Traditionally, the external value-add is managed by procurement, based on specifications created in-house. Engineering designs the parts and products, and procurement starts to procure the parts. Although it is well known that this kind of process will not lead to good results, it is still common practice, especially in the machine building and plant construction industry.
Design-to-cost, value engineering, cost engineering and procurement programs continue to be set up to collect potential savings by bringing engineering and procurement together, addressing existing products and trying to gather ideas for future products. But the way of working does not really change in a sustainable manner. So at least one or two years after a respective project, we continue to work in our very classical silos: engineering designs the parts or products and its specifications, and procurement tries to get the best commercial offer globally.
Is that good for us as consultants? Yes, on the one hand it is, because we can do similar projects every 3–4 years; but in the end, it’s just frustrating for everyone involved (including the consultants)!
But how do we create sustainable change?
From my perspective, the traditional organizational setup has an inherent stability, bringing all players and stakeholders back to their starting points after 12 to 18 months.
Changing organization and work styles requires more radical approach. Setting up product-driven organizations in charge of all cost, including internal and external value-add based on real total cost, drives entrepreneurial behaviors in organizations and breaks up outdated routines. It is no longer about engineering, procurement, production, … it is about finding a joint best solution with a total cost advantage.
The procurement function within a company should not be focused on the procurement organization; it is the company’s task to manage external value-add in the best way possible, taking suppliers’ know-how and production capabilities into account.
Although commercial and contract know-how is key when it comes to signing contracts and agreeing on cooperation, technical know-how and interest is required to discuss, create and weigh alternatives.
Since all this is well known, but only applied in a very limited number of companies , we have started discussing and implementing pilots for digitalization and industry 4.0 applications throughout the industry.
How do digitalization and industry 4.0 initiatives help?
Just fine, if we take these initiatives and buzz words as a vehicle to improve and professionalize our way of working; but it’s just another frustrating exercise for companies if we don’t bring the people and key players of engineering, procurement and production together.
For the near future, successful companies in the industrial sector will be companies with well-cooperating workforces in joint entrepreneurial organizations, not necessarily those with the best systems and platforms. It’s the people who make the difference!
(Author: Michael Santo, h&z Managing Partner)