Supply Chain Management: Engineering versus Procurement

By Daniel Stanton

Engineering teams are always looking for ways to innovate, make changes, and improve products. For their innovation processes to work well, engineers often develop relationships with suppliers that can be flexible and collaborative, but this flexibility and the time invested in understanding the engineers’ needs have a cost.

Typically, the suppliers that are best at innovating and collaborating are the most expensive. Meanwhile, the procurement team is always looking for ways to get products that meet the minimum specifications at the most favorable price. The lowest prices typically come from suppliers that produce at the minimum quality level with highly standardized systems and processes. The conflicting goals between engineering and procurement can lead to tension within a company.

One of the best ways to manage this tension is to create cross-functional product teams. Engaging procurement professionals during the design phase of a product can help you ensure that you’re considering the costs of each step in a product’s life cycle. Likewise, engaging engineering teams throughout the procurement process can help you ensure that lower-cost options that meet the needs of your company and your customers are properly vetted.

Another way to manage the trade-off between engineering and purchasing is to use a design-build strategy. With design-build, there is a single contract awarded to a supplier who both designs and makes a product. That way, the designer has an incentive to keep manufacturing costs low, and the manufacturer has an incentive to pursue innovative design options.