MINI CASE STUDY
PRE-DRIVING CONTROL SYSTEM COMPONENTS
Approaches to Pre-Driving Control System Components
Recently we’re seeing more businesses buying or “pre-driving” the raw material needed for their control systems.
Scenario 1: No Outsourcing Strategy
The company plans to do assembly work in-house. Parts are purchased as demand appears, or in anticipation of demand after design is complete. Cumulative lead time is a function of the longest lead time component, plus manufacturing time.
Scenario 2: No Outsourcing Strategy + Pre-Driving Components
The company plans to do assembly work in-house, but is purchasing the known long lead items in advance, in an attempt to compress lead times once design is completed. While this strategy has been around for some time, it became even more popular in recent years due to widespread supply chain disruptions.
Scenario 3: Outsourcing + Pre-Driving Components
In a hybrid approach, the company intends to outsource manufacturing but is deliberately pre-driving the long lead material themselves. This could be for the following reasons:
- The Engineering Team needs the raw material for “fit checks”
- The company is large and leverages superior contract pricing
- The company hasn’t yet selected a manufacturing partner
Scenario 4: Shifting from In-House to Outsourced Manufacturing
The company has purchased all the raw material with the intention of building in-house, but now has insufficient manufacturing capacity, and needs to outsource.
With Scenarios 3 & 4 a transfer of the raw material from customer to the chosen outsourced manufacturing supplier must take place.
Customer Supplied Material—When your customer is also your supplier, you’ll need to proceed with caution. For one, those that are skilled in sourcing, purchasing, negotiations, etc. may not be aware of all the nuances in supplying those items. Considerations need to be made for how and when the material is transacted and transferred. Product based customers may not have these processes in place. Delivery without a transaction can create inventory issues and loss of visibility. Worse, delivery without any paperwork, could result in misplaced items, transfer to MRB, and delays in manufacturing.
With Customer Supplied Material there needs to be a transaction.
- Transact the material at full value – The company should provide the outsourced manufacturing partner with a list of the parts that includes Manufacturer Name, Manufacturer Part Number, Company Part Number (if one exists), Description, Quantity and Unit Price. The supplier will then issue a purchase order to the customer. The customer will deliver those items with packing slips and will then invoice the supplier. Not ideal, but doable.
- Consignment – With consignment there still needs to be a paper trail or you lose visibility and run the risk of material being misplaced. We recommend the supplier issue a “zero-dollar PO” to the customer. With consignment, the value of the goods provided by the customer will then need to be reduced from the final quote. But herein lies the problem. For companies measuring their Purchasing Teams by PPV (Purchase Price Variance), the subsequent orders where the supplier is providing the same assembly turnkey (sourcing all the material independently) will be at a higher price. Upper management may not be aware of the consignment arrangement on the first order and this supplier will appear to have given a cost increase.
Talk to Us!
Whether your company is determined to supply some or all of the raw material or you’d prefer a simpler approach, give us a call to see how we might help. At the very least we can tell you the real lead times on the parts you’ve specified and make recommendations for alternatives.
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