Scenario 1: A customer walks into a big box retailer to purchase a printer for the home. As the customer walks down the aisle she notices an isolated display of a “blowout sale” on a full featured inkjet printer. The printers are on sale for $49.99 and sadly were only introduced to the market 9 months ago. In fact, there are over 10,000 of these printers still unsold.
Scenario 2: An automotive company sends a RFQ to several suppliers to manufacture a ceramic rotor for their upcoming 2021 sports car. As part of bid process, the suppliers spent a significant investment on building prototypes to ensure capability. The quotes are received and a supplier contract is signed. The day after the supplier signs the contract, purchasing is notified of a major engineering change to the rotor that will have a significant impact on product cost.
Scenario 3: A weapons company leverages the services of a contract manufacturer to apply a proprietary special coating to the main component items a, b, and c. The components are shipped to the contract manufacturer. The contract manufacturer receives the components, applies the coating, performs final assembly and returns the completed item to the weapons company. The shipping department sent the wrong components to the contract manufacturer, unaware that newer components were being prototyped due to the poor modulus of elasticity of the current components. All of the newly coated parts have to be scrapped.
The scenarios outlined above reflect issues in the supply chain when there is a potential lack of collaboration between product engineering and supply chain management. While there is a linear, “happy path” in supply chain from procurement of components to delivery of the final product, there are several pitfalls that require a deeper level of collaboration across the organization. The collaboration with Product Engineering has to be reflected in the new digital supply chain capabilities that major companies are implementing.
Product Engineering Process Considerations for Supply Chain
1. Product Engineering Part Status – As a new part or modification is managed through the development program, a status is created to reflect where the part is in the overall process. This includes such phases as conception (or ideation), prototype, testing, and approval of engineering change. Here is an example of a Product Engineering Status Table:
The Product Engineering system would reflect the status of new parts and parts going through modifications.
2. Qualification for Part Number change (cosmetic, fit, form, function criteria)
When an existing part is modified the product engineering group decides if a new part number is generated. The general rule across industries for changing a part number uses a concept referred to as “fit, form, function”. If the change impacts fit, form, or function a new part number is generated. If the change is cosmetic and does not impact fit, form, or function a new part number may not be generated (depending on the company and situation of course). Here are the definitions of each change impact:
Fit – The ability of a part to mate with other parts as part of an assembly
Form – The external characteristics of the part including shape and size
Function – The performance or action of a part within the assembly.
Cosmetic – Appearance changes that don’t impact fit, form or function (such as changing part color shading)
It is important to understand the Product Engineering status changes as they relate to part number changes. Here are a couple key areas to understand when investigating Product Engineering processes as they relate to Supply Chain:
- When is a part number change approved in the process (Conception, Requirements, Prototype or other phases a company may have in their Production Engineering process)?
- When is the part number change executed (Management Review and Approval, Engineering Change Document Approved or other phases a company may have in their Production Engineering process)?
Impact of Product Engineering Processes on Supply Chain
Production Engineering processes can wreak havoc on a company’s supply chain if the processes are performed in a functional silo. Three supply chain areas that are significantly impacted include:
1. Demand Planning. Demand planners need to have visibility into potential product changes and associated timing. In Richard Sherman’s article “The Common Pitfalls of Demand Planning” he describes errors in the supply chain network as a result of lack of collaboration across functional silos. Actions in one functional silo result in variability to other silos requirements/demand.
Source: “The Common Pitfalls of Demand Planning”, Richard Sherman, Supply Chain Management Review, December, 2018
Lack of integration of Production Engineering processes will have a big impact on demand variability. For example, a computer company sells printers to big box retailers and maintains a target level of channel inventory. The demand planner forecasts the printers required for the market out to a 24 month horizon. The printer volumes are frozen within the 0 to 6 month horizon. If the demand planner is informed of a printer model number change too late, this can result in having excess/obsolete channel inventory of the current printer. This issue is magnified in industries where there are frequent model changes that occur within one year’s time.
2. Contract Manufacturing – Contract manufacturing processes face a similar issue to Demand Planning. This is especially the case when companies manufacture a component and ships it to a contact manufacturer for final assembly or finishing. The contract manufacturing process needs visibility into any future product changes to avoid finishing of obsolete components.
3. Purchasing – Lack of integration with Production Engineering processes may delay the RFQ process or send an inaccurate RFQ to the respective suppliers. Material, labor, and tooling and various overhead costs are impacted by component modifications.
The buyers may be aware of the pending part change on an existing production part but unable to act on it because the formal system requires the production engineering information for the RFQ document.
Production Engineering Collaboration Thoughts and Ideas
Source: TCS SAP SCM Capabilities, Entsol CoE Ver. 2.0
In the new digital supply chain era, the data generated from product engineering needs to be integrated in the company’s supply chain systems and/or reporting capabilities. As shown in the conventional scope of supply chain main components, product engineering is not explicitly considered a supply chain component, yet can reign havoc for supply chain managers.
Large corporations have hundreds and sometimes thousands of product engineers, buyers, demand planners and other supply chain personnel. Incorporating product engineering data into the supply chain will enhance collaboration and significantly reduce excess and obsolete inventory due to errors in the supply chain process. This includes timing of new product introductions and part modifications as well any relevant part status.
Sherman, Richard J. (2018, December) The Common Pitfalls of Demand Planning, Supply Chain Management Review
Daithankar, Jayant (2017, December 26) TCS SAP Supply Chain Capabilities