Hello Engineers,

Please i need a very good explanation to the answers to the question.

Below is the question;

Your company has for sometime supplied prefabricated wall sections which you designed to construction companies.suddenly, one day a new idea occurs to you about how these might be fabricated more cheaply using composites of recycled waste materials.

Pilot runs for the new fabrication technique are very successful,so it is decided to entirely switch over to the new technique on all future production runs for the prefabricated sections but there are managerial debates about how or even whether to inform the customers about the fabrication changes.

The supply contracts were written with specifications and functional terms so that load bearing capacities and longevity,etc of the wall sections were specified,but no specific materials or fabrication techniques were identified in the contracts.thus it would be possible to make the changeover without any violation of the ongoing contracts with the customers.

On the other hand, since there is significant cost savings in the new fabrication method............Does your company have an ethical obligation to inform the customers of this, and perhaps even to renegotiate supply at reduced cost,so that the customers also share in benefits of the new technique? more specifically,do you have any special duty as a professional engineer and designer of the new technique to be an advocate in your company for the position that customers should be fully informed of the new technique and the associated cost savings?

Regards

 

In my real life (not electrical, but I am engineering) this happens all the time.
In my opinion, as long as the spec of the product has not changed (the product is safe, as strong, works the same, etc) it is not my position to be talking to the customers.
In fact, I would say that your sales team would be pretty upset if you did start talking to customers about what in essence is a business issue.

The real question is, should your sales mob talk to the customer?
This depends on a range of factors and can't really be answered without knowing the details behind the product, the contract, the industry, legal issues and volumes.

Sometimes the marital used are a company secret. Do you, as a engineer, know if the makeup of the product is public knowledge?

Would you tell the customer if you did not change the material, but your cost went down?

In other cases, you have a legal responsibility to advise of changes.

It all depends on what a "wall section" is.
At the end of the day, leave it to the people that handle this kind of thing even if it may look like the wrong thing to do. (unless it is a safety issue).

 

On the other hand, since there is significant cost savings in the new fabrication method............Does your company have an ethical obligation to inform the customers of this, and perhaps even to renegotiate supply at reduced cost,so that the customers also share in benefits of the new technique?

Absolutely not, a thousand times no.

Your customers expect you, the supplier, to know the technology of your business and to advance it to and beyond the state of the art. That makes the supplier a stronger partner, and that's good for them in the long run. Smart customers know that their suppliers need to make money in order to keep bringing them good product at good prices. Squeezing them too hard seems great in the short run but before long the supplier offers no technical service and may eventually disappear. I often saw young, new purchasing managers make this mistake and damage their own businesses by driving away their suppliers.

If your cost-reduction innovation makes you more competitive, that may be reflected in future contracts. That's when the customer will directly benefit.

Now, my answer assumes the reformulated product is truly as just as good as the one the customer previously approved. If there is any question about the performance of the new product, the customer should be alerted to a change. They don't need to know about the cost savings, but they should get a heads-up. This is especially true if the product looks different. When a customer can see the product has changed, and they are not forewarned, the immediate assumption is that something is wrong and they might even reject a shipment. I would.

My answer also assumes you don't have a cost-pus contract with the customer, where they pay you an agreed margin above your costs. That's unusual and anyway it's not your concern as an engineer.

 

Someone in the company will normally issue a Product Change Notification because it's required by just about any ISO quality system and is generally a good business practice. The engineering dept usually only gets directly involved with a (large) customer during a customer audit 'dog and pony' show to monkey how superior the new process is.

Example PCN from Intel:
https://qdms.intel.com/dm/i.aspx/421025F6-BC64-4A24-8E81-6EC772ED727F/PCN102768-00.pdf

 

Yes, the company should inform their customers and gain their approval. In a perfect world all functional requirements past, present and future would have been identified and thoroughly specified with well designed and defined test procedures agreed upon by all parties. And therefore any change in the product that maintains specification compliance should be permitted and review unnecessary. But in the real world this rarely happens. So customers need to participate in approval or you are courting disaster and risk spoiling the trust of your customer. This is usually a judgement call whether a change is significant enough to require customer approval, but the one described in your example would certainly be a major change requiring such approval.

No you are not obligated to pass on cost savings to the customer or to even inform them of any cost savings, it's up to the Sales team (Saleman and Field Engineer for example) to decide how to sell the change.

My experience is in Design and Development, Applications Engineering, Field Engineer and Marketing Manager in a large global electronics company. I spent a career involved in this sort of thing from most perspectives of the process as supplier and customer.

 

I would inform customers that...

We have validated a second raw material supplier and all tests show that the new supplier's material allows our panels to meet or exceed existing specifications for the panel. Panels produced after date X may contain material from new or existing supplier. . If customers care to validate sample panels containing the new raw material, please contact customer service.​

Period. No mention of cost savings. No mention that the existing supplier was eliminated (in case supply reliability is weak and you need to return).

 

This is usually a judgement call whether a change is significant enough to require customer approval...

Yes, I agree that judgement is key, and it's crucial that voices that represent the customer (typically marketing and sales) participate in making the judgement call of whether to involve the customer. As a marketing director and product line manager, I battled with production endlessly on this issue. They wanted the flexibility of using a variety of raw materials. That's fine, that's their job, but occasionally this would cause problems in the field. I demanded to know of every change and then made sure the sales teams were observant for any problems as the "new" product came on line. This worked pretty well and customers were rarely involved unless we knew they would see a change.

Production tried to subvert this process by getting blanket approval for various raw materials and the flexibility to change at any time without issuing a product change request (thru ISO channels). Again, they're doing their job, but I had a job to do also.

 

very brillant responses..............learning things everyday here

 

very brillant responses..............learning things everyday here

Anytime, can you thank that 'Prince' I keep hearing about in my emails.