Recent article which was published by Jeoff Burris, owner of Advances Purchasing Dynamics
Now that we are at the end of the year, most companies have their 2016 business plans completed. In many business plans, purchasing will have savings task(s) to achieve throughout the year; purchasing teams are continuously trying to find ways to accomplish these task(s).
A commodity-by-commodity review of company spend can often times turn up untapped, easily implementable savings.
To start, take the time to write down the questions you should be asking about each commodity in your spend that will help you identify which commodities have a savings potential.
For example: Answering “No” to some or all of the following questions is a strong indicator of such low hanging fruit:
- Are there ample suppliers in the supply base to generate pricing pressure?
- Do you receive commodity specific detailed cost breakdowns from suppliers?
- Do you have knowledge of the manufacturing costs of the products being purchased?
- Have robust financial analysis been performed when sourcing new parts/products in this commodity? Have the new costs/prices been compared to historical data?
- Have costs for design changes been analyzed?
- Do the buyers have the time and skills to analyze costs and pricing on this commodity?
- Have non-piece price total cost of ownership (quality, inventory, shipping, packaging, testing, etc.) been reviewed?
- Are there any inhibitors to changing sources?
- Is there a cross-functional process for strategic commodity management on this particular commodity?
- Are cost reduction ideas obtained from suppliers, evaluated and managed to implementation?
- Do your buyers frequently review the suppliers manufacturing processes with the objective of understanding manufacturing costs and identifying cost reduction opportunities?
- Are the practices being used to control costs on this commodity as robust as what you have experienced in other companies?
Once completed ask the questions for each of your commodities. Prioritize commodities for further analysis/review based upon the answers generated.