Improving Purchase-Price Variance in the Supply Chain

Dynisco Instruments, manufacturer of sensors, controls, and analytical instruments for the plastics industry, and a business unit of Roper Industries, has been using Boothroyd Dewhurst’s Design for Manufacture and Assembly (DFMA) software for the past six years. During this span, Dynisco has fully implemented DFMA throughout its business.

Applying the Design for Assembly (DFA) portion of this software to the design of new products can reduce significantly the total of parts in the assembly and total product cost. The second half of the software, Design for Manufacture (DFM), typically is used as a highly accurate cost-estimator of manufactured parts early in the design process.

It is a common perspective in the DFMA community that applying the DFA portion of the software will provide a larger improvement in product cost and ease of assembly than DFM. I agree with this opinion, but believe DFM can provide a substantial impact to a business when applied to existing part inventories within the supply chain.

For instance, we developed an effective approach for using DFM pricing estimates to assist in improving the purchase-part variance of our manufactured parts within the supply chain at Dynisco and other Roper business units.

Accuracy with DFM —  The DFM software can generate should-cost data for a large number of manufacturing processes and material combinations. The program will break down the cost to manufacture the part into the following areas; material, setup, processes, rejects, and tooling. A custom operation can be added to DFM to calculate supplier overhead costs as well as their estimated profit or margin per part. This custom DFM operation is built so it will ask the user to input a percentage for overhead and profit. Adding in the overhead and profit to the cost to manufacture the part can be considered the total “price” of the part.

Design Intent —  Another step in the DFM analysis is to review the engineering specifications of the manufactured part by taking a closer look at the part drawing. Dynisco’s Value Analysis/Value Engineering (VAVE) group has performed over one thousand different types of DFM analyses for the different companies and business units within Roper. These analyses range from machined parts, castings, forgings, and plastic parts across multiple product types and industries. The lesson learned from reexamining these parts, is that it is important to keep manufacturing process capabilities and proper material selection in mind during the design process.

Most companies use 3D modeling to develop products. The power of 3D software packages is that they allow the design engineer to model essentially any shape that they can imagine. It is important, however, to keep stock material sizes and alternate processes and materials in mind during the design process. This means, in some instances, that just because it can be modeled doesn’t mean it can be machined and be a cost-effective part. There must be a balance between the geometric features of the part that creates its function, or design intent, and the manufacturing processes and proper tolerancing capable of producing said geometry.

Supply Chain — Once the DFM analysis has been completed for each part provided by the supply chain group, the focus  turns to engaging the supplier.

Supplier Engagement and Results — After completing the DFM analyses from the supply chain parts list, the next step in this process is to prepare all of the DFM data on pricing and set up meetings with suppliers. Conversations on part price between two businesses will always be a delicate topic. At Dynisco, we take a very non-adversarial approach.

There has been apprehension from suppliers and buyers when discussions get to the level of detail on price that DFM requires. The best way to alleviate any tension is to clear the air and state that the goal of the meeting is to determine what is impacting the cost of the parts being reviewed. Another approach Dynisco has taken is to be as transparent as possible with the DFM software.

One technique is to show the supplier what assumptions were made to build the DFM analysis, and ask for suppliers' input in that discussion. In most cases, the suppliers will contest some of the inputs that have been entered into the software. Our response has been to accommodate them and make adjustments to the DFM inputs on the fly, recalculate the analysis, and determine how the changes impacted the pricing results. Asking suppliers for suggestions on how to improve manufacturing cost will further incorporate them in the discussion.

There are several benefits to this approach. First, engaging the supplier in a non-adversarial manner and asking for their input will create a sense of partnership between the two sides. Second, this process with DFM lets the suppliers know that there is a concentrated effort on the consumer side to focus on part pricing without ultimatums. Using a data driven approach for pricing with DFM can provide better results for cost savings than mandates from management to the supply base.

Yielding Cost Savings

Dynisco’s use of the DFM Process has yielded cost savings through improving the purchase price variance on manufactured parts, as well as validating supplier pricing on other parts. Applying the DFM software to parts within the supply chain will assist in identifying opportunities for potential savings, validate suitable pricing from suppliers, and provide the proper data to engage suppliers to aide in negotiations on part pricing. These results come through the collaboration of many departments in the business and engagement from key suppliers. This DFM Process outlines an approach that companies can take on products currently being produced from legacy parts within their supply chains.

But what happens when you complete a DFM analysis on every possible part within the supply chain? A Dynisco buyer recently proposed this question. The answer is to take this DFM Process and, if not being applied already, apply it to new products being developed with DFA as both pieces of the software are intended.

Once a program with DFMA is established, a business can be confident that pricing for every manufactured part in its supply chain has been thoroughly reviewed with DFM.

Additionally, every new product released has been optimized with DFA for cost and ease of assembly, and every manufactured part analyzed with DFM to be cost effective. As previous DFMA Forum papers have alluded to, DFA does identify larger opportunities for cost improvements for a business, just don’t forget the ‘M’ in DFMA. It can be just as powerful.

REFERENCES

Boothroyd Dewhurst, Inc. Design for Assembly 9.4©. Design for Manufacture: Concurrent Costing©.

Boothroyd, Dewhurst, Knight. Product Design for Manufacture and Assembly. New York: Marcel Dekker, 1994. 0-8247-9176-2.

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