For decades, buyers of industrial-machinery components focused mainly on price. Today, procurement patterns are gravitating toward best value and total cost of ownership (TCO). Yet even as this enlightened trend evolves, design engineers need to actively influence procurement decisions to ensure price doesn’t trump performance and brand reputation. We asked Bill Moore of SKF for his take on the issue.
How can design engineers get more involved in procurement?
As resource-constrained as they are in today’s lean environment, it’s important for design engineers to visit customers and see how their equipment is used on a daily basis. Otherwise, they might rely on secondhand information from sales representatives, who often hear only price-focused complaints instead of operational needs.
Be prepared to ask about some key factors: machine maintainability, MTBF, and the role that factors like environmental conditions and operator concerns play in new-equipment specifications. Ask to see maintenance logs and inquire about how long equipment is expected to last beyond the warranty period. Seek the customer’s opinion on the role of component parts and whether their existing components are performing according to specification. A better understanding of the customer’s needs will help engineers make more-informed design decisions and influence optimal procurement choices.
Quality and performance traditionally have been top priorities for machine designers. How can engineers play a more-active role in an organization’s quality discussions?
It’s important for design engineers to give others in the organization, such as sales, operations, and top management, strong ammunition to use when they engage with customers.
The American Society for Quality and the American Productivity & Quality Center recently released a report, “Global State of Quality Research: Discoveries 2013,” based on a study of quality practices of almost 2,000 global companies in the manufacturing, health-care, and service industries. A core finding was that only 68% of organizations share information on product or service quality with customers. The rest are missing out on this important opportunity. The report coined the term, “Qustomer,” to describe the critical intersection of quality and the customer.
Designers can help arm their companies with data about TCO. For instance, hidden costs of ownership, such as downtime, maintenance expense, and replacement parts can add up to 80% of total costs over a product’s life. This fact was highlighted in the 2012 white paper, “Unpacking Best Value: Understanding and Embracing Value-based Approaches to Procurement,” published by the University of Tennessee. In a great analogy, these researchers depicted such below-the-surface costs as the submerged part of a “priceberg.”
In addition, designers can ask their component suppliers for research findings, case studies, and hard data that show how the lowest price does not always equal the lowest cost. Again, try to view quality through the eyes of your customer.
Or if the customer is focused on environmental initiatives, perhaps you can share evidence about how your machine design, in part because of its high-quality components, enables more-sustainable manufacturing practices. For example, one U. S. company saved $247,500 in annual energy costs largely by switching to more energy-efficient bearings in its machinery.
Doesn’t the procurement discussion always come back to price? How can design engineers affect that dialog?
Price, understandably, continues to play a major role in procurement decisions. Balancing performance and price expectations of internal and external constituents is a formidable task for design engineers. There are pressures of global competition and flat capital markets suppressing new equipment demand. Then there are challenges associated with helping customers understand the benefits of new technology, much less why they should pay more for it.
Yet attitudes are shifting. In a May 2012 article in Harvard Business Manager, “Procurement in Unsecure Times,” researchers found that procurement professionals are, in fact, quite concerned about factors such as quality and supplier stability. When decision-makers were asked to share the most important procurement risks, 51% said “material quality,” second only to “security of supply,” with 63%. “Material price volatility” ranked as the third most important risk factor, at 48%.
Design engineers can collaborate with sales, executive leadership, and others to stake a claim for their equipment’s reputation in the market — preferably as best-in-class and ready for the future. With a collective understanding of your company’s brand positioning, everyone should be better aligned to serve the “Qustomer” with a competitive, differentiated product.