1、Design-powered sourcingOur unique approach to enhance sourcing to drive step-change improvements in gross marginFrom building cross-functional teams and deep diving consumer insights to leveraging advanced technologies,we outline the focus areas necessary to create a seamless integration between pro
2、duct design and sourcing.As we navigate the complexities of the modern business landscape,it is clear that the traditional boundaries between functions must dissolve.The future belongs to those who can harness the power of interdisciplinary collaboration,and design-powered sourcing stands at the for
3、efront of this paradigm shift.We hope this whitepaper serves as a valuable resource for executives,procurement professionals,and designers alike,inspiring them to rethink their strategies and embrace the potential of design-powered sourcing.By doing so,we can create products that consumers fall in l
4、ove with,while driving sustainable growth and innovation.Bharat Kapoor Global Lead and Partner,Kearney PERLabIn todays rapidly evolving marketplace,the synergy between product design and sourcing has become a crucial driver of competitive advantage.As consumer demands grow increasingly sophisticated
5、 and the global supply chain becomes more complex,companies must adopt innovative approaches to stay ahead.This whitepaper on design-powered sourcing explores the transformative power of integrating design principles into sourcing strategies.The concept of design-powered sourcing goes beyond traditi
6、onal procurement practices.It emphasizes the importance of collaboration between designers and sourcing teams from the very inception of product development.This approach ensures that every component,material,and supplier choice aligns with the overarching design vision,thereby enhancing product qua
7、lity,reducing costs,and accelerating time to market.In this whitepaper,we present our unique strategic RISE framework,highlighting key benefits such as improved product innovation,increased supply chain resilience,and greater sustainability.We present case studies from our project experiences where
8、leading companies have successfully implemented this approach,showcasing real-world examples of how design-powered sourcing can drive business success.Moreover,this whitepaper provides practical insights and actionable recommendations for organ-izations looking to adopt design-powered sourcing.Forew
9、ord1Design-powered sourcingThe vital role of sourcing in company performanceOver the years,as supply chains have become more global and complex and demand has become less predictable,sourcing has evolved significantly.Today,leading companies have advanced beyond basic sourcing techniques to keep the
10、ir external spend in checkfor example,issuing RFQs or conducting reverse auctions for major direct and indirect spend categories.Some organizations have assembled cross-functional teams to creatively impact supply and demand power across their external spendfor instance,by changing the nature of dem
11、and,seeking joint advantage with suppliers,or playing suppliers against one another.The most forward-thinking companies go even further,applying advanced scenario planning,leading-edge analytical tools,and comprehensive supply management approaches.This helps generate deep visibility into how the co
12、mpany spends money,and with whom,to continually uncover opportunities for improvement.Sourcing is a core discipline for every company.It enables organizations to purchasefrom qualified suppliers at the right pricethe goods and services they need to operate and produce goods for their customers.Stron
13、g sourcing capabilities are fundamental to profitable growth and competitive advantage.They help ensure a company spends its money in the best possible way given the businesss strategies and objectives,while enabling the business to buy what it needs most efficiently and reducing supplier risk.And t
14、hey are crucial to helping companies thrive in todays environment character-ized by growing urgency to reduce costs,boost supply chain resilience,and increase operational and product sustainability.Strong sourcing capabilities are fundamental to profitable growth and competitive advantage.2Design-po
15、wered sourcingChallenges with traditional direct sourcing approaches The procurement team may lack the data to comprehensively bid out the product(for instance,the team does not have the products bill of materials BOM).Sourcing teams have limited visibility of the upstream and downstream value chain
16、 complexity challenges and opportunities,which means they do not have an end-to-end view of costs.External challengesThe external environment can be just as challenging:Procurement teams often rely heavily on incumbent suppliers because it can be time-consuming and difficult to qualify new suppliers
17、 that can provide alternate materials or components,or new ideas for how to make a finished good.Complex design choices limit the degrees of freedom to make changes to a products constituent parts or materials which,in turn,reduces purchasing power.The entire sourcing process suffers from lack of tr
18、ansparency into how procurement could influence the materials used to make a product due to complex cost factors such as proprietary intellectual property or tooling.The fact is,while traditional sourcing approaches do generate significant value,companies stand to realize even more if they could ove
19、rcome the challenges that continue to limit sourcings impact.That said,even the most advanced,sophisticated sourcing approach has its limitations,particularly when it comes to direct materials spend.Money left on the tableFor instance,as much as 80 percent of a products costs are locked in during th
20、e design stage of its development,meaning procurement has little ability to influence the cost of the items needed to make the product.Additionally,up to 30 percent of value is left on the table during sourcing due to challenges in qualifying new suppliers and managing SKU proliferation.This trapped
21、 value is not due to any inherent shortcoming in traditional sourcing.Rather,it stems from the fact that sourcing direct materials or finished goods is subject to various internal and external challenges that are difficult to address through traditional sourcing approaches.Internal challenges A numb
22、er of internal challenges prevent traditional sourcing from generating greater value:Brands often resist product changes(for example,incorporating new materials or components)due to fear that doing so will dilute the products identity or values that connect with customers.R&D can lack the bandwidth
