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!
By Ken Bradley – Lytica Inc. Founder/Chairman/CTO