By André Smaal, Chip Barth
In the quest for maximizing profitability, manufacturers are confronted with a formidable challenge as material costs, representing 50-60% of selling prices, surge uncontrollably. This escalation poses a significant threat to companies unable to pass these costs on to customers. To combat this, procurement departments play a pivotal role, actively engaging in decision-making throughout the product lifecycle, both before and after launch.
Recognizing the urgency of this situation, manufacturers must swiftly regain control over costs. A dedicated effort to overhaul procurement strategies can yield tangible results in a matter of weeks, emphasizing the critical need for decisive measures. This article explores key insights into the challenges manufacturers face and unveils proactive procurement strategies that can make a substantial impact on costs.
1. Collaborative Supplier Engagement: Emphasizing the importance of collaboration with key suppliers to optimize cost-out opportunities. Early conversations facilitate the development of unique, cost-effective approaches with each partner.
2. Invest in Supplier Development: Highlighting the necessity of investing in supplier development and operational excellence. Many procurement departments overlook key suppliers’ operations, but empowering suppliers through training can result in significant cost reductions and ongoing savings.
3. Address Pre-Production Cost-Out: Advocating for procurement involvement not only post-development but also in pre-production stages. Influencing input costs and incorporating design principles from the outset optimizes cost structures for a more significant impact on total costs.
4. Continuous Improvement Forum: Stressing the establishment of a continuous improvement forum, especially as the majority of a product’s lifecycle occurs post-launch. Regular discussions on fluctuating input costs provide opportunities to enhance existing products, considering factors like over-engineering and the elimination of non-value-added features.
5. Consider Time-to-Market and Lifecycle: Recognizing the varying role of procurement in shaping cost structures based on time-to-market lifecycles. A structured cost-out program, aligned with lifecycle phases, ensures proactive integration and embeds cost management into organizational processes.
By integrating structured cost-out programs and adopting a proactive mindset, companies can realize short-term benefits and ensure greater long-term profitability.
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