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A difference has emerged between the equipment buying practices of the more traditional industries, such as automotive, appliances and consumer goods, and those of the life science, heavy equipment and green energy markets. The former-let’s call them Group A-have been fighting foreign competition and shrinking markets for years. In contrast, the latter industries-let’s call them Group B-have been thriving.
It would be easy to attribute the difference to profit margin and availability of funds, but I’m convinced that Group B is also price-conscious and pursues just as many competitive bids as Group A. Group B’s profit margins may be higher, but competition among machine builders is fierce, so the price of an automated assembly system will naturally be kept low from the supply side.
Does it matter that there are differences in buying habits? I think it does. I’d bet that Group B is happier with its supply base and enjoys more success with automation than Group A. So what are these differences in buying practices?
First, GM’s Lopez buying practices, called the Program for the Improvement and Cost Optimization of Suppliers (PICOS), influenced many companies in Group A during the 1990s, and their impact is still being felt today.
PICOS was characterized by:
• very short time frames for producing quotes;
• long periods without feedback;
• emergency updates over the course of several revisions;
• limited interaction with the buying team;
• delaying the contract award by several months, but requiring the original quotation to be valid.
If you believe the PICOS manual, these tactics were designed to force mistakes and create fear and confusion within the supply base. The biggest negative impact of this philosophy has been the commoditization of creativity and the requirement for “apples to apples” quotations, so that the final decision can come down to a price war with harsh, eleventh-hour negotiations.
Each assembly and test vendor has its own unique culture and experiences. When all quotes are required to look the same, machine builders cannot take advantage of their strengths and experiences to maximize the success of the project for the customer. Yes, most customers permit alternatives to be quoted as an option, but with two to three weeks to produce a quote, that just divides the effort and makes both offerings mediocre.
On the other hand, Group B companies focus more on outcomes and constraints. They let each vendor run with its best idea. As a result, they get a richer set of choices to pick from, and they maximize opportunities for vendors to leverage their strengths to produce the best equipment possible. Group B companies usually provide more time for quotes, and they require at least one vendor presentation to gain a deeper understanding of the offerings. Group B companies interact more with vendors than Group A companies. They want to visit the vendor’s shop and get to know the heart and soul of the company.
At the end of the day, the customer and the vendor must trust each other to ensure a successful project, and Group B focuses more on establishing that trust than Group A.
Second, you can’t deny that intense competition has significantly affected the behavior and psyche of Group A companies when it comes to investing in capital equipment. If they are selling their widget against a low-cost import, they have to match the price of the import just to stay in the game. Working backwards through their spreadsheets, they come up with an allowable capital cost to match the target price.
At that point, the process of specifying an automated assembly system becomes one of cutting functionality, making overly optimistic assumptions, and ignoring the lessons of history. The manufacturer might be able to procure equipment that satisfies the spreadsheet value, but in the end, it rarely performs as expected.
Like most things in life, paying for fixes later is always more expensive than the paying to do the job right from the start. The customer ends up unhappy, and that experience sparks more aggressive behavior during the next round of capital investment, perpetuating a vicious cycle.
Because their margins are higher, Group B companies build more redundancy, error-proofing and safety factors into their assembly systems. As a result, they are usually happier with the final product.
I have no idea how Group A can afford to take a leap of faith and spend more upfront when their numbers don’t prove out, but I strongly believe the performance of their assembly systems will improve if they truly look at the total cost of ownership rather than the initial price of the system.
With overcapacity in the market, now is the perfect time to wring the most from providers of assembly and test equipment. However, you’ll get “the most” by truly partnering with your builder and mutually finding the strongest solution at the lowest total cost. Certainly, you won’t get the best solution by fostering an adversarial relationship in which the vendor is operating at the thinnest margins and carrying the highest risk. Remember, an automated assembly system might run for more than a decade, even if the customer-supplier relationship only lasts for a year, so an eye to the long-term is still your best chance for success.
A 20-year veteran of the assembly automation industry, Bill Budde is regional director for corporate business development at Assembly & Test Worldwide Inc. in Dayton, OH. He holds a bachelor’s degree in electrical engineering from Kettering University and a master’s degree in international business and finance from Wright State University.
Editor’s note: “Budde on Assembly Automation” is one of a new series of guest spots by industry experts that will appear regularly on ASSEMBLY’s blog page. Check back frequently to read more commentaries from Bill, as well as contributions on vision systems, leak testing, robotics and ergonomics.