Vendor-Partnerships
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By Dr. David M. Anderson, P.E., fASME, CMC
Copyright 2017
 

     The most advanced companies are using Design for Manufacturability methodologies to develop products that are designed for manufacturability, cost, quality, and the fastest real time-to-market. The accomplish this by using Concurrent Engineering to work together in multifunctional teams to either concurrently design products for existing processing or concurrently design new processing or tooling. Vendors must be pre-selected so they will be motivated (and expected) to work early with the team (see below).
     However, what happens when the manufacture is outsourced to contract manufacturers and job shops? Unfortunately, in most cases, the part or subassembly (hereafter called part) is designed without any collaboration with the CM or job shop (hereafter called vendor) and thrown “over the wall” to the vendor. This at the most reactive end of the Concurrent Engineering Spectrum.



 

Unless the customer’s engineers thoroughly understands the processes, which is rare, the design will not be optimized for manufacturability and, worse, it will be hard for the vendor to make changes to make it more manufacturable because (a) there is usually no calendar time for changes, (b) there is usually no budget for changes either at the customer or the vendor, and (c) by this point, most changes can not be attempted because designs have so much “cast in concrete” (see graph which shows that 80% of cost is committed by the design). Sound familiar?

VENDOR/PARTNERSHIPS

The solution to this dilemma is vendor/partnerships, in which vendors are early and active participants on its customer’s product development team to co-develop (concurrently engineer) the parts they will be building. As part of the team, vendor can help the team design the parts for the lowest total cost and the quickest delivery because:

• Vendors thoroughly understand the DFM rules and guidelines for their process, in general, and for their equipment, in particular.

• Vendors can help avoid arbitrary decisions, which unnecessarily raise cost, delay delivery, and compromise quality. One of the worst causes of arbitrary decisions is styling, especially when the designer throws a pretty shape over the wall to Engineering, which then throws it over another wall to Manufacturing, who then throws it over yet another wall to the vendor – so the tool maker is three walls away from the designer!

• Vendor/partners will provide the lowest total cost because interacting with the customer’s team results in vendors:

• thoroughly understanding the challenges and issues
• making “what if” suggestions early that will maximize manufacturability
• working with customers early to minimize total cost

• Vendor/partnerships benefit from learning relationships where the customer and vendor learn from each other, thus making each job better and faster.

PRE-SELECTING VENDORS

The bottom line is that customers need to pre-select vendors (and renounce bidding of custom parts if that is in the way) so they will help their teams develop products, as the following leading companies do:

“Toyota selects suppliers early in the product development program, guarantees the business, and incorporates them as part of the extended product development team.”1

“At the formal start of the design concept phase, Philips people representing all functions involved in design, manufacturing, an supplier relations, as well as a manufacturing line work and a buyer, meet with their counterparts from the suppliers.” 2

At Motorola, bringing in vendors into the team has proven to be a major contributor to a project’s success.3

Hewlett-Packard’s policy is that vendors should be willing and able to perform all three of the following roles: (a) help design the product; (b) build quick-turn prototype parts and parts for short-run projects; and (c) build production units.4  Companies should avoid changing vendors as volumes rise because this adds new sources of statistical variation at the worst time for unexpected problems to occur.

So both customers and vendors should be striving to reap the benefits of vendor/partnerships and avoid the pitfalls of counterproductive policies, like bidding, that discourage these relationships.

Of course, it is the customer who needs to initiate vendor/partnerships, but if this not forthcoming, vendors can do the following:

• Encourage vendor/partnerships. Offer to customers to help them design the parts that the vendor will be building, in exchange for the business.

• De-emphasize bidding work and institute a preference for working with customers that are welcome to vendor/partnerships.

• Educate customers using the above points or the books cited and recommend customers arrange training on Concurrent Engineering, which should also be attended by key vendors’ representatives.


VENDOR/PARTNER SELECTION

• Select vendors on the basis of:

• Capabilities, past relationships, and a proven record of performance, not low-bidding.5

• Financial stability; get Dunn & Bradstreet or similar reports

• Your business being an important share of theirs, especially if there are any unusual requirements or variations from typical operating procedures

• Proximity; local vendors are preferred for contact and delivery.

