Using Simulated Manufacturing to Save in Supplier Negotiations
How can cost management teams work with suppliers to bring down costs? The key is collaborative supplier relationships supported by granular data on how much components should cost if efficient manufacturing processes are followed.
In this case study, we look at how Solar Turbines uses aPriori to simulate manufacturing for parts, identify cost-saving opportunities, and ultimately conduct mutually beneficial supplier negotiations.
The ProblemReduce Product Costs While Ensuring Successful Suppliers
The SolutionUse Data-Driven Insights from Digital Factories to Inform Fact-Based Supplier Negotiations
Who is Solar Turbines?
Based in San Diego, California, Solar Turbines is a wholly-owned subsidiary of Caterpillar Inc., which designs and manufactures industrial gas turbines, electric motor drives, gas compressors, energy storage, and digital solutions. Their offerings support applications including onshore and offshore electrical power generation, marine propulsion, natural gas/oil production, and heating/power generation for universities, hospitals, and industrial facilities.
Their 16,000+ solar units installed across 100+ countries have logged over a billion operating hours, supported by 8,000+ global employees.
Problem: Reduce Product Costs Without Threatening Fair Supplier Profit Margins
Solar Turbines’ costing team fields requests from across the company’s entire global supply chain. They needed a technology to generate robust should cost models and power a strategic move to fact-based supplier negotiations. Solar Turbines is committed to supporting successful suppliers through collaborative cost reduction, and the right technology would need to help pinpoint savings opportunities with suppliers, not seek to erode fair profit margins.
They selected aPriori as the technology that could not only model product costs with the use of digital factories, but provide the data management tools necessary to create an organizational repository for tracking and validating key cost data.
Solution: Use Data-Driven Insights from Digital Factories to Inform Fact-Based Supplier Negotiations
Using aPriori’s digital factories, Solar Turbines can simulate manufacturing to generate should cost models for specific parts and components. Solar Turbines’ cost management team employs an extensive validation process to ensure that the inputs and parameters used to configure the digital factory reflect their experience with a part’s manufacturability and cost structure. Digital factories can be updated to reflect different parameters in a matter of minutes, enabling iterative reviews between the cost management, engineering, and supply teams which help ensure that simulated manufacturing outcomes are highly-accurate and ready to provide value-added insights for subsequent supplier negotiations.
Once a model is validated and the cost management team is confident that it aligns with both product and supply chain strategy, it can be used to conduct fact-based negotiations with suppliers. The manufacturing cost models generated by the digital factory can be configured to reflect the specific capabilities of suppliers and make apples-to-apples cost comparisons. Solar Turbines also uses aPriori to generate optimal routings that reflect the most efficient manufacturing approach possible.
Once negotiations are completed, any savings achieved as a result of the negotiation are saved to Windchill, Solar Turbines’ PLM (Product Lifecycle Management) tool. Lessons learned from the cost modeling effort and supplier meeting are recorded to guide future cost reduction efforts.
aPriori is also used to conduct batch analyses and find quick wins for cost reduction. Batch pricing models generate price points for different batch sizes depending on production volume. This information allows Solar Turbines to compare tiered pricing (based on volume discounts) to operational requirements like desired inventory levels.
Results: Cost Reduction Through Collaborative Supplier Relationships
This approach helps bring down costs and reassure suppliers that the end goal is not eroding their margins, but finding mutually beneficial opportunities for cost reduction.
In one case, Solar Turbines used aPriori to model manufacturing for a component estimated to take 17.5 hours of welding time–but the supplier had been quoting 40 hours. A discussion with the supplier helped identify unnecessary weld grinds being performed for each cycle. This single negotiation ultimately resulted in savings of about $450 per part.
In another representative supplier negotiation, aPriori uncovered a key material cost reduction opportunity. Solar Turbines had access to a material internally 50% cheaper than was available to the supplier. By purchasing this material directly, Solar Turbines was able to reduce per-component costs by 15%.
In the following video, Solar Turbines specialists share this story:
Moving forward, Solar Turbines is already hard at work expanding its aPriori implementation from sourcing and cost management work to the design phase. In one case, aPriori helped recognize hard-to-machine design elements driving poor material utilization rates for a component. Exploration of the design alternatives boosted material utilization from 18% to 42%, driving savings of over $65 per part during the initial design stages.