23、and resources to redesign the products composition or qualify a new supplier that provides an alternative input.3Design-powered sourcinga businesss core values.In totality,this is what companies need to withstand the pressures of an ever-evolving market landscape.It transcends the conventional focus
24、 on cost-cutting,elevating sourcing to a strategic partner in the organizations growth.By integrating a circular end-to-end product life cycle design thinking approach,companies can reimagine their procurement processes,foster deeper collaboration with suppliers,and unlock unprecedented value.This a
25、pproach is not just an option;its an imperative for companies that wish to thrive in the competitive landscape of tomorrow.The future belongs to those that embrace DPS to transform their supply chains into engines of creativity and progress.Recognizing the opportunityand the urgency in todays fast-p
26、aced world of global commercethe boldest companies are rethinking how they source.In doing so,they are embracing the concept of design-powered sourcing.Imagine a scenario where a companys supply chain is not just a cost center,but a hub of innovation and competitive advantage.This is the promise of
27、DPS,which builds on traditional procurement paradigms and offers a new lens through which to view supplier relationships and value creation.At its core,DPS is about embracing empathy,fostering collaboration,and encouraging experimentation within the sourcing process.It has the potential to enable co
28、mpanies to not only respond to immediate challenges,but also to proactively shape the supply chain to be more innovative,adaptable,resilient,and aligned with Design-powered sourcing has emerged as a new competitive imperativeThe future belongs to those that embrace DPS to transform their supply chai
29、ns into engines of creativity and progress.4Design-powered sourcing Improves pricing transparency while challenging specifications to unlock sourcing agility and improve resilience Enables volume consolidation by harmonizing specifications Drives implementation efficiencies(cost and time)by moving t
30、o more standard designs and components Uses supplier capability and innovation to generate product design ideasWhile traditional sourcing generates significant benefits,DPS takes things to new heights,boosting value creation by up to 3X and overcoming barriers by integrating a true end-to-end produc
31、t lens.DPS amplifies the benefits of traditional sourcing in four important ways,driving long-term value creation and speeding product time to market(see figure 1).By integrating sourcing with product design,DPS:Takes a consumer-backed approach to improve design while managing cost and providing deg
32、rees of freedom in evaluating alternate suppliersDesign-powered sourcing:elevating traditional sourcing to new heightsFigure 1While traditional sourcing is effective in optimizing value,design-powered sourcing boosts value creationand overcomes barriers by integrating a true E2E product lensNotes:E2
33、E is end-to-end.RFI is request for information.BOM is bill of materials.NPI is new product introduction.Source:Kearney analysis AreaData visibilityTraditional sourcingEnrich spend data RFIsand high-level BOM dataDesign-powered sourcingBenefitsValue amplificationGranular BOM datareconstructed through
34、teardownsStructuralleversFull suite of sourcing-focused leversValue chain view and productlens to leverage insights tounlock sourcing value SustenanceFocus on compliance,ensuring savings realizedin P&LFeed insights/levers into NPIprocess and ongoing productimprovementConsumercentricityFocus on suppl
35、y marketand internal businessrequirementsConsumer insights throughrapid consumer dipsticksand surveysLong-term value creationFaster time to market5Design-powered sourcingDPS is the next step for companies looking to make a major leap forward across their entire global value chainsimultaneously addre
36、ssing cost reductions,sustainability gains,and supply chain vulnerabilities.When considering DPS,its helpful to understand where its use can have the greatest impact.In our view,DPS is extremely well-suited for situations in which theres a high degree of complexityspecifically,intermediate direct ma
37、terials(those with more specialization and used for assembly into finished goods)and finished goods(that are highly value-adding,require significant qualification time,and involve complex pricing).Examples of the former include polymer chemicals,packaging,and electronic components,while those in the
38、 latter category encompass things such as packaged foods and beverages,finished electronics products,fashion accessories,consumer durables,and personal care and beauty.“Looking at sourcing from a design point of view,a few immediate narratives spring to mind.Including the function of design at very
39、early stages of planning any new product broadens the thinking in regard to flexibilities needed later.If done right,this approach will be very impactful considering the longevity and success of a product.Designing for exchangeability of parts,components,and subassemblies allows for increased variab
40、ility and choice among available suppliers.It will also ease moving the product along the technology upgrading chain over time,thus keeping it fresh and relevant.Modularity and platformingearly design strategies often deployed in times of economic necessity in markets lacking resourcesare more than
41、ever vital methodologies when facing the challenges of increased sustainability demands,resource scarcity,geopolitical circumstances,and an ever-increasing appetite for customization and differentiation at a late stage in time.”Andreas Bell Managing Director,TEAMS Design USA6Design-powered sourcing3
42、.Source:optimize sourcing through analytically-driven methods and integration of internal and external product insights into the sourcing process 4.Enhance:sustain and grow procurement benefits,translating results into long-term supply chain and cost advantageThe RISE framework comprises detailed an
43、d ready-to-use modules companies can use to generate maximum value across their product portfolio.In this section,we dive deep into each of the four steps of the RISE framework.DPS offers tremendous promise for companies to build on the benefits their current sourcing approach delivers.Kearney PERLa
44、bs RISE framework provides a structured way to help companies implement it (see figure 2).RISE helps companies strategically incorporate product insights into the sourcing process by infusing four key,interdependent steps:1.Review:understand product design,alongside competitive and consumer insights
