Browse Publications Technical Papers 2007-01-3841

What Goes into Your Parts is More Important than Where You Source Them 2007-01-3841

On the whole, strategic sourcing and supplier rationalization have been successful Original Equipment Manufacturer (OEM) strategies. Often ignored however, are some of the longer-term ramifications of strategic sourcing and supplier rationalization that are less favorable, particularly if, in the process of embarking upon these strategies, an OEM looses visibility into and/or relinquishes control over, the finished part bill of material (BOM). Finished part BOM is defined as all of the material “inputs” that go into a manufactured part materials such as bar, sheet, tube, wire, fasteners, etc. This negative consequence of outsourcing, the loss of BOM visibility and control, can dilute and even undermine the very strategy that spawned it. On the other hand, the strategic sourcing organization that manages to maintain visibility and exert influence over finished part BOM, irrespective of where parts and assemblies are ultimately manufactured, will tap into one of the most frequently overlooked and greatly underestimated frontiers for OEM cost reduction, supply chain efficiency and performance enhancement. If strategic sourcing is not done in a way that maintains OEM visibility and control over finished part BOM, it will ultimately render those costs “uncontrollable” and significantly jeopardize the OEM's ability to improve service levels to its customers.


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