Collaboration is the Key to Reducing Costs

Sept. 11, 2009
Better communication throughout the supply chain can support profitable business growth.

For small and mid-sized manufacturers, the earliest stages of new business opportunities can pose significant risks, observes Dennis Thompson, president and CEO of DSN Innovations, a supply chain research organization. "Missteps during the request for proposal (RFP) process and first article production can result in pared-down profit margins -- and in the worst cases -- lost business," he notes. To better understand how communication improvements between customers and suppliers can produce better results for both parties, DSN Innovations conducted a pilot project to identify opportunities to reduce costs.

With small manufacturers, project costs begin with the RFP assessment, Thompson says. If, for instance, a customer provides the supplier with only a 2-D drawing, the supplier must incur non-recurring engineering (NRE) costs to determine how best to make the item and to produce accurate costs for bid submission. "In typical circumstances, suppliers can't recoup all of the NRE costs in a winning bid," he points out, "and often, NRE costs or insufficient technical data information may deter a supplier from bid submission."

In the pilot project, the customer was a large organization that required high-precision parts. Potential suppliers were issued an RFP enhanced with an advanced technical data package (A-TDP), which helped facilitate a more rapid bid response with reduced NRE costs. According to Thompson, "suppliers shaved an average of 53% of total hours required to prepare an RFP response. Some of the project participants noted that the inclusion of this information encouraged them to pursue the project despite having no previous relationship with the customer, their industry or the specific part. With these barriers to entry reduced, the customer benefited from a wider range of bid submissions as well as the opportunity to expand their production capacity by distributing the project among a number of qualified suppliers that could collectively complete the project within the demanding schedule."

In the pilot studies, suppliers were required to produce 10 items for first article inspection. "Although none of the suppliers had ever manufactured comparable parts," Thompson explains, "each used the A-TDP to successfully pass first article inspection. With this milestone achieved, the suppliers secured contracts with a new customer and eliminated the short- and long-term costs of failed inspections."

To effectively utilize the A-TDP tool, customers and suppliers must share and collaborate around this technical data, he says. Improved collaboration is a key concept of what Thompson describes as network-centric manufacturing (NCM), "a supply chain management practice that promotes the rapid assembly and seamless coordination of dynamic supplier networks to accelerate production and reduce costs on both sides of the transaction." As he elaborates, a Web-based coordination infrastructure serves as a common ground for customers and suppliers to communicate critical project details.

"Reducing the costs associated with the inefficient exchange of factual information is just the beginning of the profitability improvements for both suppliers and buyers," Thompson says. "Small manufacturers can gain additional advantages within the NCM model by using these tools to gain a better vision into their customer's requirements and respond by acting as a problem-solver and collaborator during the bid development and first article production stages. Those companies that shift to a more collaborative and communicative organization will be much better positioned to leverage this next generation of supply chains."

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