Spend Management Goes Upstream (Part 1: An Introduction)

Without question, the bottom line benefits that Spend Management can bring within the strategic and tactical procurement function are huge. But for manufacturers -- and any company that is involved in designing or specifying products that will eventually go to production -- the holy grail of Spend Management transcends procurement. Indeed, the chase for the cost chalice must lead companies upstream -- a place where few procurement and operations organizations have been able to historically exert influence in the past. But the key here is not conducting Monty Python-esque land grab into design territory. Rather, it's about getting critical cost and related information back into the hands of designers on a sustainable basis to provide them with the ability to make the best possible decisions.

Historically, designers and engineers have not exactly been unnecessary big spenders (like those sales executives who insist on flying first and ordering the Silver Oak -- a mediocre and way overpriced Cab, in my book -- at Morton's every night of the week). But given their point role in coming up with and designing new products, designers have historically had to make real-world decisions in a vacuum with only a partial lens into the production impact of their actions -- often without intelligence to make better total cost decisions. Why? Because even in the most collaborative companies today, designers almost always have an incomplete picture into how trade-offs can influence materials and labor costs, product quality, and even warranty claims and production use.

In the best case, some companies have common part libraries and preferred supplier relationships they can leverage to bring some costing information into their design process. But rarely do engineers and designers go beyond a cursory look at this type of information in making decisions and tradeoffs. Why? Because their primary incentive is to bring products and designs to market on-time, using only high-level costing and other guiding elements. Today, the costing and other intelligence they incorporate into designs only needs to right on a macro-level for them to hit adhere to expectations (versus a part or even a feature one). This leads companies to unnecessarily lock-in cost -- and other elements -- in the design phase, creating lower-margin and higher risk products and supporting services that last as long as the end product survives in the market. Jason Busch

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