1. 1
The Role of Engineering in Supply Chain Management
William K. Hoehn, Ph.D.
Raytheon Systems Company
Tucson, Arizona
Abstract
Supply Chain Management addresses the need for companies to coordinate their
processes, functions and product development activities to improve the long-term
performance of all businesses in the supply chain. Development of complex product
necessitates interaction between buyer and supplier engineering organizations. Engineering
interaction follows a life-cycle process beginning with product conceptualization and
continuing through production. This interaction is required to ensure optimal product design
and manufacturing processes.
2 Background
2.1 Supply Chain Management
Mentzer, et. al. (2001) define a supply chain as “…a set of three or more companies
directly linked by one or more of the upstream and downstream flows of products, services,
finances, and information from a source to a customer.” At the minimum, a supply chain is
composed of a supplier, a producer and a consumer. “Supply chain management is the
systematic, strategic coordination of the traditional business functions within a particular
company and across businesses within the supply chain, for the purposes of improving the
long-term performance of the individual companies and the supply chain as a whole
(Mentzer, et. al., 2001).” Supply chain management causes the organization to view the flow
of materials, information and capital from a systems perspective.
Supply chain management is a relatively new term, and has evolved both in usage and
meaning over the last 10 years. Industry has embraced supply chain management, mostly
because some response was needed to manage a growing number of suppliers and products,
and an increasingly global supply and sales base. Mentzer, et. al. (2001) noted that there are
three drivers for supply chain management. First, corporations are more globally focused
and now source from global rather than regional suppliers. Second, time and quality has
taken on greater significance, and has become a discriminator in organizational performance.
Third, market place uncertainty that is caused by the rapid pace of technology and
commerce causes companies within the supply chain to establish flexible relationships that
enable them to react quickly to changes in technology and commerce.
Deming (1981-1982) and Garvin (1987) suggested that companies could reduce
variation in quality by reducing the supply base. Taken together, three key results of supply
base reduction are: 1) a potential increase in quality, 2) a reduction in cost through larger
buys, and 3) closer relationships with each supplier – which will positively affect new
product introduction schedules. A secondary outcome is that increases in production
quantities enable suppliers to invest in improved manufacturing processes.

2. 2
2.2 Product Development
Complex product development entails substantial supplier interaction with design and
production engineering. Nevins and Whitney (1989) have shown that early supplier
involvement is a significant variable on product introduction quality and schedule. For this
reason, supplier interaction should begin early in the product life cycle. This has been well
documented in literature describing concurrent engineering and manufacturing. As product
performance and quality is highly dependent on supplier capability, it is natural that the
procuring organization must establish a strong technical relationship with suppliers
developing subsystems and key components. Thus, companies should develop and follow
some process for technical interaction throughout the product life cycle.
We typically think of technology in terms of product breakthroughs. In truth,
technology development may also entail manufacturing process improvement or
development. Because of this, both product and process development issues must be
considered when selecting a supplier.
A prerequisite to success is the assurance that the supplier has the capabilities and
capacity to perform the supply functions deemed necessary. Stanley and Wisner (2001) have
shown that the quality passed onto the consumer is directly related to the incoming supplier
quality. That is, outgoing quality is highly dependent upon the quality levels achieved by
each supplier.
3 Life-Cycle Process
The supplier selection and management process depicted in Figure 1 includes the
technical activities that must be completed in each product life-cycle phase. Supplier
interaction begins with the development of an initial set of product design and specifications,
and leads to the assessment and selection of a supplier. Product design activities include
reassessment of supplier capabilities and leads to an initial production run. This run includes
component as well as manufacturing process qualification. The design phase should include
significant technical interaction between the supplier and procuring company, as it easiest to
modify a design prior to production. The final phase includes a transition to high-rate
production and continuing observation of supplier capabilities. Design improvements may
be dictated during this phase to reduce product cost, improve quality, or to improve the rate
of production. It may be found that supplier capability does not meet expectations leading to
a decision to either improve the supplier’s capability, or locate and select new suppliers.
3.6 Making Initial Allocations
Product design typically begins with concept development and the identification of
key subsystems and components. This phase usually involves a review of available products
that could be used in the system. In some cases, the technology available is deemed
insufficient to achieve performance or cost goals. In these cases, the product concept will
include subsystems or components that are not readily available, and will require investments
in product and/or process technology.

