Was Your Airplane Built By The Lowest Bidder?

Total Cost of Ownership can be more important than Purchase Price

Aircraft Production
Lowest Bidder?. Getty Images

Steve Buscemi's character (awesomely called Rockhound, by the way) in the 1998 movie "Armageddon" famously paraphrased a widely maligned supply chain and sourcing maxim, "You know we're sitting on four million pounds of fuel, one nuclear weapon and a thing that has 270,000 moving parts built by the lowest bidder. Makes you feel good, doesn't it?"  

That "thing" that Buscemi's Rockhound was referring to was a futuristic, state-of-the-art, next-gen space shuttle.

 A "thing" that you fly on is a "thing" you likely don't want to have been built cheaply.  And, yes, while cost reduction is a driver in determining which suppliers to choose - not every sourcing project is won by the lowest bidder.  

When you're running your next sourcing project, make sure you consider total cost of ownership (or TCO) as one of the primary drivers in determining which suppliers to select.

In the case of Armageddon's space shuttles - there were two of them: Freedom and Independence, by the way - TCO would likely have been the main factor in supplier selection.  I say, "would likely have been the main factor" because Armageddon was only an action movie and not a kick-butt, edge-of-your-seat, adrenaline rush, thrill of a ride sourcing project.  

In an action movie, your hero not only saves the world - but also transforms himself and the people around him.  In Armageddon, Harry (played by Bruce Willis) saves the world and transforms himself from misanthropic blue collar curmudgeon to Earth-saving, self-sacrificing hero and transforms his younger knucklehead crew member into the son he never had, as A.J.

(Ben Affleck) marries Harry's daughter Grace (Liv Tyler) on the planet-wouldn't-have-been.  Nice.  But not nearly as riveting as what happens when a sourcing project goes well.

In a sourcing project, your hero not only saves your company money - but also ensures supply, quality, year-over-year cost savings, specification alignment, innovation and risk mitigation.

 Planet-crushing asteroids have nothing on sourcing objectives.  But your supply chain and sourcing pro's are both the oil drilling crew who will get that nuke inside your current cost of goods and the astronauts who will deliver savings and an optimized TCO.

Sourcing projects come in various shapes and sizes, but they generally have a single goal - to identify suppliers that can meet your company's specifications, year-over-year cost targets, provide assurance of supply and mitigate against the risk of cost increases and stock outs.  Ergo, these are very important projects that should be left to the professionals.  You wouldn't let a crew of foul-mouthed, deep sea oil drillers fly to an asteroid to save the planet - and you shouldn't leave your sourcing projects to amateurs. Okay, bad example.

To start a sourcing project, you'll need to start by identifying the scope of what you are sourcing.  Are you sourcing components, finished goods, services, software or any other key product or function needed by your company?  Who are the suppliers that you currently use?  Are you currently making these items or performing these functions in-house?  Who are the market leaders that currently make those items or provide those services?

 

You'll probably want to start with a Request For Information (RFI) to identify which suppliers you want to include in your sourcing project.  This short list of suppliers will participate in your Request For Proposal (RFP).  And when you select your suppliers - usually a primary supplier and alternate suppliers, you'll send them Request For Quotes (RFQ) prior to purchase order placement.  

Ultimately, your sourcing project should ensure that you are optimizing your supply chain, i.e. getting your customers what they want, when they want it - and do that by spending as little money as possible. However, lowest cost isn't always the right choice.  In order to make sure that you are using TCO as a driver, be sure to analyze specification alignment, technical capabilities, assurance of quality, supplier innovation and risk mitigation as deciding factors.

Rockhound joked that the space shuttle in which he sped skyward was built by the lowest bidder.  Yes, if you're building aircraft (or most anything else), you want to be profitable - but keeping your product in the sky is the only way to guarantee those profits will last.