Given that procurement paves the way for smoother processes up and down the supply chain, any strategy that helps strengthen will benefit an organization. Here’s how engineers can help.
Since companies’ bottom line is to make all their processes — from cradle to grave — more efficient, it makes sense to review all aspects of the operation with a fine-toothed comb and optimize each one every step of the way.
Procurement is one such critical operations arm of any manufacturing process — and exactly how elegantly procurement and engineering play out their delicate dance can make or break the interconnected mechanics of the supply chain. Much is at stake when engineering is not involved in the procurement process and vice versa so it makes sense for companies to evaluate how the two can play well together.
Think of sound procurement practices as laying the foundation for a strong building, says Charlie Wilgus, general manager for the manufacturing and supply chain practice at executive search firm Lucas Group.
“All good stories start with a good beginning, so if a company really wants to do a product right, it needs to get things right on the front end and good things will flow after,” Wilgus says.
Getting things right on the front end involves many moving parts: the right contracts, the right materials, the right inventories
Plays Well With Others
The best procurement professional understands and processes information from a variety of sources including its engineering and product development teams. The first skill for a qualified candidate to check off: being a knock-your-socks-off negotiator. In addition, says Wilgus, good purchasing and procurement start with an individual who really understands the importance of working within other categories in the company.
“A good procurement professional should be able to talk with engineering and product development and discuss what kinds of materials need to be bought, the machine, the equipment,” says Wilgus. There’s a problem if research and development come with up innovative manufacturing ideas, but the materials for needed cannot be sourced easily or are too expensive, he adds.
While the idea of procurement professionals and engineers working together — a few companies even have dedicated procurement engineers — is a noble one, it does not always work because each professional is rewarded differently, says Dr. Wendy Tate, William J. Taylor Professor of Business and Cheryl Massingale Faculty Research Fellow at the University of Tennessee, Department of Supply Chain Management.
“For example, procurement performance is measured on purchase price variance, while engineering might be getting rewarded on time to market,” Tate says. That comparison might be over-simplified but the bottom line is that the end goals for procurement and engineering can often be at odds with each other.
Tate has seen examples of companies at which the procurement department has one list of approved and qualified suppliers, but then engineering starts a conversation with yet another supplier. This creates confusion for everyone, including the supplier, who often only wants to talk to one point of contact at a particular company.
Can’t We All Just Get Along?
The solution to such conflicts, Tate suggests, is co-locating the procurement party and the engineer so they work together and understand the larger issues. “They have to have this relationship not just with each other, but also with the suppliers,” Tate says. Together, they have to be invested in the same final outcomes, she adds. “If they are married and like the child they have, then that’s a very happy union. If they don’t, then that leads to broken links.”
Many frustrations can be avoided if the relationship between engineering and procurement is more clearly defined, Tate says. They can often work together to reverse-engineer products and see where certain accommodations can be tolerated. “You might want to make a big Cadillac and design for a big Cadillac, but not everything needs have Cadillac specifications,” Tate says, hinting that working together gets the best results at the lowest overall total cost, thereby sustaining profitable margins.
Happiness is also to be had when the procurement process follows the well-established, seven-step process with the steps being: category assessment; requirements definition and scope; strategy development; strategy execution; negotiation and contract award; implementation and transition and supplier relationship management. Following these systematic processes, with input from engineering, helps set the foundation for robust procurement practices.
Wilgus says that a few companies with complex productions of high-end consumer goods such as electronics, for example, might have dedicated procurement engineers who understand the intricacies of the engineering involved, but in many cases such specialized professionals are not needed. It is more important, Tate says, for silos between the departments to be broken down. “You have to ensure that the right measures are driving the right behavior,” she says.
And with smart manufacturing around the corner and digitization and big data coming into play, the procurement process is set for a reboot again. As long as engineering and procurement work hand in hand, companies can ride the digitization wave to deliver even greater profits.