45、2.Innovate:introduce new design ideas,challenge complexity,and engage suppliers for innovationIntroducing the RISE framework:the new standard in sourcing innovationFigure 2Kearneys RISE framework for design-powered sourcing strategically incorporates product insightsinto the sourcing processSource:K
46、earney analysisReviewSourceEnhanceInnovateUnderstand productdesign,competitiveand consumer insights.RIntroduce new designideas,challengecomplexity,engagesuppliers for innovation.IEnsure long-term valuecreation and sustainabilitythrough a pipeline ofproduct-driven initiatives.EOptimize sourcingthroug
47、h integrationof product insightsinto RFP/negotiation.S7Design-powered sourcingReviewBringing a product lens to sourcing begins with gaining a better understanding of the product in question,what consumers think of it(and want from it),and how competing products stack up against it.All these insights
48、 converge to help uncover specific opportunities to integrate product design and sourcing to unlock greater value.To better under-stand these,we take a closer look into levers such as product deconstruction,specification deep dive,competitive benchmarking,consumer sentiment analysis,and upstream val
49、ue chain analysis.Product deconstructionProduct deconstruction is a process to disassemble a product to its component parts.Each component is subsequently inspected individually to the lowest level of detail,such as the screw choice of a mechanical component,the adhesive used to bond the ceramics to
50、 plastics,or the spice for a prepared food product.Doing so enables a company to understand precisely every element or component that goes into the product.Consider the teardown of a typical hand drill(see figure 3).At first glance,it may seem like a straightforward exercise that enables a team to i
51、dentify the constituent parts of the drills motor,speed selector button,transmission,forwardreverse bar,and other aspects of the tool.However,the complexity here is in the drills housing which,as a composite,isnt quite as easily broken down.When working on such a project with a drill manufacturer,fo
52、r instance,we found the housing comprised four different resins supplied by four different vendorspresenting potential for significant savings(see figure 4 on page 9).In this case,harmonizing the four materials into two materials could dramatically simplify the sourcing process and enhance buying po
53、wer through higher-volume purchases of the two remaining materials.Figure 3The teardown process demonstrated key functional components of a hand drillTransmissionSource:Kearney analysisSpeed selecter buttonMotorHousingChuckChuck collarForward/reverse bar8Design-powered sourcingSpecification deep div
54、eThe first step in the specification deep dive is to understand the companys product and packaging portfolio.To illustrate,lets use an example of a paperboard packaging portfolio that Kearney analyzed for one manufacturer(see figure 5 on page 10).In this instance,we compared the product weight with
55、the thickness of the paperboard.As shown in the figure,this comparison revealed some anomalies with 19-point paperboards,which are uncommon boards in the United States.During the sourcing process for this specific project,we suggested the suppliers provide quotes for 18-point or 20-point boards inst
56、ead,which helps harmonize the packaging portfolio of the manufacturer as well as the supplier.In addition,we noted that the 20-point paperboardthe most-used material in carton packagingcan accommodate a product weight up to 8 pounds in the portfolio,and that the thicker paperboard the manufacturer w
57、as using(22-point+)for some products was overengineered.Sourcing lower-thickness(and,hence,less-expensive)boards unlocked additional 4 to 8 percent savings while maintaining the products functionality.Competitive benchmarkingIn competitive benchmarking,a company compares its products performance aga
58、inst that of competi-tors.It involves studying the strategies,practices,and metrics other companies use that serve the same audience or offer similar products,which informs the design-to-value process by allowing a company to learn where it stands versus the competition and,hence,take steps to impro
59、ve competitiveness.The example in figure 6 on page 10 shows feeder units produced by three companies.Despite drastic design differences,our teardown discovered the three units share the same nine component parts.Understanding this,we were able to benchmark each component part and identify the cost d
60、rivers for each design.Combined with user feedback,these insights can help the company source the right product without overpaying for certain components that are not critical for the application.Figure 4A drill teardown revealed the housing was comprised of four different resinssupplied by four dif
61、ferent vendorsSource:Kearney analysisFindingFour diferent plastics are used for the housing across brands and SKUs within brands.All products use a combination of nylon,polypropylene or polycarbonate,and an elastomer over-mold.Targeted product properties should be the same across products(e.g.,durab
62、ility,impact resistance,etc.).OpportunityPolycarbonate+elastomerGlass-reinforcedpolypropyleneGlass-reinforcednylon 6Glass-reinforcednylon 6,6Standardize resins across all SKUs Understand implications on tools.(Can existing injection molding machines use all types of material?)Understand whether ther
63、e any other considerations as to why a certain material type has been chosen(customer facing).Supply chainresilienceProcurement eficiencyComplexitymanagementInventorymanagementConsiderations and implications9Design-powered sourcingFigure 5Linking product weight with packaging specs for a paperboard
64、manufactureridentified anomalies and over-specified SKUsSource:Kearney analysis0.011516171819202122232425262710.001.000.10Product weight(lb)Paperboard thickness(pt)AnomaliesPossible over-specified SKUsFigure 6A teardown of SMT feeders from three companies found that the three units share the same ni
65、ne component partsSource:Kearney analysisSurface-mount technology(SMT)is a method for producing electronic circuits in which the components are mounted directly onto the surface of printed circuit boards(PCBs).An SMT feeder is responsible for feeding surface-mount devices(SMDs)to the pick-and-place
66、machine.It holds reels of tape containing electronic components and accurately positions them so the machine can pick them up and place them onto the PCB.Surface-mount technology(SMT)is a method for producing electronic circuits in which the components are mounted directly onto the surface of printe
