New and modified processes for the strategic subcontractor

12 August 2019

Written by René Hol and Valerija Olsevska

As a subcontractor does not produce its own products, its key strategic competence is the expertise of manufacturability. However, today we see much more subcontractors going beyond manufacturing service offerings. The competition slowly pressures subcontractors to evolve from a manufacturer of parts based on provided specifications to a more added value partner of an OEM-er. To create greater value a subcontractor should “move” closer to a customer, meaning it should be able to anticipate customer’s development trajectories and co-create with a customer. This leads to increased scope of work and responsibilities of the subcontractor with respect to a customer. Of course, the focus is then set on a limited set of customers. The portfolio of customers shrinks but needs to be carefully managed to avoid risks of unhealthy dependency. At the same time this focus provides the platform for growth; it is easier to expand with existing key accounts than use the shotgun approach for a huge amount of small leads.

Companies who make the strategic decision to move to an added value subcontractor for high profile OEM-ers, implicitly decide to change their primary processes. In the past the flow was:

The new flow is focussing on providing more added value to a limited set of strategic customers:

A solid program management is a good indicator of subcontractor’s capabilities. Each customer is managed as a program. A program exists of several projects and schedules, like:

  • Engineering activities
  • Prototyping, proof of concepts
  • Pilot series
  • Forecasting and master schedules
  • Delivery schedules
  • Change procedures
  • Financials and budget; working capital funding

To ensure optimized use of the company’s resources, all resources must be managed, planned and scheduled throughout the programs of all customers. Information system must be able to deal with the different data structures. Key challenges here are in ERP and PDM systems. The PDM system of subcontractor must be flexible to manage groups of data like:

  • Generic parts (raw materials, picking goods) used for several customers;
  • Customer specific (and protected data): item definitions form the customer, link to as-engineered bill of materials (BOM) of the customer, drawings. The as-engineered BOM sometimes is at the drawing level, other customers do it on the item level;
  • As-manufactured BOM for the own manufacturing processes – related to the engineering data of the customer;
  • Customer-specific version and revision management on item and BOM
  • Company’s routing data linked to the customer-specific items/BOMs.

Organizing the program management is a challenging job for the subcontractor’s management. First, the management needs to define, develop and recruit the required skills set. Then you need to position them within the organization, which often gives stress with existing planning and manufacturing engineering people. But with the right approach the win-win situation is created for both subcontractor and a customer.

The third blog in our series will focus on the product data management more in detail. Read more about it here

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