Building Supplier Relationships Using Digital Factories

Digital Factories Build Supplier Relationships

Ishan Bhide: Thank you for joining us for today’s session on A Guide To Building Better Relationships with Suppliers Using Digital Factories. My name is Ishan Bhide, and I’m one of the product managers here at aPriori. I’ve spent my entire career in the software as a service and contract manufacturing worlds. So I’m very familiar with procurement and supplier relationship management, as well as the various SRM software solutions companies use for supplier relationship management and to track supplier performance. Currently, as a product manager, I’m focused on looking at aPriori as a total solution across all our products to help drive more growth and adoption within our customer base.

Before joining the product team earlier this year, I worked with our contract manufacturing customers as a customer success manager. In that role, I leveraged my background in quoting, supplier relationship management, and business development at an online print shop called Fictiv, where I primarily quoted injection molding for the aerospace, autonomous vehicle, and surgical robotics verticals. I also sourced parts from our strategic suppliers here in the US and in China across all stages of our customers’ hardware development lifecycle from prototyping to mass production.

Our topics for today are discussing the goals of supply chain management, and specifically how you can build better relationships with your suppliers that lead to more cost savings and fewer disruptions. I will give an overview of digital factories, how they fit into the SRM process, and discuss considerations for whether or not you want to build supplier digital factories. I will also discuss other ways to collaborate with suppliers using custom outputs and watchpoint reports. These initiatives can not only give you a competitive advantage over other procurement teams, but can lead to mutually beneficial relationships that help both you and your strategic suppliers achieve you KPIs and improve your bottom line.

What is Supplier Relationship Management?

Supplier Relationship Management is a series of practices that help you improve the profitability of your supply chain. Initiatives in SRM might include workflow automation, real-time metrics, and streamlined management systems that help you make better procurement decisions. In most cases, both OEMs and suppliers have similar goals in their working relationships. As an OEM, you want to ensure that you’re not overpaying for what you source. You also want to reduce your supplier risk by understanding more about your suppliers’ businesses and how they operate in real-time, ultimately leading to a beneficial impact on your overall time to market, given today’s supply chain conditions which include disruptions and the constant need for risk management. Your goals for supplier relationship management include shortening the RFQ process, leading to a quicker start to the production of your parts and assemblies.

As a supplier, you want to ensure that you’re not getting underpaid for the business that you want. In the contract manufacturing world, returning customers are worth their weight in gold, and having consistency in revenue from any given customer gives suppliers higher confidence and profitability. Lastly, as a supplier, you also want to have a quick turn on your quoting and ensure that your forecasts match with the available capacity at your shops.

The Digital Factory Gives You More Supplier Information than Traditional SRM Software

For those of you new to aPriori or not as familiar with how the software is set up, here’s a visual representation of the different components of digital factories. In a way, the overall digital factory is made up of smaller databases, which contain different pieces of data. You have your cost models representing the manufacturing processes required to make your parts, like injection molding, die casting, or machining. Then you have the machine’s digital factory, which contains the machine data like injection molding machines and presses or even specific brands of milling machines and leads.

You also have the materials digital factory, containing materials provided in our baselines or any additional materials that you typically source. Lastly, the regional baselines contain economic data like labor and overhead rates and cost accounting logic around SG&A margin. When new OEM customers start using aPriori, the most common deployment methodology is to create a gold standard digital factory. This is meant to be versatile and representative of your entire supply base, as opposed to a specific supplier’s capabilities.

Even within those gold standard digital factories, you, as a customer, and our implementation engineers are updating various pieces of information, typically in these three areas: process capabilities and routing rules, actual manufacturing (speeds and feeds, time standards, stock forms, etc.), and cost accounting data with the rates. All of these combined lead to that gold standard digital factory that you can use for should costing across your entire supply base, with the assumption that scenario overrides may need to be made to tailor any given scenario to any given supplier situation.

Here are some high-level suggestions or decision criteria for what to update and why. Typically, the cost model template updates would be reserved for situations where supplier routings are substantially different from the supply base. You may also want to explore this if you do a significant amount of business with any given supplier. If this is the case, you want the closest you can get to real-time supplier data to truly represent their facilities. Customizations to the cost model template also help with automation. If a supplier doesn’t have 5-axis milling capabilities, you can choose to remove it as an option in that particular supplier’s digital factory while preserving it in your gold standard digital factory for those suppliers who do have those capabilities. Updates to the materials database could be for cases where suppliers have preferred pricing with their own material vendors that they share with you. Updates to the machines database would be for cases where suppliers have different machines than what is available in the baselines. These could be brands of mills or different 10-inch presses. The regional baseline updates would contain commercial data.