67、d circuit boards(PCBs).An SMT feeder is responsible for feeding surface-mount devices(SMDs)to the pick-and-place machine.It holds reels of tape containing electronic components and accurately positions them so the machine can pick them up and place them onto the PCB.Tape reel containerCompetitor 1To
68、tal()1,03524521617711511057434033561161831200884111114687520326512580441410205FeederpositioningTableWeld frameFeedinglockerTape reelcontainerBuy partsHandlesystemPartitionpanelsGuidingsystemCompetitor 2Competitor 3Feeding and handling10Design-powered sourcing70 percent of the product portfolio where
69、 consumer sensitivity is low(see figure 7).We selected these products for a changeover to flexographic printing and identified the right supplier from which to source it.Doing so enabled the company to generate 12 to 18 percent cost savings with a minimal risk of affecting consumer purchases(and,thu
70、s,revenue).Upstream value chain analysisConducting upstream value chain analysis is crucial to understand the supply market.The analysis typically starts with identifying the key suppliers and assessing their capability,followed by gaining deep insights into each suppliers process to produce the mat
71、erials under study.For example,a company in the beverage industry was sourcing polyethylene terephthalate(PET)preforms from a packaging supplier.Through a value chain analysis for that supplier,we learned how integrated the suppliers process was to make those preforms,as well as the suppliers techno
72、logical differentiators,and compared these with the other suppliers in the market.The company was able to use the insights from this exercise to guide the sourcing market event and subsequent negotiations.Consumer sentiment analysisConsumer sentiment analysis is the process of analyzing and interpre
73、ting consumers attitudes,opinions,and emotions toward products,services,brands,or the overall market environment.It involves gathering data from various sources such as surveys,social media,reviews,and other forms of feedback,and then using natural language processing(NLP)and sentiment analysis tech
74、niques to understand the underlying sentiment consumers expressed.This exercise provides crucial insights to overcome typical brand and marketing resistance to making changes in a products design and features,which opens up opportunities to simplify designs and reduce costs.For instance,we worked wi
75、th a consumer packaged goods client that has been selling products in lithographic printed corrugated packaging for more than 20 years.Lithographic or offset printing provides high-resolution graphics,albeit at a high cost.Flexographic printed corrugated packaging is a great alternative with a lower
76、 cost,yet the company was concerned about how switching packaging artwork and appearance would resonate with consumers.We used sentiment analysis to calibrate how sensitive consumers are about the packaging of the companys specific products,which enabled us to identify Figure 7Consumer sentiment sug
77、gested preferences on packagingBrand sentiment:packagingBrand average vs.category averageBrand A+14%8%6%4%2%0%+2%+4%+6%+8%+10%+12%Category averageBrand BBrand CBrand DBrand EBrand F4%2%+13%Source:Kearney analysisProtection and functionalityTouch and feelVisual appearanceSustainability8%+2%+4%28%+17%
78、+14%0%+4%4%11Design-powered sourcingInnovateInnovation is the lifeblood of any successful company.If a company is not innovating and moving forward,its stagnating or dropping further behind the pack.However,oftentimes innovation is run in the commercial function with minimal engagement of supply cha
79、in or procurement.In the RISE framework,the innovate dimension is all about coming up with ideas for new products,or new ways to build products,typically with the help of key suppliers.We look into understanding the key levers of driving innovation from a supplier perspective.Product design ideasTra
80、ditional sourcing focuses on meeting current specifications.We use DPS to more effectively identify and engage with suppliers that not only can meet current production needs,but could also collaborate on future innovations.This proactive approach to sourcing encourages suppliers to think beyond the
81、status quo and contribute creatively to the product development process.In our work with one company that produces floor cleaners,we noticed the market is moving from paper labels to shrink labels.Accordingly,we came up with a new design that incorporated a recyclable shrink label,then proactively t
82、ook the new label design to the marketwhich yielded additional savings when the company implemented the changes.Supplier engagement to drive innovationDPS often requires deeper supplier engagement than traditional sourcingespecially collaboration with strategic suppliers to reduce costs in both the
83、companys process as well as those of suppliers.A common feature of such collaboration is engaging strategic suppliers to help drive innovation.This often happens through dedicated workshops,during which suppliers learn about the companys needs and present their ideas for how to meet them.By encourag
84、ing suppliers to bring new solutions to the table instead of simply fulfilling orders,a company can amplify the value suppliers deliver.“Design-powered sourcing can be a transformative approach for beauty companies,blending product understanding,consumer insights,and aesthetics with strategic sourci
85、ng to drive value,innovation,and sustainability and redefine industry standards.With a two-prong approach of combining product design levers with the traditional sourcing methodologies,companies can unleash the untapped potential/value that will help differentiate themselves,captivate consumers,and
86、elevate their overall brand experience.Through design-powered sourcing,beauty companies can curate unique offerings that resonate deeply with customers,fostering loyalty and driving sustainable growth in a competitive market.At BBI,we prioritize the potential of product design to improve our sourcin
87、g capabilities and that has positively impacted our costs and consumer experience.”Vasanthi Iyer Operations Advisor and Acting COO,Beauty by Imagination(BBI)12Design-powered sourcingA prime example involves a toilet bowl cleaner bottle.Previously,the bottles design was highly customized,and its comp
88、lex geometry translated into high shipping costs.Through a workshop with the bottle supplier,we helped redesign the bottle to signifi-cantly streamline the logistics involved in shipping it,which benefited both the supplier and the company purchasing the bottle.Component cost engineeringWithin the i
