This article details how procurement uses Model-Based Definition (MBD) in their processes, some context for their application, and the value it delivers.
The Model-Based Enterprise concept, which is the use of MBD outside engineering, is a grand one. It promises to deliver benefits to organizations across the company. However, if executives don’t properly understand how to apply MBD in those organizations, then such initiatives are doomed from the start. Such is the case with MBD in procurement. How can it be used? What processes utilize it? What value does it deliver?
Answering those questions is the purpose of this article. Yet, before we get started, we need some context.
The Steps of the RFQ Process
Before we can cover how MBD is used in procurement, we need to know how their processes work. Specifically, we need to dive into the dynamics of the Request-for-Quote (RFQ) or Request-for-Proposal (RFP) processes. Typically, such an effort involves the following steps.
- The company requesting the quote or proposal develops a Technical Data Package (TDP). This set of deliverables represents the specifications against which the item should be manufactured. It acts as a set of requirements that will ultimately become part of the contract between the purchasing company and the supplier company.
- That TDP is shared with the company developing the bid. There may be questions back and forth over the contents of the TDP if they are unclear.
- The potential supplier develops its bid and submits it.
- The original company reviews bids from all of the participating companies and selects one.
- The companies start the process of refining the contract.
The Bidder’s Profit Equation
OK. So here’s the reality of the RFQ or RFP process.
Steps two and three above are critical for the bidding supplier. They inspect that TDP in excruciating detail. They’re analyzing that content to answer lots of questions for themselves. What tooling will be required to make these items? What machining procedures will be needed? What raw materials are involved? What are the costs associated with every single one those things?
Why is that so important? Well, it’s all about profit.
If the bidding supplier wins that contract, well, the total costs better be lower than the amount the supplier is getting paid. That means they’re in the black. That means they’re making money. It means they stay in business. They pay their engineers and machinists and everyone else.
Now, if they made a mistake in the bidding process, then bad things happen. They’re in the red. Those items are delivered at a loss. If you do that a few times, then engineers and machinists are laid off. Do that too many times, the company goes bankrupt.
The Bidder’s Dilemma
This leads us to the bidder’s dilemma.
Let’s say a bidding supplier has outstanding questions about the contents of the TDP. They can certainly ask questions, but these RFP or RFQ processes have deadlines. Everyone needs to get along with their business, whether that contract is won or not. So what happens if the bidding supplier isn’t quite sure about the parameters of the job? You bid high. You do that so you mitigate the risk of taking on a contract that is more complex than you anticipated. One that might run into the red. One that might result in layoffs. One that might put your company out of business.
The problem there, however, is what if you bid too high? Well, you don’t get the contract. That, obviously, is a huge problem as well. Lose out on too many bids and you run into the same problem. You have no work. The company has layoffs. The company might go out of business.
So the trick in the bidding process is finding the right balance between being aggressive, so you win the contract, and being conservative, so you stay in the black even with risky bids.
The Critical Nature of TDPs in RFQs
OK. Yes. That was a long context. However, it leads us here.
The TDP in these processes is absolutely critical. An unambiguous set of technical data gives the bidding supplier surety. That surety means the supplier, and many others, can submit a more aggressive bid with confidence. Why? Because clear technical data reduces the risk for that supplier.
By the way, the company that requested the bid wins here too. More aggressive bids mean lower cost items. That lowers the costs for their products. They become more profitable as well.
The Advantages of MBD in TDPs
Here we get to the impact of MBD.
TDPs can use 2D drawings. However, there are a number of challenges in using 2D drawings, including:
- They require specialized knowledge, experience, and skill to interpret.
- The 3D model and 2D drawing can actually be different from one another.
For these reasons and others, the bidding supplier can lose confidence in the costs involved in making that item. You know the result of that risk.
Alternatively, TDPs can include MBD in the form of annotated 3D models. Compared to 2D drawings, MBDs require less specialized knowledge, experience, and skill for interpretation. Furthermore, with MBDs, there is no drawing that can diverge from the drawing.
The Benefits of MBD in TDPs
At this point, the value chain here is pretty clear.
- MBD provides more clarity and less ambiguity in a TDP than 2D drawings.
- Used in the RFP or RFQ process, MBD instills more confidence in bidding suppliers about the technical constraints of item delivery.
- As a result, bidding suppliers submit more aggressive quotes with more confidence they will be profitable.
- In turn, the companies that initiated the quoting process get bids that are lower costs, improving their profitability.
So, as you can see, there’s value to be gained by the supplier and the company that initiated the proposal process.