Visibility of Supply Chain Reveals The Real Success in DTC
Product design teams often overlook supply chain risks. Even if they do focus on costs, someone on the team typically must enter data into an Excel spreadsheet for each component. This approach causes data entry errors which will inevitably occur. The spreadsheet may also not include lead times, volume pricing, volume capacity, or logistics information. The live, real-time supply chain data is available in a single view. Called “ActiveBOM”, the screen displays the components in the schematic of the design plus any other off-board components.
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Electronic design teams face a daunting challenge in rapidly fluctuating global supply chain markets. Challenged with ever-shorter time-to-market requirements, design teams need to understand and mitigate against supply chain management risks during the design process. This is particularly crucial since choices made during the design phase impact 70% of the life cycle cost of a new product (See Fig. 1).
Product design teams often overlook supply chain risks. Even if they do focus on costs, someone on the team typically must enter data into an Excel spreadsheet for each component. This approach causes data entry errors which will inevitably occur. The spreadsheet may also not include lead times, volume pricing, volume capacity, or logistics information.
Leveraged Effect of Design Phase on Life Cycle Costs Source
Figure 1: Leveraged Effect of Design Phase on Life Cycle Costs Source: Military Electronics/Countermeasures, August 1990.
To gain and maintain competitive advantage, the design team needs access to real-time supply chain data to assess design choices with cost objectives in mind. This well-developed process is called “Design-to-Cost.”
Just what is Design to Cost?
According to Bill Williamson in his insightful 1994 Design-to-Cost paper, and even more relevant today, “All of the above,” is the correct answer. At the time Williamson presented this paper, design teams lacked real time access to supply chain data. Costs were developed based on printed catalogs, vendor quotations, or in-house spreadsheets. Today, procurement officers access the Internet daily to obtain real-time pricing, volume, availability, and logistics information. Unfortunately in many companies, such supply chain data remains “siloed”
in business units other than engineering.
Design teams risk compromising their company’s competitive position if they fail to design-
to-cost. Even if a product is novel, competitors will inevitably arise. Further, customers’ financial requirements, such as ROI or other pricing parameters, may play a prominent role in their buying motivations.
As a management tool, DTC requires commitment to the process, which means that cost
be addressed at all design reviews. When originally developed, organizations committed to DTC did not have access to real-time data on each of the components in a design. Today, with good collaboration between supply chain partners, electronic design teams can have direct access to component costs and availability.
The risks of not including real-time costs and supply chain data in the design process include:
Inability to identify and understand a product’s cost drivers
Unexpected actual component cost(s)
Failure to balance requirements and affordability
Creeping elegance filters into the design, increasing costs that exceed targets Limiting creative exploration of design alternatives to achieve lower cost approaches Vendor shortages or inadequate volume from component vendors
Evaluate new product concepts solely on the basis of high performance at the expense and detriment of rigorous cost analysis resulting in a failed design in the marketplace
As the multiple-choice question noted above, DTC is part of the product development process, as versus a discrete step. A commitment to DTC by the design team focuses increased attention on costs early in the design process. This emphasis naturally drives down the overall product cost. In turn, this positively impacts the company’s cost structure, competitive position, and overall profitability.
Unfortunately, creeping elegance, if not contained, can result in costly wrong turns.
As “elegance” creeps into the design, the engineer might unwittingly specify a challenging part. It might be difficult to source, have a high logistics cost, or may not be available in sufficient supply. Discovering these issues early in the design cycle will save considerable engineering time and cost on the project.
In turn, DTC empowers the design team to establish and execute against an accurate development timeline. With accurate and current cost information, the design team can initiate preventive action that avoids costly supply chain surprises downstream. They will also be able
to quickly identify other potential supply chain issues involving availability or logistics in real-time. In addition, DTC motivates and empowers designers to creatively explore cost-saving alternatives that still fulfill design requirements.
Definitions of Life Cycle Costs
Viewed from the standpoint of life cycle costs, each design decision impacts multiple areas at later stages of the product’s life. For example, a particular component may require one
or more of the following costs not mentioned previously; Special processing, increased warranty costs, additional training, and possibly other costs.
SkyRocketing Cost of Change
In addition, design teams may well encounter impacts from global or local general economic conditions or industry trends. During the great Recession in the global economy, a number of component vendors have disappeared from the landscape.9 For teams designing a later
generation release of a key product may find that the originally specified vendor has gone out of business. Further, as is typical in economic downturns, the number of suppliers in virtually every segment of industry tends to narrow, limiting sourcing options and possibly raising prices.
Summary of DTC Process
Ongoing management technique
Establishes cost as a constraint from the outset of the design process
Collaborative effort between management, supply chain executives, and design team All team members commit to cost targets, development budgets, and design timelines. goals need to be sensible and achievable to the design team Impossibly high goals will be ignored 10 goals that are obviously too low do not generate team commitment to achieve them Once established, DTC needs to be continued to the end of the product’s life since additional cost-saving opportunities will arise during later production, operations, and support phases.11 Without DTC, the functional elements of the corporation will execute according to their perceived best interests.
Cutting design engineering budgets may result in a less than ideal product for manufacturing, driving up material and labor costs.
Slashing test engineering budgets may well result in a lower level of automation and higher recurring test costs during production.12
Cost cutting on components by procurement managers may result in increased downstream warranty issues, more rework, and lower customer perceptions of the end-product.
Altium recognized that customers needed to establish common ground between their design and supply chain teams to implement the Design-to-Cost process. As a result, Altium Vault can contain access to centralized real-time, ready-to-use, qualified electronic data for every
component in the design. This includes all data needed to fabricate, load, and assemble boards.
Side-by-side fields compare actual BOM cost to target BOM cost before and during the design process and also includes other relevant supply chain information.
ActiveBOM with side-by-side fields to compare actual vs. target BOM costs
As cited above, immediate knowledge of cost, availability and lead times at early stages of
the design process profoundly impacts design decisions. In turn, those decisions at the BOM level impact the overall life cycle costs of any product. This dynamic database incorporates real-time data from component vendors, eliminating data transfers from other departments, duplicated effort, and human error. The database provides design teams with with a direct link to access ERP/MRP-based supply chain data.
ActiveBOM dynamically maintains and updates the supply chain visibility cost of data for each component in the vault library. This establishes the ongoing cost parameters for the design. In addition,
designers are often tasked with “BOM scrubbing”, a cost-focused redesign in the event that one or more design components are in short supply or about to become obsolete. With ActiveBOM, the team can revisit the supply chain data in the vault-based design. The database solution
will immediately provide clear choices for suitable alternatives, eliminating much of the pain associated with sourcing replacement components.
Design decisions have an accumulative impact on the life cycle cost of a product. Choices made during this phase can contribute as much as 70% to the overall cost. Employing a sound design- to-cost methodology, backed with a real-time and accurate view of cost implications, empowers design teams to make the best decisions upfront.
ActiveBOM makes design-to-cost a living process. By dramatically improving the cost visibility of the BOM, design team managers can immediately assess the cost of a design change.
As a result, the dynamic supply chain database delivers finvaluable fact-based chain management decision support, facilitating go / No go decisions.
When the design engineering team implements ActiveBOM, they also can eliminate unexpected costs associated with seemingly simple revisions. As another exercise, the design team can quickly and safely launch a cost-driven evaluation to reduce the BOM cost to the benefit
of product margins. In turn, improved margins drive increased corporate profits.