CLASS 3 - THE DESIGN PROCESS
ROLE IN NEW PRODUCT DEVELOPMENT
Review: Purchasing process consists of three phases:
• Pre-award: Requirements Determination
• Solicitation and Award: Purchasing/RFP, Source Selection (technical and price), Award
• Post-award: Contract Administration and Management
Early purchasing involvement (EPI) and use of cross-functional teams:
• Reduce time to procure
• Increase quality of products (both purchased materials and end-products)
• Produce more favorable cost returns on purchased materials
Purchasing involvement in the Design Process:
• Facilitates identification of new components
• Supports location of potential vendor-partners (considering product suitability, quality, certainty of delivery, cost, service)
Purchasing's role is expanded by:
• Use of Design or Project Teams
• Employ materials engineers as buyers
• Co-locate buyers with design/engineering staff (permanent or matrix)
Quality is conformance to specifications therefore; specifications are the foundation of Quality of Performance.
Quality is related to suitability and cost (not price), rather than
intrinsic excellence (i.e. a diamond)
Cost (life cycle cost = price + related
future expenditures, i.e. maintenance,
Quality is determined by the TECHNICAL consideration of
suitability and the ECONOMIC consideration of cost and
Technical considerations are the responsibility of
the designers, jointly with the marketers
Economic considerations are the responsibility of
the purchasing department, jointly with the marketers
Purchasing Dept. has management responsibility to challenge
requirement but not to unilaterally change it
How does a PO describe a requirement?
• By market grade (natural products i.e. lumber, food products)
• Brand name (or equal)
• Commercial standards (Grade 8 bolts)
• Design specification
• Performance specification - Functional specification
• Review of submitted samples
• Qualified products list
Most common methods include:
• Brand name: 25%
• Commercial Standard: 26%
• Specifications (Design or Performance): 31%
Conventionally, a purchase description calls for:
Only the minimum product needed to perform its intended function should be stated
Specifications must consider-
Consumer acceptance (marketing)
Economy to produce (manufacturing)
Materials availability, cost (procurement)
Views within the organization may be in conflict:
• Marketing wants product to be unique
• Engineering wants product excellence
• Production wants ease of construction
• Purchasing wants materials availability, low cost
Because of these considerations, Balanced Specifications, i.e. specifications that address and satisfy the total requirements of the organization, must be developed by:
• Early Purchasing Involvement
• Formal Committees to review specifications
• Informal involvement (i.e. "challenges to designs/requirements)
• Purchasing Coordinator to perform liaison between Purchasing, Design, Production.
• Standardization of Purchase Descriptions whenever possible.
Specifications must consider:
1. Marketability and product appeal
2. "Make ability"
3. "Inspect ability" (ability to test and comply)
4. "Storability" (receipt, storage, shelf-life)
5. Scheduling of production
6. Availability (to purchase competitively, timely, reliably)
7. "Substitutability" (when necessary due to unavailability)
(Case: Gotham City Buy's Fire Engines)
GOTHAM CITY BUYS FIRE ENGINES
Mayor Harold Goodfellow of Gotham City is faced with a touchy situation involving a City Hall dispute between his newly appointed city purchasing manager, Ed Frisby, and Gotham's venerable fire chief, Willard Clark.
It all started soon after Mayor Goodfellow hired Frisby following a favoritism scandal linked to the purchases of the previous city purchasing manager. To prevent a recurrence of the problem, the mayor gave Frisby instructions to set up a standards committee and gave the new city purchasing manager full backing in enlisting assistance from other city employees.
In accordance with the mayor's instructions, Frisby formed a committee consisting of a Fire Department representative selected by Chief Clark, an engineer from the Public Works Department, a woman from the Finance Department, and himself. The group began working on the high value purchases, and the first on the agenda was the purchase of ten new fire pumping engines and five extension ladder trucks, involving an estimated expenditure of approximately $600,000 for the pumpers and another $1 million for the ladder trucks.
Frisby got together with the standards committee and representatives of firefighting equipment suppliers. Through these meetings the committee prepared open specifications, to which all agreed.
Bids were received, opened publicly, and then analyzed. The purchasing manager, in accordance with the unanimous findings of the committee, recommended that the city accept the lowest bid that met the minimum specifications in all respects. There was considerable spread between the lowest and the next lowest bids.
Then the trouble began. Shortly after making this recommendation, purchasing manager Frisby learned that Chief Clark had sent a resolution to the City Council recommending rejection of all the bids and award of the contract to another higher-priced supplier. Clark told the City Council that he would not be responsible for fighting fires unless his selection of equipment was approved by the council.
The mayor called Frisby. "Look, Ed," he said, "I'm in the middle of this fire equipment dispute. I think you're right in this hassle, and I want to support your work on the standards committee. But Chief Clark is a respected old-timer around here, and I think he's got some of the City Council on his side. Do you have any ideas on how to settle this difficulty and keep the chief happy too?"
TWO TYPES OF STANDARDIZATION:
1. Of things (size, shape, color, physical properties, chemical properties, performance characteristics, etc.)
2. Of Practices and procedures (managerial standardization)
As production process moves from Job Shop through Line Flow to Continuous Process Flow methods, opportunities to standardize FINISHED PRODUCTS increase. As this occurs, materials, parts and subassemblies used in each process can be increasingly standardized.
How does standardization reduce costs in a manufacturing industry (or any industry)? (p. 181): Permits purchase of fewer items, in larger quantities, at lower prices, thus, acquisition, handling, quality costs are minimized.
Kinds of Industrial Standards:
• International Standards Organization (ISO)
• National Bureau of Standards (NBS)
• American National Standards Institute (ANSI)
• American Society for Quality Control (ASQC)
• Society of Automotive Engineers (SAE)
Simplification means reducing the number of standard items a firm uses in its produce design and carries in inventory.
Simplification encourages broad application of the same standard materials throughout a range of product lines.
CASE: Gotham City Buy Fire Engines