• Similarities and synergies with vendors’ other work, especially with respect to experience, parts used, fabrication/assembly machinery, and test equipment. This will minimize learning curves, delays, changeovers, part changes, program rewriting, and, thus, minimize cost, quality problems, and delivery times.

• Willingness to work early with their customers in the design, help design their parts and convey their process capabilities and constraints.


• The ability to work well together, contribute ideas, and provide honest, candid feedback.

“Toyota wants the suppliers to think for themselves, challenge the requirements, and provide value-added ideas to the process.”6

“Teamwork at Motorola is imbedded in the firm’s culture, and this is one reason for its success with supply alliances.” The teams “focus on quality (as broadly defined), speed (in terms of removing non-value-added steps), and cost reduction.”7


Honda’s criterion for selecting suppliers is the attitude of their management.8  As a philosophy-driven company, Honda feels it is easier to teach product and process knowledge than to find a technically-capable supplier with the right attitudes, motivation, responsiveness, and overall competence.9


• Vendor/partnerships should be developed. Kiichiro Toyoda, founder of Toyota’s automotive business, said:

“First tier suppliers, in particular, must be partners in research. We don’t just buy things from them. We have them make things for us.”10
 

WORKING WITH VENDOR/PARTNERS

• Don’t just throw a spec at a vendor and ask for a quote; work with the vendor to optimize the design for manufacturability. Explore “what if” scenarios.

• Understand the vendor's processes, sensitivities, and process capabilities. Direct interaction and visits are preferred.

• Vendor/partners should work early with the design team to optimize part/subassembly specifications.

• Each vendor should:

• be an early and active participant on the team
• convey its design rules and guidelines
• recommend optimal design practices
• help the team design its part and its tooling
• arrange for its tooling engineers to work directly with design engineers and industrial designers
• for repeat engagements, present lessons learned for next project
• possibly, design the entire part and tooling under the team’s supervision

• Team members should interact directly with the appropriate people in the vendor’s factory (being sure to include the team’s purchasing member) not just through the Procurement Department or through the vendor’s sales reps, who may not understand your products or even their processing.

• Vendors should be willing and able to do the following (HP’s criteria):

• Help design the product
• Build quick-turn prototype parts and parts for short-run projects
• Build production units

• Don’t change vendors:

• as volumes rise because this adds an additional ramp and new sources of statistical variation at the worst time for unexpected problems to occur
• for a “lower cost” on parts because the total cost, including the cost of the change, will most likely be higher.
• at the first hint of disappointment; work with them to improve
• at all so as to preserve the “learning relationship” in which every job improves the rapport, cooperation, dialog, and feedback.

• Don’t do anything to diminish vendor/partnerships like excessive red tape or stretching out their payments “to save cost” or they may give preference to other customers that pay on time so they may not be there for you in emergencies.
Actually, this does not save cost – rather it only borrows it from the time when the companies knows better and reverse the policy.

• Here is how Toyota treats suppliers. A survey of suppliers found that Toyota is rated by suppliers as “their most demanding customer” but also rated the highest: 415 out of 500 compared to GM at 114 out of 500. Toyota:

• works with new or struggling suppliers to get up to speed;
• makes commitments to suppliers early in the product development process and makes good on promises;
• constructs contracts that are simple and for the life of the product;
• is the best at balancing a focus on cost with a focus on quality;
• honors the contracts – does not renege on them;
• treats suppliers respectively and respects the integrity of intellectual property;
• works with suppliers to achieve price targets.11
 

PROBLEMS WITH BIDDING CUSTOM PARTS

For those who believe in Concurrent Engineering, this logic should be compelling. However, many companies have policies that discourage vendor/partnerships all based on the erroneous belief that they can save money by sending parts out for bid, after they are designed, and then selecting the low-bidder. However, this will not result in the lowest total cost, because:

• Vendors will not help design the part unless paid work will follow. They will need some assurance that they will get some work before they invest their effort to help customers design their parts. Thus, bidding misses out in the biggest opportunity to save cost – working together.

• Low-bidders may not understand the problem or may be cutting corners, which raises other costs such as quality, expediting, delayed launch, warranty costs, or the costs of recalls (which have been in the news a lot lately).

