CASE STUDY: Why Supply Chains Should be Involved in Product Design

Introduction

Poor choices of material or supplier in the design process can have a significant impact on a companys performance. The case study below illustrates a scenario where both factors were simultaneously at play.

Supply chain considerations in design need to include inventory, logistics, transportation efficiencies, customs and duties, customer responsiveness, and flexibility. The challenge for many organizations is that those involved in design tend to have little involvement once a product is launched, so they may not get to experience that supply chain in action or, indeed, live with the consequences of their decisions. Bringing that supply chain execution experience to the design table provides organizations with a great opportunity to design out potential inefficiencies and design in customer responsiveness. The term DFx (design for x, where x can mean a variety of things such as C = cost, M = manufacturability) is sometimes used as an all-encompassing term to flag the need for multiple perspectives in the design process.

Case Study

Background to the design chain

The case company (TechCo) is a high-tech electronics manufacturer supplying products to original equipment manufacturers (OEMs), who bundle these products with other products and services for end-customer supply. Given the structure of this industry, there are very few very large OEMs. We typically refer to this type of supplier (TechCo) as a tier 1 supplier.

TechCo had a significant engineering team who were responsible for product design. Engineering worked closely with these OEM customers in product design and qualification and also with tier 2 and tier 3 suppliers upstream, who manufactured various components or parts and sub-assemblies that made up the product. Initial prototypes were made in the engineering laboratories with materials procured by Engineering. The next stage was small-scale production managed by a new product introduction (NPI) group within Operations. There were a number of resources in this NPI team, mainly Project Management and Buying. The NPI group was responsible for ensuring the product could be produced in volume and produced initial volumes for OEM customers. The process of getting information from Engineering was difficult one of those scenarios where the paperwork lagged the activity of design and supply. Different information systems used by each team did not help since Engineering used Agile as their system of record; this held detailed specifications, but Operations needed the information on its Oracle Enterprise Resource Planning (ERP) system to drive demand through the supply chain.

Thus, product design (that is, new product development; NPD) was largely the remit of Engineering, and product launch (that is, NPI) was largely the remit of the NPI team in Operations. Operations had established Advanced Manufacturing Operations (AMO) to introduce new products. This unit had a capacity to assemble about 50 units/day. Once customer demand ramped up, manufacture was then transferred to the large-scale production organization (capacity to assemble hundreds of units/days).

Background to the supply chain

TechCo employed a mix of own-production and contract manufacturing in supplying the products to its customers. Parts or components were supplied by what could be considered as tier 3 suppliers. Some of these parts went to tier 2 suppliers for sub-assembly either printed circuit board assembly (PCBA) or mechanical sub-assembly and others directly to TechCo for finished goods assembly. Hence, a problem with one part would have a domino effect throughout a rather interdependent and thus complicated supply chain. A simplified schematic of TechCos supply chain is presented in Figure 1.

New part, supplier, technology, and problems

TechCo discovered the importance of supply chain involvement in product design when a problem arose that significantly threatened current and future revenues for the company. The design of $3 parts from a tier-3 supplier (supplying mechanical sub-assembly contract manufacturer) using new technology (thixomoulding) went somewhat unnoticed in the product design process. The difficulty of getting a high volume of parts became apparent when problems arose with the initial supplier and the product volumes began to ramp up from Engineering to Production volumes (from producing about 50 units/day to 100s/day). These $3 parts, in a product sold for $2000 upwards, limited sales revenue for the company for a four-month period. More significantly, there was a huge risk that customers identified for the product would move to a competitors technology and the product would fail in the market. This was avoided only by massive management attention on recovering the situation.

The designers of the part were looking for a material with greater hardness that would have less vibration than current designs. They sourced injection moulded magnesium (thixo moulded) parts from a supplier to the automotive industry. The design of the part was more detailed than parts produced in this process for automotive applications, but this was not considered further once initial parts were produced to meet specification. Through all these stages there was no SCM involvement, just design engineers making the best design decisions for product performance in the lab.

SCM became involved as the product moved from Engineering to Production in the product management process. Initial involvement was in determining the commercial aspects of supply since the tooling and initial parts had already been approved by Engineering. Shortly after this transition, the supplier went into liquidation, and this galvanized numerous activities to secure future supply at this critical stage in the product lifecycle. As this part was customized for TechCo, the tooling used to manufacture it also needed to be customized. This customized tool was owned by TechCo.

Once it was determined that the current supplier would not be a viable option for the future, the identification of alternative suppliers began and so too did the SCM functions learning curve on the detailed technology used in the production of this part. Choices of alternative sources were limited to three in the whole of North America. Initial repair of the tool by the new supplier suggested that the previous supplier had not maintained the tool correctly. Subsequently, it was discovered that the design of the part made it difficult to produce using this technology and one of the side effects was a build-up of material on the tool, which led to significant downtime for cleaning and a high potential for tool damage.

The planned production of new tools to support higher volumes was slowed down through this learning period since it was unclear whether further changes to tooling should be made to address the issues arising in production. After two months at a new supplier, it became obvious that the output expected from each tool for the part was much lower than initial expectations. TechCo had to increase its plan for five customized tools to eight tools within the first six months of product life.

Questions

1. Identify and discuss the fundamental issues that this case highlights.
2. What actions would you take to address these issues? Consider both shortterm actions and longterm learning and reconfiguration of product design and supply processes.