Product design has a huge number of things that it will influence as part of the supply chain.
Product design will always influence the cost of the product itself.
Product design can influence your ability and cost to service and support the product. Design drives the “Mean Time To Repair” which is the average time it takes to perform repairs. That will impact either your cost to repair it or it will impact what the supplier includes in their warranty reserve which impact the cost of the product. It will also impact what the supplier will charge for out of warranty repairs or maintenance.
Product design will influence whether you can do self repair or self maintenance or need to use the supplier. That impacts the cost of repair or maintenance on the Supply.
Product design drives the reliability of the product. The “Mean Time Between Failures” or MBTF or FITS will impact the frequency in which repair of replacement of the product will be required. That impacts your life cycle costs and investment you need to make for things like spare parts, replacement products etc.
Product design can influence your ability to manufacture a product in high volume and in a quality manner. This impact the cost to manufacture the product. the cost of re-work, the cost of scrap, the amount of inventory of raw materials, components or assemblies you need to carry to meet the needed output.
Product design can impacts your ability to change suppliers quickly and inexpensively to deal with supplier performance problems or shortages as part of Supply chain flexibility and meeting needed output.
Once your design locks you into using a supplier's product from a perspective of form, fit, or function into your design, it makes changing suppliers more costly and difficult. It may require a product redesign or re-layout. This impacts the ability to manage performance of the supply chain and its flexibility.
Designs using custom products will usually increase the supply chain lead time as there aren’t multiple sources or inventories available or being stocked by third parties. It reduces your flexibility, and increases your potential obsolescence costs as those custom items don’t have another customer and once sold the Supplier has no use for them other than in your product.
Product design for things like capital equipment influence other costs in the supply chain such as consumables, labor hours needed to use the product, energy consumption, amount and frequency of training required, amount of consumables used, frequency of service, maintenance or calibration required and the frequency and amount of downtime you will have and all the other factors in the life cycle cost of a product. For equipment that as part of the design of the product includes software that decision can impact the buyers right or cost to make changes to or derivative works of that software. It also can impact the re-sale value of that equipment if the license for the software is not sub-licensable
with the sale of the equipment.
Monday, August 15, 2011
Most Favored Customer Clauses.
In a separate post I discussed best pricing clauses and many times people view most favored customer clauses the same as best pricing clauses and focus only on price. If all you want to focus on is price you should read that April 11, 2011 post where you will see some of the problems with focusing it strictly on pricing.
Most favored customer clauses don’t have to be limited to just pricing in fact they may be more successful if you focus on the total cost of the relationship rather than price.
If you are a student of total cost you will know that there are a large number of factors that can affect the cost of the relationship other than just the price. In my book I focus a chapter on understanding costs in a supplier relationship. Sure there is price, but there is also the issue of what’s included in the price; There are also a large number of things that will drive costs in the relationship, such as: administrative costs; cost of money, time value of money, cost of inventory, obsolescence costs; costs associated with changes;qualification or re-qualification cost; field costs; hidden costs created by third parties; one-time charges; all the factors that make up landed costs; costs driven by lead-time, flexibility and cancellation; packing or packaging cost if billed separately; costs driven by performance; supplier relationship costs; supply chain costs; costs driven by the supplier’s sales model; the costs associated with the terms, risks and costs you assume; even the selling location and the impact of taxes can impact your cost.
If I felt that I was one of the Supplier’s most favored customers I would want to be given the best of all of those things that they commit to their other customers. If they make commitments to improve another most favored customers supplier chain, I want them to offer those same commitments to me. I would want anything that they offer to another customer that reduces their risk or all the life cycle costs of the relationship to be also offered to me. I want the shortest lead time, the best cancellation or reschedule terms, the most flexibility, the best of all the most favored customers. I may not elect to use all that they offer to others, I may want to only use the savings that that customer will get as leverage to have them provide me something better with equal savings.
Most favored customer clauses don’t have to be limited to just pricing in fact they may be more successful if you focus on the total cost of the relationship rather than price.
If you are a student of total cost you will know that there are a large number of factors that can affect the cost of the relationship other than just the price. In my book I focus a chapter on understanding costs in a supplier relationship. Sure there is price, but there is also the issue of what’s included in the price; There are also a large number of things that will drive costs in the relationship, such as: administrative costs; cost of money, time value of money, cost of inventory, obsolescence costs; costs associated with changes;qualification or re-qualification cost; field costs; hidden costs created by third parties; one-time charges; all the factors that make up landed costs; costs driven by lead-time, flexibility and cancellation; packing or packaging cost if billed separately; costs driven by performance; supplier relationship costs; supply chain costs; costs driven by the supplier’s sales model; the costs associated with the terms, risks and costs you assume; even the selling location and the impact of taxes can impact your cost.
If I felt that I was one of the Supplier’s most favored customers I would want to be given the best of all of those things that they commit to their other customers. If they make commitments to improve another most favored customers supplier chain, I want them to offer those same commitments to me. I would want anything that they offer to another customer that reduces their risk or all the life cycle costs of the relationship to be also offered to me. I want the shortest lead time, the best cancellation or reschedule terms, the most flexibility, the best of all the most favored customers. I may not elect to use all that they offer to others, I may want to only use the savings that that customer will get as leverage to have them provide me something better with equal savings.
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