The business case of converting strategic items into competitive bidding needs to be thoroughly examined over a long period of time; especially when looking if the decision makes sense from a commercial perspective since decisions like this are often extremely strategic.
Fellow blogger Christer Hallqvist described this (stretched, in his words) example in the sourcing chapter of IBX book Purchasing Transformation.
One example relating to the matter of buying level comes from Saab and the purchasing challenges they faced when developing and introducing the Trionic engine management system in the early 1990s.
At the time, Saab relied on a first-tier supplier that was commercially much larger than Saab itself. Due to Saab’s diminutive size in the automotive industry, the company was in no position to influence the supplier in meeting Saab’s advanced demands for the engine management system. Yet Saab was so convinced of the power of its concept that it re-evaluated the supplier relationship.
Saab decided to develop the engine management system in-house to bridge the gap for the future, and the Trionic engine management system was born. In essence, the decision meant to substitute the first-tier supplier with Saab’s own development and use the previous first-tier supplier as a second-tier supplier, among others, for engine management components to the system. By changing the buying level to the second tier, the company increased the supplier competition and made it possible to source them by applying a competitive bidding approach.
The result of this buying level switch is that Saab is still – almost 15 years on – uniquely positioned to utilize its own technology to outperform competition in the increasing segment of alternative fuel engines. First launched in 1994 as Saab Trionic 5, Saab are now building cars using Saab Trionic 8 – dubbed Saab Biopower it’s the worlds first turbocharged bioethanol engine. Running on E85, the engine output increased by nearly 20 percent, with torque rising almost 15 percent to 280 Nm.
The Trionic engine management system and the turbo technology takes advantage of the fact that bioethanol has a higher octane-rating than regular petrol. Saab claims it’s a win win situation; it’s environmentally- as well as driver friendly.
One could add that it’s strategic sourcing at its finest.