89、nnovate step of the RISE framework,component cost engineering effectively helps identify savings opportunities.Continuing with our packaging material example,figure 8 demonstrates the property and cost differences of four types of paperboards.When a new product is introduced to the market,companies
90、are more inclined to pick the best-looking packaging solutionin this case solid bleached sulfate,or SBS.However,considerable savings can be found in alternative,lower-cost packaging options such as coated recycled board(CRB),or even uncoated recycled board(URB)in some extreme cases.DPS triggers the
91、exploration of alternate materials,thereby expanding the savings potential.Platforming or simplificationA well-defined platform in product design is a foundational framework incorporating key compo-nents that streamlines development processes and reduces complexity across a companys product portfoli
92、o.It preserves the core and critical features customers want while maximizing a customers willingness to pay(WTP).In our work,we organize the platforming components into three categories:chassis,modules,and add-on parts.The chassis includes common components that deliver core functionality across pr
93、oduct lines an example of which is the cleansing ingredients in a bottle of shampoo.These components have a relatively stable cost and are based on mature technology.Modules are components that drive WTP and may or may not contribute to core functionality.Modules in a bottle of shampoo,for instance,
94、may include soothing ingredients such as aloe or shea butter,which can make the product more attractive to consumers.Such components are subject to market or cost fluctuations and are based on tech-nology thats actively being developed or enhanced.Figure 8Design-powered sourcing triggered the explor
95、ation of alternate materials,thereby expandingthe savings potentialSpecification deep dive:paperboard optimizationSource:Kearney analysisRaw material cost analysis to identify the most cost-effective material(s)Solid bleachedsulfate(SBS)StiffnessPrintabilityStructureSavings(%vs.SBS)ModerateExcellent
96、BleachedpulpCoated unbleachedkraft(CUK)ModerateGoodUnbleachedpulp610%Coated recycledboard(CRB)LowGoodRecycledpulp1018%Uncoated recycledboard(URB)LowFairRecycledpulp1520%13Design-powered sourcingAdd-on parts are peripheral components that deliver enhanced features for various customer segmentsfor exa
97、mple,the specific fragrance and colorants in a bottle of shampoo.Such partswhich typically are not vital to the products functionalitydifferentiate WTP across segments,provide flexibility in product design,and balance customization costs.By using a platform to establish a standardized set of core co
98、mponents,technologies,and design principles,companies can efficiently create and manage a diverse range of products while minimizing unnecessary variation and supply chain complexity.SourceIn the source dimension,the focus is on using product,consumer,competitor,and supplier data to source the optim
99、al components,raw materials,or finished goods from the right suppliers at the best possible cost.The emphasis here is on creating long-term arrangements that are mutually beneficial for the company and its suppliers.This can be achieved by exploring the competitive supply market,should-cost modeling
100、,and rapid price discovery.Competitive supply market scanFinding the right suppliers can be a significant challenge for companies,especially when the market has many potential suppliers with varying degrees of capability competing for a companys business.“Retailers and consumer products manufacturer
101、s are continually searching for ways to reduce input costs and pass those savings on to consumers.Innovative design plays a key role in enabling those savings,as the design process can identify materials reductions or operational improvements that unlock value along the supply chain.Using less raw m
102、aterial and using it better can provide significant accretive value to manufacturers and their retail partners.In retail,penny profit for each individual item sold is a key performance indicator.As a result,design-powered sourcing and packaging innovation to reduce materials cost can play a signific
103、ant role in keeping overall costs low and passing those savings on to customers.Design-driven innovation plays a key role for retailers and their consumer products suppliers as they collaborate to restrain inflationary pressures and offer value to their customers.”Ron Sasine Former Senior Director o
104、f Packaging,Walmart14Design-powered sourcingThis is where a competitive supply market scan can be extremely helpful.We start with gaining market intelligence to create a single database on all potential suppliers,including relevant details on each.Some of these potential suppliers may have been deri
105、ved from the product deconstruction and competitive benchmarking completed in the review phase.From this repository,we then create a shortlist of suppliers based on their quality,capability,and capacity.Finally,we collect product samples from each shortlisted supplier,which we evaluate to confirm ea
106、ch suppliers competitiveness.A competitive market scan accelerates sourcing by enabling a company to quickly disqualify vendors that lack the required capability.It also ensures suppliers RFP responses can be accurately and equally compared with the companys existing portfolio and requirements.A goo
107、d example is an effort we led to source components involved in producing toilet cleaning products.Our team compared competing products by analyzing the material and design,and deciphered where the components were made and the production process involved.With this intelligence,we were able to help th
108、e toilet cleaning products manufacturer find the lowest-cost process that yielded the most reasonable product to source.Should-cost modelingCompanies generally know what a certain good or service costs.But what they often do not know is what it should cost.Getting that insight starts with creating t
109、he bill of materials(BOM)which,in the case of our packaging example,is of the packaging material itself.In this instance,the BOM consists of an unbleached unprinted linerboard,a bleached printed linerboard,a medium,and adhesives to bind the three webs together.We measured and analyzed each component
110、 parts specifications,then calculated the material cost based on Kearneys proprietary PERLab Material Data Library.The Material Data Library contains up-to-date raw material prices for different regions,which benefits global companies that source the same materials for different countries.It also su