• Bidders often add a “cushion” to deal with unknown customers or incomplete information:

“Suppliers often add a risk premium to their pricing (thus raising the customer’s cost) to cover nondisclosed or unexplored customer requirements or design flaws that may require later adjustments.”

• The customer’s purchasing agents will not be able to help the team develop products, assure availability, and set up vendor/partnerships because they will be too busy managing running the bidding process. The Toyota Product Development System book sums up the cost of bidding as follows:

“Searching the globe for the lowest cost means managing very large numbers of suppliers as well as introducing a steady stream of new suppliers into your system. These suppliers are unfamiliar with your requirements and demand a great deal of attention to get up and running. While administering complex contracts, managing global bidding wars, and overseeing the constant introduction of new suppliers into the process, U.S. automakers must maintain mammoth purchasing organization, deal with incredibly cumbersome and slow sourcing processes, and live with constant variation of supplier performance in the development process.” - all to “save cost!”
 

• Finally, it takes a lot resources away from product development to support bidding (at both the customer and vendor), for instance, to update/change documentation, CAD files, materials, tooling, and processing; complete transfers; and deal with new or ongoing problems related to ramps, delivery, quality, or getting up the learning curve in general. All the above problems are much worse when offshoring to another continent (see article at www.HalfCostProducts.com/offshore_manufacturing.htm )

The book that started the lean production movement, "The Machine That Changed the World," notes that in lean production companies: Suppliers “are not selected on the basis of bids, but rather on the basis of past relationships and a proven record of performance.”

Summary

Arranging for vendors to help design what they build will save more money than any “saving” from low bidding. This will result in: more resources on the design team without increasing the development budget; quicker part development and less chance of delays from part design or tooling shortcomings; and fewer team resources wasted dealing with manufacturability problems that come from less experienced designers.
 

These are the general principles. Pass around this article or URL to educate and stimulate interest

In customized seminars and webinars, these principles are presented in the context of your company amongst designers implementers, and managers, who can all discuss feasibility and, at least, explore possible implementation steps

In customized workshops, brainstorming sessions apply these methodologies to your most relevant products, operations, and supply chains.

Call or email about how these principles can apply to your company:

Contact Dr. David M. Anderson, fASME, P.E., CMC
HalfCostProducts.com
www.design4manufacturability.com
phone: 1-805-924-0100
fax: 1-805-924-0200
e-mail: anderson@build-to-order-consulting.com


REFERENCES

1. Morgan & Liker, The Toyota Product Development System, p. 193

2. Jordan D. Lewis, The Connected Corporation, How Leading Companies Win Through Customer-Supplier Alliances, (New York, Free Press, 1995); Chapter 5, “Cooperating for More Value,” p. 92.

3. Kim B. Clark and Takahiro Fujimoto, Product Development Performance (1991, Harvard Business School Press), p. 349.

4. David M. Anderson, Design for Manufacturability & Concurrent Engineering; How to Design for Low Cost, Design in High Quality, Design for Lean Manufacture, and Design Quickly for Fast Production, (2010, CIM Press)

5. James P. Womack, Daniel T. Jones, and Daniel Roos, The Machine that Changes the World; The Story of Lean Production, (1990, Harper-Perennial Division of Harper Collins), Chapter 6, “Coordinating the Supply Chain.”

6. Morgan & Liker, The Toyota Production Development System, p. 185

7. Lewis, The Connected Corporation; Chapter 13, “Successful Alliance Practitioners,” p. 273.

8. Jeffrey Pfeffer and Robert I. Sutton, The Knowing-Doing Gap; How Smart Companies Turn Knowledge into Action, (2000, Harvard Business School Press), p. 23.

9. John Paul MacDuffie and Susan Helper, “Creating Lean Suppliers: Diffusing Lean Production through the Supply Chain,” California Management Review, Summer 1997, pp. 118-150.

10. Satoshi Hino, Inside the Mind of Toyota, Management Principles for Enduring Growth, (2006, Productivity Press), Chapter 1, “Toyota’s Genes and DNA.”

11. Morgan & Liker, The Toyota Product Development System, p. 181
 

copyright © 2017 by David M. Anderson

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