3 Insights for Procurement from aPriori’s Cost Insight Conference

Spending the last 24 hours surrounded by design and cost engineers has taught me quite a bit about operations beyond procurement and supply chain management. Those in the buying and sourcing profession often spend a lot of time thinking about cost, and they sometimes get a bad rap for it. But based on my discussions with attendees, it’s clear to me that procurement is far from the only organizational unit worried about helping revenue get to the bottom line.

Yet procurement struggles with its image: it’s slow, it’s a roadblock to progress, it’s not knowledgeable enough to be valuable in new product development. The practitioners in attendance at Cost Insight, however, have worked doggedly to change perceptions such as these at their firms — to great success, in many cases. Here are three insights for procurement I’ve gleaned from various sessions.

Speed is Critical

One of the top points speakers and attendees made yesterday was that adopting a PCM strategy enabled them to do more in less time. Whether the time saved was in internal discussion about a new product or negotiating an agreement with a supplier, supporting design and cost model efforts in a non-manual environment produced significant benefits.

At a panel on supplier networks Tuesday, one supplier said his company was able to cut the time to quote for customers from two weeks to just days with a manual process. In a more mature form, BRP, the powersport manufacturer, was able to eliminate the RFQ process with suppliers altogether, instead pre-selecting strategic partners it could collaborate with on cost models from the time of design.

For both companies, the time gained from the quoting process led to both a sharper focus on creating a better product and a more satisfied customer.

Embrace Automation

These days, the word “automation” is starting to have a somewhat negative connotation. Sure, the trend toward automation of once human-based jobs on the factory floor is noteworthy. But automation in areas like PCM offers procurement more time to do the essential parts of their jobs, rather than replace people with robots.

In PCM, users here mentioned many times that the idea of returning to manual, spreadsheet-based processes for cost modeling would be akin to lighting one’s home with candles. Having data on component weights and prices stored in a database, readily available for engineers and sourcing managers to pull, not only smoothes design and cost estimation upfront, it also gives various internal organizations a common platform to spark discussion and planning.

Procurement and sourcing users saw this data as “ammo.” With access to a design and cost platform, practitioners felt they could more easily approach design engineers to debate the cost of a new product, or strike a better agreement with a supplier because they had the data to illustrate what a product “could cost” rather than what it merely “should cost.”

Building Trust Should Be a Top Priority

That last point about data leads to the ultimate basis for any product cost management effort: trust. Whether internal or external, conversations based on data from a PCM platform allow all parties to hold fact-based negotiations. For procurement, this means approach cost reduction with mutual benefits for all involved, instead of swinging a hatchet at whatever can be cut from a product.

“The sourcing function has a really hard job,” said Daniel Caratini, executive should cost leader at General Electric, during a panel on sourcing. “But they’re not empowered yet to drive the outcome with should cost.” Using data from PCM efforts is essential to overcoming that challenge and driving down costs across the board.

Building trust embodies the ideal of the supply management team: a cross-functional organization that serves the business as a gate opener to the supply market. Successful teams here said they had developed better relationships with engineering and manufacturing groups at their companies. This shows how extending the olive branch produced far better savings results than before.

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