Now that we have passed mid-year, most organizations are deep into business plan development for 2013, with purchasing being asked to identify savings opportunities for the upcoming year.
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:
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?
- 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 of the 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.