offering a “Comparative Advantage”. Effective strategic sourcing will increasingly become an act of globally cherry picking suppliers based on TCO, instead of a limited focus on specific regions. Rapid advances in automation are reducing the impact of labor cost differentials among nations.
We’ve all heard about Insourcing, Outsourcing, Offshoring, Onshoring, Reshoring and Nearshoring. Dogmatic approaches, peanut buttered around in a one size fits all manner, will always lead to Dumb-Shoring. Try Rightshoring, a combination of a Total Cost of Ownership analysis and a Strategic Planning approach to manufacturing location.
Sin 4. Letting R&D and Design Engineers Choose the Suppliers
Many companies leave the first stage of strategic sourcing in the hands of the engineering teams developing products. There is rarely anything strategic about their method for selecting manufacturing partners. The decisions usually revolve around manufacturers worked with before, or suppliers found on a sourcing website. The product design team’s incentive is to get working prototype models completed in time for the next investor or board meeting deadline. Manufacturability is left to the Supply Chain Department and the Manufacturing Engineers to worry about later.
Companies struggle with the timing for involving Strategic Sourcing in new product development. Imagine using your bare hands to pick out of a hot, freshly baked muffin, all the nuts that were mixed in at the batter stage! It is never too early to involve Strategic Sourcing in the process. In fact, the earlier the better when it comes to cost savings, reducing product introduction teething problems, and leveraging suppliers for DFMA expertise.
Do you really want to wait until the production line on-switch is flipped to find out the suppliers are unreliable, and the design not manufacturable?
Sin 5. Separating Prototype Sourcing from Long Term Supply Strategy
There is a myth that prototype suppliers and long-term volume manufacturers are different, and “never the twain shall meet”. Seems to make sense on the surface. A rapid prototype specialist is often assumed to be the best way to speed up testing new concepts; setting up suppliers capable of volume manufacturing is something to be considered later.
Think of the advantages to be gained from partnering with manufacturers who are capable of rapid prototyping, volume manufacturing, and manufacturability feedback. The learning curve continuity, seamless production ramp, and global footprint offer tremendous advantages. Prototyping and long-term supply chain planning have a symbiotic relationship. In the supplier selection process, multinational manufacturers with “soup to nuts” capability should be given priority.
Strategic Sourcing is typically not recognized as a key success factor in developing and launching new products. Costs, manufacturability, quality problems, and speed to market are all greatly impacted by supplier selection. Ill-conceived supply bases will constantly off-gas hurdles, impeding your new product to market success. Resist the temptations presented by the five listed sourcing sins, and your company can focus less on firefighting and more on developing the next new market beating products.