Lesson 5: Procurement and Use


Lesson 5: Procurement and Use

This is probably the most important lesson of all. It’s an old lesson of the free market system and must be continuously re-taught, as it is often too easily forgotten.

Let the free market system work!

  • Value based procurement choices

  • Value based (W3) “life’s work choices”

Exploit the system to the maximum advantage of the buyer in finding the best value. As unlikely as it may sound to some, this will also be to the maximum advantage of the seller in a truly free market. The seller must go all out on every competitive exercise and win orders based on its ability to out think its competition. It will grow to be a better company because of it, benefiting all. Encourage alternative solutions and evaluate them shrewdly and fairly. If Jeremiah Wilkinson could revolutionize the production of nails in 1776 and a special machine tool company could revolutionize the way small pistons are manufactured in the 1970s, think of what might be done in the early third millennium with technology exploding all around us, all in an effective, competitive environment. That creative energy will thrive only in an environment that rewards on the basis of fair and intelligent use of the free market system. Fair exploitation sounds like an oxymoron, but in fact it is the key to the system success. Fair in this context means protection of the bidders’ proprietary submission – selling price and concept offered and value based choice. Yankee ingenuity will flourish in this environment.

  • There is an imperative need for a universally fair, high-integrity, competitive sealed bid process.

  • Special machine tool purchase decisions in the global market of today must be value based without regard to country of origin or other non- essential issues. These decisions should consider the uniqueness of their local manufacturing environment, their motivation level, knowledge and pertinent cultural factors.

  • Redesigned internal financial and legal mechanisms of buying organizations to make progressive payments available in appropriate cases will greatly benefit all concerned and will help perpetuate the industry through the reduced financial entry barrier. The cost to the buyer = zero!

  • Work rules and the motivational levels in many American manufacturing plants must be modernized for advanced technology to have any meaning. Very competitive parts suppliers, domestic and foreign, will do that for them, over time, if they do not. It may be their only opportunity to survive and prosper against low labor cost worldwide producers.

  • Lean production and agility, discussed in addenda, must be rationalized for, or overlaid on, the mission of any organization to determine their most effective formulation. They are not a “one size fits all” commodity.

Two puzzling questions regarding current special machine tool procurement philosophies;

  • Why do the procurement practices/tactics of Jose Ignacio Lopez de Arriortua, who is alleged to have betrayed the extraordinary levels of trust vested in him by more than one auto company, still prevail? He failed to effectively exploit the American competitive free market and the magic of Yankee ingenuity for his company because he obviously didn’t understand them. He prioritized personal power and instantaneous low price gratification over the true dynamic value of an acquisition as it’s reflected in the cost and quality of its own organization’s final products. He infected the American free enterprise system with a low price paradigm virus. (Low initial price by itself has little meaning in the assessment of the value of an intellectual product.) The demonstration of his own lack of personal integrity certainly should call into question the practices he institutionalized and are still in use by some companies today, a decade later.

  • Why standardize a manufacturing process and its hardware for multiple and international facilities, disregarding local culture, local contribution, and responsibility, and effectively freezing the entire capability in a time when both product and production technologies are, or should be, advancing exponentially?

The Government’s Role

The U.S. government, unlike those in Germany and Japan, has very little current knowledge of the special machine tool industry, and therefore, has even less sensitivity to its plight and its impact on other manufacturing. The local Congressional representatives may be aware of the existence of some of the companies, but apparently have less than a true appreciation of their role in American manufacturing. The industry has always been very low profile with regard to government involvement probably by the design of the original entrepreneurs. Their preference was to keep the government out of their business, exercising their independence.

There has not really been a serious cry for help and that is not the case now. It seems, however, that other industries enjoy a high profile with their representatives and get help in the form of subsidies when market conditions head south. It at least shows recognition and sensitivity.

In the global markets that exist today, it would be impossible for the relatively small special machine tool companies to make a case with a foreign government that a competing company might be enjoying some unfair advantage.