Reinventing the OEM-Supply Chain Relationship – A New Model of Transparency
With increasing complexity of products and demand for shorter cycle times, manufacturers are finding they need entirely new competencies to remain sustainable. In this article, my colleague Jeff Spencer explores a new model for supplier integration throughout the product lifecycle, resulting in transparency and profitability.
Not having an engineering background, early in my career when a learned that “systems usually break at the interfaces” I was surprised something so obvious could also prove so insightful. As it turns out, in product development and manufacturing the engineering of effective systems is a pretty big deal.
A common executive discussion today is how products are becoming more complex, how the rate of change is rapidly increasing and what business response is necessary to remain competitive and profitable. More than ever before software technology is a core component of innovation platforms to address these challenges.
The reality though is that the increasing complexity in products and demand for shorter cycle times have become so extreme that manufacturers not only need supporting technologies, they now need entirely new competencies. Rather than build these internally, OEMs have responded strategically by outsourcing to suppliers who can optimize around niche skills and local resources. This has resulted in in an odd interaction in many industries where the OEM shifts liability and product performance onto the supply chain while squeezing them harder than ever before.
This increasing complexity in products and throughout the supply chain is creating not just more interfaces, but problems are now occurring in parts of products or processes that didn’t previously exist. This puts enormous pressure on the OEM to manage cost and quality throughout the supply chain using new disciplines they may not yet understand.
Incremental improvements may be beneficial but often fail to provide the big results necessary to move beyond a status quo that’s for many already unsustainable. A new model for supplier integration is needed, founded on transparency. Three areas for transformation come to mind that can independently, or working together assist in creating that transparency.
Cost Management – For most suppliers it is important to identify early in the program the timing, specific cost drivers impacting the cost of products and tooling in order to price effectively and profitably. But from an OEM perspective, these drivers are often challenging to understand. Historically this has led to negotiations based on perception, not fact. The challenge today, for both parties, is to achieve a level of understanding that allows for fact based negotiations to manage risk, and supplier and customer relationships while improving response times on RFQs and ECNs.
Supplier Collaboration – Streamlined supplier integration is critical in today’s market to achieve cost and design objectives. However, even the most experienced teams are challenged by ever increasing complexity, compressed production cycles and global reach. New possibilities to facilitate more efficient interaction with suppliers, early in the design process, across the extended enterprise and throughout the product lifecycle can increase efficiency while reducing costs, the risk of recalls and non-compliance.
Product Performance Intelligence – Smarter more connected products place enormous pressure on manufacturers to understand the true drivers of profitability. Complicating these factors, reliance on longer supply chains inhibit visibility of true quality, increasing warranty, repair and recall costs. Big data analytics are increasingly being employed to understand when product issues are occurring, but fail to rapidly determine why and when they’re going to happen again. Product Performance Intelligence is a new strategy to cut through the fog of manufacturing and supply chain complexity enabling higher product quality, faster issue response and a better understanding of supply chain efficiency.
It’s not always going to be easy. OEMs will be required to manage more supplier processes and feedback. Suppliers will be asked to provide much more data on how components and assemblies were actually manufactured, and OEMs will need to collaborate with their suppliers more openly and earlier in the design process than ever before. The good news is, leading companies are already seeing value in this approach. Check out this blog find out more about the importance and benefits of OEM and supplier collaboration.
Optimization of the entire supplier eco-system provides the possibility for both OEMs and Suppliers to work together faster, more accurately and have visibility into the details that drive product performance. With 360 degree profitability everybody wins.
About the Blogger
Jeff Spencer is a Portfolio Development Executive at Siemens PLM and has more than two decades of experience helping manufacturing clients embrace disruptive business change and transform the way they do business.