111、ggests cost-saving opportunities for off-shore manufacturing.Next,we calculated the production cost by benchmarking the process involved,including kraft paper production,corrugated medium production,printing,slotting,and stitching.In this case,the cost of the flexographic printing process could be t
112、he most complex process to estimate.The printing cost depends on many factors,including the type of substrate,the number of colors,and the complexity of the graphics.The run size is another key driver in printing cost,as it takes a significant amount of time and labor to set up a press for a new pri
113、nting job.We complement the should-cost modeling further by using our Kearney benchmarks to estimate the overhead and profit(OH&P)cost.As illustrated in figure 9 on page 16,combining all the constituent costs through OH&P provides the should-cost figure for each component part.Figure 10(on page 16)p
114、rovides another illustration of how insights on a products BOM,coupled with the knowledge of what specific components should cost,can help a company quantify the potential savings it can pursue in negotiations with suppliers.In this specific example,the manufacturer of a circuit board was leaving$46
115、8 on the table by overpaying for various components.Rapid price discoveryDPS accelerates the price discovery process by incorporating the key information in an RFP.Suppliers,especially challengers,often struggle with submitting correct and timely bids due to the complexity of the specifications.Usin
116、g a design lens,we help simplify the specifications by distilling the cost drivers and consolidating the key components into the bid sheets.In one initiative,for example,we helped launch an RFP for flexible films for medical devices.Based on our understanding of the product,we gave suppliers a summa
117、ry of the key specificationsincluding material construction,basis weight,and printing requirementsfor all the SKUs in the RFP.With this information,the suppliers were able to complete the bidding process 50 percent faster.15Design-powered sourcingFigure 10The cost gap in the main PCBA is driven by I
118、Cs and PCB substrate;both should be prioritized for directed buys1 Summation of savings for spend that was matched against BOMNotes:PCBA is printed circuit board assembly.IC is integrated circuit.PCB is printed circuit board.BOM is bill of materials.DC is direct current.Source:Kearney analysisSubass
119、emblyNext stepsSample component savingsMain PCBA opportunity($/unit)Key metricBOM cost$770Cost gap$468Should-costPartSupplierIC(Cyclone 3)Engage in supplier negotiations with the incumbent Consider directed buys with alternate suppliers for key cost drivers and components(e.g.,ICs)Supplier 1IC 5MBIT
120、 Supplier 312-layer substrateSupplier 2DC-DC converterSupplier 4$80.12$47.07$84.23$38.95$15.50$7.00$43.57$14.00$64.63$40.07$40.66$24.95BOM costShould-costSavingspotential$302Matched savings1$352Figure 9Combining all the constituent costs provides the should-cost figure for each component partCost br
121、eakdown of corrugated packagingTotal should-cost by manufacturing locations($)Raw materials1.37GermanyUSMexicoChinaIndia1.261.001.040.96ProcessPackaging and logisticsOH&PSource:Kearney analysis54%22%10%14%16Design-powered sourcingEnhanceIn the final phase of the RISE framework,enhance,the company en
122、deavors to sustain and amplify the benefits derived from implementing DPS over the long term.This means making the necessary changes to the product development pipeline,as well as putting in place processes to capitalize on supplier innovations and to qualify suppliers on the basis of the level and
123、type of potential risk.Product development pipelineInnovation is crucial to a companys ongoing growth and competitiveness.Oftentimes,sourcing is not considered as a typical driver of innovation.Most innovation is considered valuable if it directly delivers value to the consumers,thus highlighting th
124、e importance of consumer needs when thinking about a product development idea.DPS gives the advantage of using the consumer data and insights generated during the review phase to drive innovation with suppliers.This will help quantify the value of product innovation or a packaging refresh which can
125、enrich a companys innovation pipeline with only the most promising and potentially impactful new ideas.Consider a company that makes a curling iron,whose key component is responsible for generating the irons heat.During DPS,the project team identified a new heating mechanism that can heat the curlin
126、g irons barrel 37 percent faster than the current product.And,during sentiment analysis,the team also found consumers consider heating time the key criteria for selecting which curling iron they buy.This finding suggested that incorporating the new heating mechanism would be enthusiastically embrace
127、d by consumers and will be a key differentiator in the marketplace.Recognizing the potential revenue and brand impact,the company immediately gave the green light to pursue the switch.“In the beauty industry,innovation and aesthetics are critical value drivers for consumers.By influencing sourcing s
128、trategies with a clear understanding of consumer sentiment that drives product design choices,we can unlock a new realm of possibilities,elevating traditional sourcing to new heights.Design-powered sourcing offers a framework that ensures every sourcing decision aligns with our aesthetic vision whil
129、e driving consumer value,innovation,sustainability,and competitive cost.”Nirav Mehta Global Vice President,Direct Procurement,The Este Lauder Companies17Design-powered sourcingThis also helped in developing concepts for future product launches that would perform better in the marketplace.Impact:As a
130、 result of this DPS initiative,the company generated nearly 30 percent in annual savings for appliances and improved its supply chain resilience by identifying and qualifying new manufacturers.Case:DPS for a US grocery retailerClient:Our client was a US-based grocery retailer with a large private la
131、bel portfolio.Problem statement:The company tasked Kearney to help reduce COGS on private label merchandise through finished goods sourcing levers.Scope:The initiative covered 14 of the retailers private label food and beverage categories,including engaging dozens of incumbent and challenger supplie
132、rs in a comprehensive sourcing process to unlock hidden value and gain further cost transparency on the private label goods.Approach:We followed the Kearney seven-step sourcing process from building a category strategy,engaging incumbent and challenger suppliers,launching a comprehensive tender,and
