Part 3: Accelerating Supplier Transitions Through Sharing of Costs
Welcome to Part 3 of the Tenet Consulting Value Driver Series, where we continue to uncover often-overlooked yet impactful opportunities through supplier negotiations. While achieving piece price reductions remains a cornerstone of strategic sourcing, leading manufacturers recognize that non-price benefits can deliver significant operational value and cost avoidance when effectively negotiated. At Tenet, we help our clients extract maximum value by negotiating holistic supply agreements that optimize both commercial and operational outcomes.
One powerful, yet often underutilized lever is the negotiation of sharing of costs for part transitions to new suppliers, an approach that enables faster ramp-up, enhances supplier engagement, and reduces the total cost of transition.
Understanding Challenges with Part Transition
Smooth part transitions between suppliers benefit both parties. Manufacturers gain faster access to improved pricing, service, and supply chain resilience, while suppliers achieve quicker entry to serial production and profitability. However, transitions—especially a running change during current model or product production—can be complex and costly without clear planning and shared accountability.
Common transition costs include engineering validation, testing, Production Part Approval Process (PPAP), first article inspections, and field trials. Without cross-functional engagement from departments like quality, engineering, and operations, transitions often stall or fail to deliver their intended value.
Manufacturers typically face two types of transitions:
- Off-Cycle Changes: These occur while the OEM’s finished product is already in serial production. They enable faster supplier ramp-up and quicker realization of commercial benefits but come with higher costs, as parts must be revalidated on already-approved equipment.
- On-Cycle Changes: Tied to future product launches or model refreshes, these transitions incur no discernable incremental costs but may delay supplier onboarding by 12–24 months, if not longer.
Tenet’s Approach to Structuring Sharing of Costs
Our structured approach ensures that part transitions are planned, resourced, and financially optimized. We facilitate commitment from both the manufacturer and the supplier to form a dedicated transition team with representation from engineering, quality, supply chain, and commercial functions. This ensures the transition is treated as a business-critical initiative, not merely a procurement exercise.
Next, we assess the supplier’s motivation to prioritize off-cycle transitions, which allow for quicker entry into serial production and faster revenue generation. This can be leveraged to negotiate cost-sharing arrangements that ease the financial burden on the manufacturer while incentivizing supplier engagement.
Common models include:
- Per-part stipends to offset validation and testing expenses
- Aggregate not-to-exceed cost pools for broader transitions
- Supplier-funded validation activities, such as PPAP, field testing, or engineering validation
These commitments are documented in the Master Supplier Agreement, with clear guidelines for cost scope, responsibilities, and exceptions. This creates transparency, accountability, and a scalable framework for future transitions.
Value to the Client
This structured model reduces friction, aligns incentives, and accelerates time-to-value—turning supplier transitions into a win-win opportunity for both parties:
- Accelerated Supplier Transitions: Encourages the use of off-cycle changes to realize negotiated benefits sooner.
- Reduced Transition Risk and Cost: Cost sharing mitigates the financial burden and incentivizes supplier engagement.
- Leverage of Supplier Capabilities: Utilizes the supplier’s in-house testing and validation infrastructure, reducing the internal workload.
By proactively addressing transition costs in collaboration, Tenet helps manufacturers build a faster, smarter path to supplier changes, significantly reducing risk and accelerating the return on sourcing investments. For instance, one of our clients achieved a 30% reduction in transition costs through sharing of costs initiatives, exemplifying the benefits of this approach.
Accelerate Your Supplier Transitions
Are you looking to streamline your supplier transitions and optimize costs? Contact Tenet Consulting today to explore how our sharing of costs strategies can accelerate your supplier changes and enhance supplier engagement, driving value for your organization!
