Procurement Practices


Procurement Practices

Because of the consolidations that have occurred in the special machine tool industry in recent years and the subsequent passing or retirement of the industry’s executive entrepreneurs, customer relationships are less friendly. Customers at all levels have not felt at ease when discussing their production problems with executives in the industry who are not as knowledgeable as their predecessors were. The mutual respect and mutual assistance relationships that existed are now rare and relationships can even be adversarial.

The process for obtaining quotations and selecting a supplier for new equipment, while never perfect, was for the most part professional and honorable. The sanctity of the sealed bid principles of confidential price and the solution offered was respected. The special machine tool industry lives or dies on its ability to outsmart worldwide competition to win business based on price and concept. The sealed bid principle is fundamental to its success, even to its survival, and history demonstrates that it is the motivating force that drives progress – the dynamic value of the competitive offering.

Today, the industry is subjected to auction tactics and inappropriate use of intellectual property. That sanctity is a basic tenet of a modern free enterprise system. Ironically, that system was a very potent force in advancing the buyer’s own interest for cost and technological effectiveness, but it is apparently not understood, appreciated, or respected as it once was.

All this seems very obvious, so why do some of the auto companies persist in these methods? Apparently, they believe that the effect is limited to getting the lowest price at the time. They don’t seem to accept the fact that it pollutes the integrity of their procurement process. It also does serious harm to an indispensable supplier industry, seriously aggravates the already adversarial relationship and above all, seriously dilutes the value of their purchase. It is the “low price paradigm.” It blinds the buyer to true dynamic value and is an impediment to progress.

Some in automobile purchasing management categorize these purchases the same as the purchases of automobile components in high volume from production suppliers in various and low labor cost countries, not appreciating the difference. The invaluable benefits associated with special machine tool acquisition done in a professional free enterprise way seem invisible to some of them.

The real products of these international special machine tool companies are intellectual in nature; they are the winning imaginative solutions. The associated hardware and software is the manifestation of those ideas.

The auto industry has been through alternating phases where in one, the engineers have the selection responsibility and the next, the purchasing management has it. Invariably, a buying company recovering from difficult times or in a cost cutting mode, as most are today, gives their purchasing department the cost reduction mandate in all purchases.

The offerings in response to equipment inquiries come from competing companies from around the world with content and currency exchange rates varying dramatically, thus benefiting the buyer. They can have entirely different concepts to accomplish the desired result. Two cost components are involved. The first is the total cost of the equipment being purchased, and the second is the cost of its operation over the life cycle of the parts to be produced. Together they are the real total cost. Many factors, mostly technical, including overall viability, are involved in that evaluation. The analysis should be made by manufacturing engineers who have a good grasp of those factors and with support and concurrence from the purchasing department.