133、direct supplier negotiations.Since the retailer relies heavily on its suppliers for formulation and pack-aging expertise,it had very little specification visibility and low buyer power in many categories.We began introducing design levers into the sourcing process first through product decon-structi
134、on and competitive benchmarking.The RISE framework provides valuable guidance to companies looking to adopt a DPS approach to sourcing.Its highly practical,rooted in Kearneys extensive background in helping companies implement DPS to unlock significant untapped value in the sourcing processas illust
135、rated in our work with five diverse companies,whose experiences we discuss here.Case:DPS for a leading hair product companyClient:Our client was a private equity-owned hair products company.Problem statement:The company engaged Kearney to help drive near-term cost savings while building a pipeline o
136、f savings initiatives.Scope:The project involved working with the companys sourcing team to roll out several DPS-related initiatives that would enable the company to gain greater transparency into product costs,as well as identify opportunities to further distinguish the brand in the marketplace.App
137、roach:We created a BOM-level cost breakdown of the companys hair appliances,which enabled the company to explore alternatives for components and materials and negotiate with suppliers at a component and commodity level.We also conducted a component analysis and heat simulation exercise.This identifi
138、ed a pipeline of initiatives that would build distinctive brand capabilities while uncovering opportunities to reduce costs by more efficiently using materials.And we reviewed the companys packaging to create a harmonized and sustainability-focused brand outlook across product groups and reduce mate
139、rial use while driving economies of scale.With a more granular understanding of product and packaging costs,we then helped the company launch a rapid RFQ to identify credible and vetted manufacturers to compete against incumbents.From theory to practice:RISE in action18Design-powered sourcingThis re
140、vealed significant gaps with national brand and areas for cost improvement in formulation and packaging,which we then incorporated into the RFP process.We also conducted should-cost modeling and formula decoding to bring more transparency to fact-based negotiations.Finally,we transferred these capab
141、ilities to the companys internal teams to boost the potential value creation long term.Impact:As a result of this,the company reduced COGS on the in-scope product categories by up to 15 percent,increasing savings realization on target categories 3x vs.the traditional sourcing process.Case:DPS of pac
142、kaging for a diversified industrials playerClient:Our client is a Fortune 500 multinational manufacturer present across industrial,healthcare,and consumer verticals.Problem statement:The company was looking to optimize its more than$500 million packaging spend across paperboard,flexibles,and rigids
143、categories.Scope:Kearney PERLab conducted a comprehensive specification optimization exercise to identify opportunities and consolidate the supplier base to drive higher value.Approach:Through a series of cross-functional workshops,we worked with the companys teams to identify the key drivers of the
144、 cost of packaging materials,test the feasibility of alternate materials,and uncover opportunities for the company to rationalize its packaging SKUs by harmonizing specifications.There were more than 20,000 packaging SKUs across the packaging category and sharing individual specification files for e
145、ach SKU was not realistic.During the sourcing process,we were able to group SKUs based on similarity of the specifications and provided breakdowns and details on the key cost drivers.Using the information provided,suppliers were able to have a clearer picture of our clients portfolio and bid more ef
146、ficiently,leading to additional savings and reduced time to prepare the quotations.Impact:Through this project,we delivered 10 percent savings in packaging spend by simplifying the portfolio through SKU rationalization and harmonizing packaging specifications.Case:Rapid market assessment and BOM ana
147、lysis to enable effective sourcing for an electrical equipment manufacturerClient:Our client was an electrical original equipment manufacturer with a global presence.Problem statement:The clients electronic power supply unit was a highly intricate,personalized,and over-engineered solution compared t
148、o its compet-itors,resulting in higher cost and reduced supply chain resilience.Scope:Kearney PERLab conducted a deep dive into the design in order to modularize the power supply building blocks based on end-user requirements.Approach:We developed a three-step approach for a successful product trans
149、formation by:Conducting a rapid market assessment to understand the key product features and value drivers.This involved analyzing the market demand,customer preferences,and competition to identify the most important features and benefits that would make the clients product stand out.Performing a BO
150、M(bill of materials)analysis and product teardown to identify the complexity and cost drivers.This involved breaking down the product into its individual components and assessing the cost and complexity of each component,which helped to identify areas where cost savings could be achieved without com
151、promising on quality.Conducting DtV(design-to-value)workshops to modularize the design.This involved breaking down the product design into smaller modules or building blocks to be easily customized and reconfigured to meet the customers needs.19Design-powered sourcingImpact:By deploying fungible“com
152、ponents-off-the-shelf”modules,the supply chain became more resilient,thus ensuring that the components are always readily available.The components-off-the-shelf design further allowed effective sourcing by leveraging scale for a potential cost reduction of up to 15 percent,which led to significant s
153、avings for the company.This design is versatile and can be employed in various applications,making it an ideal solution for the client as they were looking to optimize their supply chain.Case:Cost transformation for an aerospace and defense technology company Client:Our client is a leading US-based
154、aerospace and defense technology company specializing in advanced communication,surveillance,and reconnaissance solutions.Problem statement:The company engaged Kearney to execute a transformation program,including a multiyear cost take-out program,to achieve significant operating income improvement.