3. 3
Figure 1. Supplier selection and management process.
The initial allocations are complete when functional and performance requirements
have been fulfilled by hardware and/or software items. That is, each function the system
must perform is traced to one or more hardware and software elements. In addition, it can be
shown that these elements meet the performance requirements.
3.2 Sourcing Strategy
Following initial allocations, the company may have some idea of where components
will be procured as the performance and functional allocations were based to some degree on
existing products or knowledge of supplier’s capabilities. A strategy for critical components
and subsystems should be developed at this point. Decisions to be made are: (1) whether the
product will be outsourced or built in-house, (2) the type of supplier relationship required to
design and fabricate the product, (3) whether the technology can be developed in the time
frame, (4) in the case of high-risk components, whether a dual-source development strategy
should be adopted, (5) identification of suppliers that can develop the product, (6) the level
of investment the company is willing to make in product and process technology, and (7) the
degree and investment to be made in supplier development.
3.3 Supplier Selection
An initial assessment to ensure supplier capabilities should be performed. There are
several reasons why the assessment must be performed by the procuring organization or an
independent entity. In technically challenging products, the supplier may not have sufficient
knowledge of the product and processes to perform a capability assessment. The knowledge
Evaluation Product Design Production
Initial product
specification and
component
allocations
Product sourcing
strategy
Supplier
assessment
and selection
Review product
specifications and
reallocate to
achieve best design
for manufacturing
and product
performance
Define manufacturing
process
specifications
and capabilities
Initial manufacturing
for evaluation and
qualification
Initiate supplier
high-rate
production
Monitor supplier
and administer
corrective action
Review and resolve
supplier problems
Modify mfg.
process
and/or
product
design
Evaluate new suppliers

4. 4
gap may become more pronounced as the product or manufacturing processes becomes more
technically involved. In addition, extreme product complexity or physical distance between
supplier and customer may necessitate a partnership. Following supplier assessment, one or
more suppliers are selected to participate in product development activities.
3.4 Specification Re-balancing
Engineers from the supplier and sourcing organization should work together to
balance product requirements. As the supplier has in-depth knowledge of product and
manufacturing capability, the sourcing organization should attempt to incorporate these
capabilities in the product design. Product and manufacturing capability will play a role in
product performance, cost and quality. Thus, the sourcing organization should gain an in-
depth understanding of factors that affect these three parameters. Specifications can be more
easily modified at this point to achieve a better balance across system elements.
Waiting until manufacturing has commenced to learn about supplier capability is bad
practice. It is extremely difficult to change other supplier’s requirements to provide the one
supplier “relief” after production has begun. System performance cannot be optimized if
these capabilities are not factored into the system specifications and requirements.
3.5 Developing Manufacturing Processes
Specification balancing should end with a set of subsystem and component
specifications that are agreed to by supplier and the procuring company. The supplier will
use these specifications to develop manufacturing process and capabilities specifications.
The manufacturing process chosen may have a significant effect of product cost, schedule,
quality and reliability. For this reason, the engineers from the sourcing company must work
with the supplier to understand the effect that selection of manufacturing processes will have
on these variables. The engineers do not have to gain an in-depth understanding of the
process, but must have sufficient depth to ensure that the cost, quality, delivery and
reliability goals will be met. The supplier should take steps to analyze these parameters, and
demonstrate that the processes planned for employment will fulfill the goals.
3.6 Initial Manufacturing
At this point, the supplier will enter an initial manufacturing phase. The supplier may
fabricate different product configurations during this step in order to demonstrate product
and process maturity. Units developed during this phase typically include engineering
evaluation units, qualification units, and first batch production. First batch production
certifies that product quality and delivery can be achieved, and that the manufacturing
processes are achieving rate and in-process quality levels. The procuring organization must
ensure that these two goals are met, as it’s possible for a supplier to produce products that
meet specifications yet have a high-level of in-process failures. High levels of in-process
failures may ultimately lead to poor delivery, low quality, higher production costs, more in-
process failures at the procuring organization’s plant, and ultimately, poor fielded reliability.
3.7 Transition to High-Rate Production

