It's a good time to examine costs
By Kevin R Fitzgerald -- Purchasing, 10/7/1999
Executive Editor Tom Stundza provides his typical in-depth look and analysis of what's coming in metals next year in the article that begins on page 50. Tom's conclusion: Metals prices will rise a bit. Pricing forecasts are similar for other industrial commodities.Purchasing professionals always are under the gun for cost reduction, and rightly so. Since many or most companies will pay higher commodity prices next year, buyers are well advised to consider other areas and techniques for cost reduction:
- Transaction processing. Some large corporations are saving big bucks through automated processing of transactions. The World Wide Web provides companies with the most cost-effective transaction system yet, and even smaller companies can save transaction costs through e-commerce.
- Buying leverage. I'm continually amazed at how many opportunities to gain buying clout are not realized due to long-established corporate policies and functional "silos" that impede improvement. Having multiple company sites do all their buying separately leaves a lot of money on the table. Some companies not only leverage their own buy, but are now combining their purchases with those of customers or suppliers to gain additional leverage. Also: Consider entering into a consortium, an old concept that is gaining new popularity.
- Business processes. If you haven't recently examined all details of various processes and systems you use when sourcing and acquiring goods, you're likely to find a lot of waste and its resultant cost. Additional savings from redundant and/or inefficient processes also are likely to be found when suppliers' processes are examined.
- Outsourcing. What internal work might be done more cost effectively by an outside expert? Many basic activities--inventory management, production prep work, basic processing steps--often can be outsourced to suppliers, especially distributors.
- Supplier consolidation. Managing suppliers takes time and costs money; managing more suppliers takes more time and costs more money. Supplier consolidation can produce many benefits, not the least of which is reduced costs through increased leverage, lower supplier management costs, reduced cost of rework due to higher quality, and more.
There are many other areas that hold potential cost savings, and most if not all often result in a benefit that's more valuable long term than simple cost reduction: The freeing of purchasing pros and other key personnel for work that's more important to a company's long-term success, things we've come to term "strategic."
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