This past week we lost the opportunity to put a stainless producer in front of our MetalMiner audience (for a white paper sponsorship) because the producer felt that, “what we’re looking for is really specifiers over purchasers. The value proposition had to deal with looking at the project lifetime costs of stainless vs. carbon steel. The producer felt that decision belongs with the specifier. But as a sourcing professional, I know that many of you obsess over total cost of ownership, total landed cost and total project lifetime costs (or whatever you want to call them). In fact, we conducted a webinar with software company Zycus and Purchasing Magazine on the topic of total landed costs and hold a record for most attendees at a webinar (The bulk of that audience had the title of purchasing manager, category manager or some other sourcing title). So we get it in terms of the importance of these concepts. But what I don’t understand completely and would like very much to open this up to your feedback involves one concept and one concept only:
In 2010, who drives product selection and ultimately the buying decision? Is it engineering? Is it the specifiers? Is it purchasing or a combination thereof?
My hypothesis: Increasingly, the sourcing organization has taken over the role of examining total project costs, total cost of ownership and certainly total landed costs in the case of global sourcing.
Wait before you throw the tomatoes (you engineers and specifiers). Let me explain. Of course with new product development, engineers drive material selection. For major capital projects in the oil and gas industries, for example, specifiers and project managers definitely play a big role in specifying materials. But I would argue that we have seen a few shifts take place in recent years challenging the notion that specifiers/engineers make all of the material selection decisions.
Let’s start with the hot topic in 2009 of improving working capital. We can’t think of many organizations that did not feel the need to improve working capital. With a relentless focus on reducing inventory and moving toward leaner models, we saw for example, purchasing managers examining lead times for “special and non-standard parts and materials to work collaboratively with engineering and specifiers to identify alternative materials and parts in an effort to shorten lead times as part of an inventory reduction initiative.
We have seen plenty of examples of companies that regularly purchase die-castings, that continuously examine the trade-offs of making material changes from say zinc to aluminum (particularly when zinc costs more per pound and aluminum offers a second benefit of weight savings). Who leads those decisions? I would contend the purchasing/sourcing organization in every case drives those decisions.
Finally, during the commodity boom of 2008 (pre-crash) for the first time in a long time, we saw senior executives of major corporations turn to the purchasing organization to either help manage raw material price volatility and/or drive cost savings throughout all direct material purchases. We would contend that purchasing led their organizations to switch from high cost nickel containing stainless 300 series materials to lower cost 400 series alternatives. Of course engineering and the specifiers had a major role in those changeovers but the initiatives started with either the executive suite, operations or purchasing. They rarely if ever start with specifiers or engineers.
Of course, I speak only anecdotally based on my own consulting experience working with a broad range of organizations. Am I wrong? Who drives material selection decisions in your company? Tell us!