155、Scope:The initiative involved three business units,focusing on driving significant cost reductions on direct materials and subcontracts while also addressing internal business planning and operating model improvements.Cost reduction efforts focused on both sourcing and design-to-value opportunities.
156、Approach:Our team used a multifaceted approach,including our seven-step sourcing process,component-level cost analysis,end-to-end life cycle cost analysis,and industry and technical subject matter expertise to find significant margin improve-ment as well as growth opportunities.We focused on combini
157、ng enterprise-wide needs and engaging the market more strategically,which was a shift from past site-led procurement processes.Additionally,we identified product design improvements,which were verified by client engineering teams and suppliers and then incorporated into our sourcing process.Impact:B
158、y introducing deep product and sourcing expertise,the team was able to drive 5 to 8 percent immediate savings with an incremental 5 to 10 percent savings pipeline for the lifetime of the product.20Design-powered sourcingWith organizations routinely spending more than two-thirds of revenue on buying
159、goods and services,its one of the most fruitful areas for improving any business.But as supply chains have gotten more global and complex,disruption has become commonplace.While technology has opened up new opportunities,sourcing needs to step up its game and identify ways to generate value above an
160、d beyond what its already delivering.In fact,in our experience,even companies with highly advanced and sophisticated sourcing capabilities are still leaving value on the table due to the inherent limitations sourcing faces given its current structure and focus.Design-powered sourcing can help compan
161、ies do more.DPS builds on a companys traditional sourcing capabilities by strategically incorporating end-to-end product insights into the sourcing process to identify and unlock trapped value thats generally out of the reach of traditional sourcing.Using DPS,with Kearney PERLabs RISE framework as t
162、heir guide,companies can overcome the challenges they encounter in sourcing direct materials or finished goods that are hard to address through traditional sourcing approaches.They can unlock costs embedded in product design,leverage alternative suppliers to reduce costs and introduce innovative sol
163、utions,and streamline their product portfolios to minimize upstream and downstream complexities.As the case studies we highlighted in this whitepaper show,DPS can generate significant short-term and long-term benefits.These benefits are something other companies can enjoy by making DPS a core elemen
164、t of their sourcing process.Conclusion21Design-powered sourcingSujoy BiswasPartner,Chicago Keat YapPartner,Kuala Lumpur Dipankar MagantyPrincipal,Chicago Yves ThillPartner,Atlanta Namrata ShahPartner,Boston Jesse FengConsultant,Chicago Bharat KapoorPartner,San Francisco Cazzie WilliamsDirector,Washi
165、ngton,D.CAuthorsAcknowledgementThe completion of this white paper on design-powered sourcing represents the collective effort,dedication,and collaboration of numerous individuals and organizations directly or indirectly.We express our gratitude to our team membersVenky Arun,Dominik Leisinger,Kushal
166、Fernandes,Alexander Bruns,Rich Besen,Kirit Rosario,Adi Budyanto,and Brielle Weiner.We extend our sincere gratitude to Nirav Mehta,Vasanthi Iyer,Andreas Bell,and Ron Sasine for providing their expertise and valuable insights that have enriched the content of this whitepaper.Lastly,we would like to ac
167、knowledge the support of our Kearney leadershipSuketu Gandhi,Michael Strohmer,Fred Eng,Balika Sonthalia,Mike Brown,Jim Singer,Imran Dassu,Caitlin OKeefe,and Mike Haleswhose vision and unwavering commitment to innovation has helped us explore uncharted territories in the world of sourcing.About Kearn
168、eyKearney is a leading global management consulting firm.For nearly 100 years,we have been a trusted advisor to C-suites,government bodies,and nonprofit organizations.Our people make us who we are.Driven to be the difference between a big idea and making it happen,we work alongside our clients to re
169、generate their businesses to create a future that works for About PERLabProduct Excellence and Renewal Lab(PERLab)is Kearneys global dedicated practice for“everything product.”PERLab helps clients make the products that customers fall in love with.Its a design-driven approach to gross margin transfo
170、rmation that offers end-to-end capabilities supporting growth at any point in a products life cycle.PERLabs experts in product design,product development,sustainability,user experience,industrial design,IoT,consumer insights,product engineering,packaging design,and manufacturing excellence help orga
171、nizations disrupt markets and leapfrog the competition.PERLab has studios in Chicago,Stuttgart,Bengaluru,Hamburg,and Shanghai and has clients ranging from Fortune 500 to PE portfolio companies.With more than 50 management consultants,70+designers,and 50+technologists,PERLab boasts a global team of s
172、easoned operators with the trifecta of expertise needed to build great products.For more information,permission to reprint or translate this work,and all other correspondence,please email .A.T.Kearney Korea LLC is a separate and independent legal entity operating under the Kearney name in Korea.A.T.Kearney operates in India as A.T.Kearney Limited(Branch Office),a branch office of A.T.Kearney Limited,a company organized under the laws of England and Wales.2024,A.T.Kearney,Inc.All rights reserved.23Design-powered sourcing