Organizations love to make design changes to their products on a regular basis. Any firm producing a product, be it the Tesla Model S or McDonald’s French fries, strives to introduce incremental improvements to add new features, reduce costs, comply with the latest regulations, and remain competitive. Sometimes these changes have an impact on suppliers.
- Tesla just released its Version 8 software that introduces over 200+ enhancements for the Model S Autopilot technology. Some of these changes will have an impact on Tesla’s suppliers due to integration between purchased components and Tesla’s design.
- In 2008, McDonald’s formally announced it changed its recipe for French Fries by changing to trans-fat-free oil to address general health concerns over cardiovascular disease. Imagine the impact of this change to the supplier providing the trans-fat oil from a capacity, inventory, and profit standpoint.
The impact that design changes have on suppliers is significant. Let’s take a look at 5 reasons why it’s important for buyers and suppliers to keep one another informed along the way.
Reason 1: Reduce Risk
Controls for design changes exist in organizations to ensure that changes made to products and services are identified, evaluated, and implemented carefully. This approach helps to avoid unnecessary risks and customer dissatisfaction. A robust design change process ensures that the required notifications, impact assessments, and stakeholder approvals are received prior to implementation. Design changes could have repercussions on documentation, certifications, manufacturability, suppliers, product margins, among other factors. Clearly defining what this process looks like internally as well as for suppliers is one of the best ways to handle this. Companies do this by creating engineering change request (ECR), engineering change notification (ECN), and supplier product or process change notification processes.
Reason 2: Increase Efficiency
Typically these design changes are handled well internally in an organization but encounter layers of complexity when the supply chain is affected. For one, it’s easier to walk down to a colleague’s desk or schedule a cross-functional meeting to evaluate a design change proposal and address any concerns. With suppliers, this probably means that you’ll need to wait, schedule a meeting, share various types of information, do some follow-up, then more follow-up, and finally go through some form of production approval process. This complexity is magnified if your suppliers are not local. According to a study done by the American Productivity and Quality Center in 2013, “Personnel and overhead account for more than 80% of purchasing process costs”. This suggests that there is opportunity to improve efficiency. Relying solely on manual human intervention will lead to errors at some point due to worker overload, grey areas, employee turnover, and training gaps. Standardizing the process to work consistently, regardless of which supplier the buyer is doing business with, is one step towards improving efficiency.
Reason 3: Improve Information Flow & Communications
Design changes that affect suppliers can become a messy and costly process due to poor information sharing. The design change process is typically initiated by a change request instigated as a result of a customer complaint, employee suggestion, engineering improvement, cost reduction, or other event. The request describes what needs to be changed and why the change is required. Once the request is approved, an engineering change order (ECO) or notification (ECN) is created to detail how the change is going to be implemented, updated specifications, who is impacted, and a plan to address any existing product in inventory or work in process (WIP).
Using automation, workflows, and notifications help ensure that any product change is reviewed and approved by relevant stakeholders – including external suppliers – at the right time. Likewise, suppliers can readily access relevant secure information from their buyers in real-time based on their scope of supply including specifications, approval decisions, documentation, drawings, and other information. This approach embeds the change management process in tools used by both buyers and suppliers to help change behavior and alleviate the burden of manually intensive activities.
Reason 4: Increase Supplier Engagement
Although ERPs help to detail the revisions of parts that have been ordered as part of overnight MRP runs, the context of design changes is not readily apparent to suppliers. Review on the supplier’s end should be factored into the process so that suppliers can assess implications on quality, capacity, operations, employee skills, and potential need to invest in new technologies to satisfy customer requirements. Sometimes, this process can be quite involved. Forcing suppliers to accept changes to designs without consistently involving them in a review and approval process using a collaborative tool increases exposure to both the buyer, supplier, and ultimately the end customer. Improved supplier collaboration can help to kick-start change management processes for all parties involved. This will help both organizations to better manage the costs and risks that may be associated with any particular change. Highlighting exactly what the change is, providing updated information related to the change, and waiting for review and approval by the supplier or even the buyer with a standardized workflow helps to prevent unnecessary and costly issues later on. This approach helps to share responsibility between the buyer and the supplier.
Reason 5: Improve Visibility throughout the Supply Chain
An integrated design change process between buyers and suppliers will complement an organization’s Supplier Relationship Management program. Incorporating standardized methods to notify suppliers of changes to designs will help prevent unexpected surprises upon delivery of products and services to the buyer. Similarly, this approach will also empower suppliers to notify their customers of critical changes well in advance using the same integrated design change process. In most cases, buyers demand a minimum notification period of these types of changes. This will help buyers to plan for issues that may impact form, fit, function, regulatory compliance, quality, or even safety as a result of an upcoming change being introduced by a supplier. This is typically of concern in cases where supplied components become obsolete leaving the customer to search for alternatives if they don’t already exist.
Integrating standardized design change processes helps to strengthen the relationship between buyers and their supply chain as a result of improved communications, transparency, and engagement. This approach creates value for both the buyer as well as the supplier. Knowledge sharing, opportunities to innovate, collaborate, and refine processes ultimately help build sources of competitive advantage for buyers AND suppliers.