As Steven Covey noted in 7 Habits of Highly effective people you should begin with the end in mind. When starting a direct materials data cleansing project, you need to ask yourself, what is the goal of improving the direct materials data? Cost savings? Sourcing efficiency? Improved insight through reporting and analysis? To answer these questions and achieve success, engineering and procurement need to work together to obtain the answers. First you need to know what are the overall company goals? From there all the following questions can be answered.
What data is needed to produce the spend reports that highlight big cost savings
What data helps engineers search for parts more efficiently?
What characteristics drive value, differentiation or proliferation?
What organizations own this process?
Having accurate and complete data on your direct material spend purchases enable the path to big savings. Companies need to go beyond a traditional commodity code classification of spend to get to the significant cost savings and sourcing efficiencies. Do you want to know how much you are spending by commodity? Who are the top suppliers you are buying from? Do you want to expose the fact you are buying very similar components from different suppliers at completely different volumes and pricing? More accurate and complete data information can lead to the big dollar savings. Insight like this can prevent engineers from requesting new parts that already exist and it’s the same data that allows purchasing to start consolidating spend and mitigating duplicate purchases that leads to excess inventory issues.
First you need to document your objectives and final deliverables. Here are 4 critical inputs to effective direct material data cleansing process.
Critical Spend Reports – determine the information you need to achieve significant cost savings. These are the reports that expose where the savings opportunities lie – the low hanging fruit. Having complete parts data combined with the supplier pricing statistics will give you the best results. List the reports and the key inputs needed first.
Stop the Bleeding – identify the information engineering needs to find the preferred parts more efficiently. Provide the parts by your companies preferred vendors in order to prevent requests for duplicate parts. If you don’t address this, your direct material spend will continue to escalate with unnecessary new part requests. From our experience, companies with poor data typically request 20 to 30% unnecessary duplicate parts each year – costing millions of dollars in unnecessary direct material spend.
Data that exposes proliferation vs. differentiation – define the key characteristics or attributes of parts you are buying that support product differentiation versus part proliferation. It can be a fine line to know what is acceptable and what is unnecessary. Your value engineering organization can help in this area.
Engineering and Procurement Own It – these two organizations need to be working together to determine priorities and requirements. Identify what needs to improve most? Procurement typically inherits the spend they manage from the part request made by engineering so they must work together.
It is clear that planning with the end in mind for new data cleansing projects is the key to success. For part data improvements there are many opportunities, but understanding the company’s overall objectives will help you determine where to start. Understand what reports and analysis will be needed to measure the agreed upon goals and ensure the data includes the key attributes to create those reports. Finally, it is critical that engineering and procurement work together to maximize results.
About Convergence Data
Companies with chaotic or incomplete data trust Convergence Data to scrub that information into an organized, efficient structure. The company specializes in:
Minimizing part duplication
Cultivating part standardization and re-use
Reducing part count
Improving leverage with vendors
Convergence Data enables customers to manage data in a variety of industries, including Aerospace and Defense, Appliances, Automotive, Electronics, Industrial Manufacturing, and Oilfield Services.
For companies deploying PLM or ERP solutions, the cleansing, classification, and data enrichment services from Convergence Data can be a significant benefit.