I interviewed Juergen Thurner who discussed How Product Design Impacts Supply Chain.
How does product design impact the supply chain?
Okay, first of all, good morning Dustin to you. Thank for this interview, for the opportunity to speak about the subject of how a product design influences supply chains and just coming to your first question. I mean, it's pretty obvious that when you think about the product life cycle which starts with typically with a concept. Somebody has an idea about a product, more people have an idea, then they develop this concept of the product together and once the concept is ready then they go into the real design work which is the eCAD drawings and mCad. The eCad depending what the product is, maybe a plastics design, housings, some are finishing some all of these kind of things. During the product designs--design engineers take decisions based on that they believe would be good for the product, but they very often do not think about, okay, this product needs to be manufactured somehow, this product needs to have component in, components need to be sourced where do we get this components from, all the suppliers for these components and all these kind of questions. Whatever they decide during their design process has a direct impact on the efficiency of the supply chain.
I'll give an example, design engineers typically, and I can say that because I'm an engineer as well by education, they want the greatest and best components in a product, they want to have the highest functionality, the most features in their product because they are just design engineers. That’s a natural thing. Therefore, they may tend to see that components which are overly expensive for--or which are over-engineered, meaning containing features and functions that are nice to have in a product but not necessarily required for the basic function of the product. So there is a buzz word called 'just enough technology'. If you take that into consideration while you design your product, just enough technology, just build in what you need for your product, just specify your tolerances as narrow or as wide as you can and only as narrow as it's required for the functionality.
If you do that, then you may end up with a right components with a right functionality and therefore at the end of the day, with the right product cost. If you don’t do that, if you--if you create the fanciest and the highest sophisticated functions in your product, you may end up with a product that’s completely great but it's totally expensive, nobody wants to buy because it's too expensive. It has too many functions for the user and that’s a direct impact on the supply chain.
Furthermore, you may select components from suppliers that are maybe niche suppliers, that are exotic suppliers, suppliers with a location in very remote places in the world. The cost of components, the shipping transportation, logistics to the place of manufacturing might become really expensive which also has a direct negative impact on the cost of your product and therefore on the supply chain. The bottom-line of the thinking here is this that in every product life cycle, let's say if you think of a product life cycle, from concepting to design to volume manufacturing to end of life and to support the phases and also to the reverse supply chain, meaning, return, recycle, refurbish and so forth, repair also, that’s the entire product life cycle.
If you think about the entire product life cycle, then it's clear that in the supply chain, money is spent or money is saved in terms of your product cost. That’s what design people need to take into consideration, all these dynamics of today's supply chains. Typically design engineers, they know a lot about mechanical designs, electrical designs but they do not--know not much--they don’t know much about supply chain dynamics.Here is when the purchasing people come into the play, into the game. But this brings--typically, the classical purchasing people into the game. This doesn’t make the situation better, it makes the situation maybe even worst because sourcing people typically are paid against how much they save on components or whatever they purchase on the market for the company.Their priority is to buy the cheapest components but this this behavior also has a very negative impact on the entire supply chain, of the entire supply ecosystem, because when you only buy what sourcing organizations typically do, they separate a product into commodities.
So for example a display would be a commodity, the main board would be a commodity, the housing would be a commodity, plastic parts would be a commodity, battery would have been a commodity, interconnects would be commodities, cables and so forth. So they divide a product into commodities and then they source on a very low level, meaning, on a very detailed level, they source components at the cheapest price because that’s what they all paid for, to save money for the company which means sourcing the cheapest components.
Then you may end up with a so called best bill of material, best BOM, which means the cheapest possible summary of cost for all individual components added up for the product. But that not does not necessarily represent the base supply chain because you may end up with a supply chain with a ton of different players from all over world, you're having a huge effort for logistics to bring all these components together to the place of manufacturing for your EMS or contract manufacturing partner, you have to manage all these different suppliers and therefore, this does not create the best supply chain either. And at the end of the day, such a supply chain maybe more costly than a supply chain that was purposely designed.
So what needs to be done, it's very important that a design engineers understand supply chain dynamics, purchasing people understands supply chain dynamics and the backside of this best BOM sourcing. They need to come together and maybe what they need to do is they need to find the so called diamond suppliers. Those are suppliers who not only provide components but who can also provide engineering services, all component integration services like take their own component and the component from another supplier and integrate it into their component so that you as the end customer, you purchase the higher integrated product, let me say a module rather than a component which takes a number of players out your supply chain and moves it in the supply chain of your suppliers which is easier for you to manage and to handle that. It cuts logistics cost, that cuts cost of managing suppliers and that speeds ups--speeds up supply chains and it's very important that sourcing people, design engineers, they understand these dynamics, they come together, they see like the so called diamond suppliers even in very early concepting phases. They should bring diamond suppliers to the table as well and ask them for their help in the development of the design of your product.
So co-creation is the--is the magic word. Co-creation with your key suppliers, with your diamond suppliers. If you're able to this and if you are open enough to bring external design problems like the design engineers of your suppliers to the table to create your product then you will end up with the extremely lean supply chain because it contains only a few players and that makes a supply chain agile. So what you get a lean and an agile supply chain at same time. This is, nowadays called under a buzz word called lean agility, it's a combination out of lean and agile and this exactly what you need to strive for in order to produce your product at the lowest possible cost in total, not only cost of components or cost of the product but also cost of the supply chain, that’s the idea we had. So that was a lengthy answer to your question, does that make sense?
Can you provide a brief background of yourself?
I have almost 30 years in the high-tech electronics business, I have an engineering background. After university. I started working in manufacturing for Hewlett Packard in Germany. And did that for a couple of years, took over responsibility for the entire surface mount assembly department. Then after a couple of years, I moved into test and measurements at HP and then until 1999 I ran a group of sales people, I was a sales manager by then with a group of sales people dealing with telecommunication industries providing the telecommunication industries with test and measurement equipment.
Then I moved to the EMS industry and served as a direct to business development for global accounts like Siemens for a number of different EMS suppliers. Then I worked a couple of years MFLEX which is a US-based supplier of flexible printed circuit assemblies dealing with a small phone industries and during that time I go into the situation that I had to dive deep into the supply chain thing because one of customers was Sony Ericsson. And Sony Ericsson did exactly what I just described, they only source the cheapest components. We, as an American company, we could not compete the Taiwanese and the Chinese suppliers of flexible printed circuit assemblies so, I have to find out different ways to be successful with my customer.
What we did then by that time, we built the first Sony Ericsson smart phone which was the Experia 1. We did a reverse engineering, disassembled the whole thing, we analyzed their supply chain and we came up a conclusion and the proposal to Sony Ericsson how to streamline their supply chain. I did that in cooperation with Dr. Henry Polmey he is the headmaster of Aachen University in Germany and he was at least in Europe, very famous for being a supplier chain specialist because he once concepted and designed a factory for HP which was called the solution factory and his factory won like 3 industry awards in a row for the best logistics concepts. And from him I learned my supply chain background and together with him, we created a proposal for Sony Ericson how to streamline their supply chain by modularization by doing different things in product design. And that at the end of the day brought me into this supply chain thing today. I'm working as senior advisor in subjects like supply chain design with a Swedish consulting company called MTEK consulting MTEK Development and what we do is proving consultancy and advice to our customers in the electronic space in terms of one is operational excellence and the other one is supplier chain design. That’s, in brief, my background.
About Juergen Thurner
Senior Advisor at MTEK Development AB