So, if you have a master service agreement or a long-term financial agreement with suppliers, the updates here would mean fewer overrides that you’d have to do on a scenario level for any given partner assembly. For those of you who deal with the contract management side of supplier relationship management, this will be a huge time savings.

Supplier-Specific Digital Factories

Now that you have an understanding of digital factories and how they’re created, let’s start exploring considerations for when to build supplier-specific digital factories. On a high level, the first question to answer is what your relationship is with the supplier and the scope of your typical RFQ with them. Are they just a commodity supplier for specific manufacturing processes for just parts, or do they handle more with sub-assemblies, assemblies, or even entire products? Next, how embedded are you already in each other’s businesses? Do they scale up with you for a new product introduction from low volume in early stages for decreasing their own learning curves all the way to production, or do you switch suppliers based on the typical supported volumes? Lastly, if you have that master service agreement or long-term financial agreement with the suppliers, it’s a good leading indicator to explore this further with your supplier.

Based on your answers, your expert services consultants can help guide you on the best path forward from a SRM perspective. If the decision comes out to not creating supplier digital factories, there are other ways to streamline your relationships with your supply chain stakeholders. There are a few more slides on what the other options are for building mutually beneficial relationships. Custom outputs are an area of our supplier relationship management software that customers could be leveraging more. In this case study, the screenshot example is from the injection molding cost model. These are the nitty-gritty details that are all calculated behind the scenes to generate should costs and cycle times. These details also provide additional transparency to the supplier on how the should costs were calculated. In most cases, these custom outputs are contained in the operational database, which means that they’re in an unstructured state. To get them in a structured state, custom outputs need to be exposed. You’re enabling them to be reported on in the reporting database. Once these custom outputs are exposed, add them to your watchpoint reports, which I’ll get into in the next slide.

You can choose to display them, which means they’ll appear in the Part Details tab of AP Professional for your cost engineers. By displaying them, you have the ability to override those specific values and recost based on supplier feedback. In general, the recommendation for custom outputs, whether you expose or display them, is to do it in your gold standard digital factories since they can be used by anyone in your supply base. One of my favorite examples of custom outputs is around cycle times. When you cost an injection molding part, you’ll see what the cycle time metric is to produce that part. Within that cycle time, the three components for injection molding are the injection time, the cooling time, and ejection time.

Calculate Total Cycle Time

When you include all three custom outputs in the watchpoint reports, your suppliers will be able to see how the total cycle time is calculated. These reports contain the data that you choose to share with your suppliers in Excel format. Configured reports are used to streamline the process, and expert services consultants can assist you in creating them. Sharing the watchpoint reports with custom outputs as part of the bid package is a great way to establish trust and transparency with suppliers. By doing so, you are running an effective SRM without knowing it, because you’re quoting on behalf of the suppliers with properly surfaced assumptions. You can also allow suppliers to redline any of the provided data. Asking suppliers how they quote and what key pieces of information they use to quote can assist in determining what to include in the reporting module.

Watchpoints can serve as a gateway to build supplier digital factories if desired, as the insights provided by suppliers can aid in digital factory configurations based on the redlines they provide when returning the reports. Suppliers would also appreciate additional configurations to the watchpoint reports, such as formatting them in a way that is more easily ingested into their own business systems, such as CPQ or ERP systems. Using these reports also opens up conversations and topics that suppliers may initially be hesitant to discuss, such as routing, material utilization, or nesting strategies for sheet metal, all of which are suppliers’ intellectual property.

Their concern is centered around how you will use the data they provide to you. Will you as the OEM go to another supplier to see what their quoted prices are using the first supplier’s methodology? Or will you simply share that methodology with an existing supplier who is already producing these parts? These are valid concerns of any SRM program that can be overcome through the use of custom outputs and watchpoint reports. Ultimately, the goal is to bridge any gap between your should costs and their quoted prices to achieve a fair price for both the OEM and suppliers. The chart provided summarizes the suggestions for your digital factory or scenario customization strategy. The x-axis measures the level of complexity or effort required for configuration and maintenance, while the y-axis measures the depth of your relationship with the supplier. That concludes our presentation for today. We hope you found it helpful. Please do not hesitate to contact us if you have any questions.