5. 5
During the transition to high-rate production, the procuring organization should
verify that the product quality and delivery meets expectations. During this step, unexpected
issues may arise that must be addressed quickly in order to maintain consistent production.
For example, transportation, packaging, and material handling issues may crop up. To avoid
schedule problems, the procuring company and the supplier must be ready to rapidly address
any of these issues. Because of this, technical interaction must be continued through
production.
In addition to shipping and handling issues that lead to a reactive posture, both
organizations should be vigilant to identify and implement product cost savings and quality
improvements. Improvements should be evaluated and handled following the same process
steps noted above, as design changes may affect the manufacturing processes and product
performance.
3.8 Visibility into Supplier Performance
The procuring company should routinely collect metrics on supplier delivery and
quality. Metrics should include incoming supplier quality as well as supplier in-process
quality. Downstream metrics should also be collected to ensure that the subsystem or
component performs in the factory as well as in the field. The procuring company should
evaluate metrics at production and supplier meetings to either deal with current delivery or
quality problems, or to adopt strategies to deal with anticipated problems. Key suppliers
should participate in production meetings.
3.9 Problem Resolution
When problems arise, each should be addressed in a timely manner. Solutions should
be identified and jointly agreed to by the procuring company and the supplier. There may be
times when the supplier cannot resolve the problem in a reasonable time frame. For
example, consumer demand may have increased at a rate that cannot be supported by the
supplier. Another example is when a supplier has suffered from quality or delivery problems
that cannot be resolved. An inability to resolve these problems may lead to loss of sales,
revenues and customer satisfaction for the procuring company. In these cases, the procuring
company should begin evaluating new suppliers or contemplating steps that could be taken to
improve the supplier’s performance. New suppliers should be evaluated and selected
following the steps outlined above.
Strategies to deal with supplier issues include maintaining the first supplier as well as
adding one or more additional suppliers. This type of strategy can be implemented when the
first supplier’s quality is good, but the supplier is unable to meet delivery commitments. A
second strategy is abandoning the first supplier and selecting a new supplier. This strategy
will most likely be implemented when the first supplier has poor quality, high costs and/or
poor delivery performance. However, before abandoning a supplier, the procuring company
should be somewhat introspective. That is, the technical community should determine what
effect their requirements play on poor quality, delivery and cost. It may be found that re-
balancing specifications will alleviate issues with the supplier. For this reason, this option
should be investigated prior to making the decision to switch suppliers.
Decisions to contract with new suppliers should be carefully weighed against the
costs. If the supplier that is replaced is producing a product that does not require substantial

6. 6
technical interaction the transition to a new supplier it’s likely that a transition will progress
without incident. However, if the supplier is producing a product that requires substantial
technical interaction, the decision should be carefully evaluated. In these situations, it’s
likely that the supplier and the procuring company’s technical communities have established
a long-term relationship. The relationship gave each company a better understanding of
capabilities, processes and approach. Changing suppliers means that these same
relationships must be established with the new supplier. Establishment of relationships is
quite complex, and could take several years to fully develop. Because of this, the procuring
company should carefully weigh the options before making a change.
4 Conclusions
Product development necessitates close technical interaction with suppliers. To
foster this technical interaction, companies should develop and implement a process that
addresses each life-cycle phase. Close technical interaction helps ensure that product
requirements are met and that suppliers are able to achieve and maintain delivery volume and
quality levels. Supplier abandonment and dual sourcing should be carefully weighed against
the costs involved.
5 References
Boddy, D., Macbeth, D, and Wagner, B., Implementing collaboration between
organizations: an empirical study of supply chain partnering, Journal of Management studies
37:7, November 2000, 1003-1017.
Deming, W.E., 1981 – 1982. Improvement of quality and productivity through action by
management. National Productivity Review 1 (1), 12–22.
Forrester, J.W., 1958. Industrial Dynamics: A major breakthrough for decision makers,
Harvard Business Review, 7/8, 37-66.
Garvin, D. A., 1987. Competing on eight dimensions of quality, Harvard Business Review
11/12, 101–109.
Gunasekaran, A., Patel, C. and Tirtiroglu, E., Performance measures and metrics in a supply
chain environment, International Journal of Operations & Production Management, Vol. 21,
No. ½, (2001) 71-87.
Nevins, J.L. and Whitney, D.E., 1989. Concurrent Design of Products and Processes,
McGraw Hill, New York.
Chapter One, Supply Chain Management, Sage Publications, Inc, edited by John T. Mentzer,
2001.
Stanley, L.L. and J.D. Wisner, 2001. Service quality along the supply chain: implications for
purchasing, Journal of Operations Management 19 (2001) 287-306.
Van Hoek, R., Harrison, A., and Christopher, M., Measuring agile capabilities in the supply
chain, International Journal of Operations & Production Management, Vol. 21, No. ½,
(2001) 126-147.