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Savings in Your Backyard

In our work at freebenchmarking.com, one of the surprising findings is the amount of cost reduction available to companies by just implementing pricing that they have already achieved with suppliers. In times of economic uncertainty and with price reductions getting more difficult to achieve, companies can't afford to let profits leak away.

We see two main reasons for this surprising finding. The first is that companies using multiple EMS and ODM manufacturing partners do not have a process for methodically identifying and addressing price discrepancies between partners for all their commodities. The second is that companies are often unaware of duplicate component codes in their database and are buying the same commercial part number at different prices, especially where multiple EMS partners are involved. Unfortunately the tools many companies use for component and production management don't make these opportunities visible.

Identifying these discrepancies and standardizing on the lowest price paid can often result in millions of dollars of savings for many OEMs. The good news is that most suppliers honor the better price once the discrepancy is identified.

There is a third reason that often prevents significant component cost savings. It is the internal resistance many companies have to qualifying alternative components that offer better pricing. Many purchasing professionals have concussions from banging their heads against the wall trying to get management to set appropriate priorities or increase staff to enable these cost reductions.

While the third option may be out of your immediate control, the first two are yours with minimal effort. This “low-hanging fruit” could be implemented before Thanksgiving. Happy Savings!

2 comments on “Savings in Your Backyard

  1. Jay_Bond
    October 11, 2011

    Your article brings up a very good point that is often overlooked. There are many times that cost savings are staring us in the face and we don't realize it. It would do many companies good to review their purchasing procedures and suppliers and make sure there isn't some hidden cost savings.

  2. Clairvoyant
    October 23, 2011

    I believe a large reason for companies not taking advantage of possible savings is not having time to look into and implement these changes. The Purchasing department may have higher priorities on getting items ordered and reducing delivery times. Engineering may have higher priorites set than qualifying cheaper components, which was mentioned near the end of the article.

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