Having experienced unprecedented upward pricing pressure over the past 2 years, purchasing leaders are telling us that they are under increasing pressure to increase cost savings efforts and results.
A commodity-by-commodity review of company spend can often turn up untapped, easily implementable savings.
To start, take the time to write down the questions you should be asking about each commodity that will help you identify which commodities have a savings potential.
For example: Here are some of the questions we ask clients when assessing the savings potential on a commodity. Answering “No” to some or all the following questions is a strong indicator of such low hanging fruit:
- If pricing has increased in the past three years due to raw material costs, are prices being adjusted downward as commodity prices fall?
- Do suppliers provide commodity specific cost breakdowns with their quotes?
- Are there ample suppliers in the supply base to generate pricing pressure?
- Have costs for design changes been analyzed?
- Have non-piece price total cost of ownership (quality, inventory, shipping, packaging, testing, etc.) been reviewed?
- Is there a cross-functional process for strategic commodity management on this commodity?
- Are cost reduction ideas obtained from suppliers evaluated and managed to implementation?
Once completed ask the questions for each of your commodities. Prioritize commodities for further analysis/review based upon the answers generated.
Our analysis includes the development of cost catalogs and the development of linear and/or multivariable models for the high priority commodities. Performing the analysis identifies areas of investigation for cost reduction including:
- Parts or services with similar requirements but differing prices
- Suppliers who quote inconsistently
- Design attributes driving cost but not providing functionality
We are hosting an upcoming webinar, “Negotiation Strategies for Economics Claw Back”, on May 3rd @ 1 p.m. EST.
Buyers often find untapped cost opportunities in the projects they complete as a part of our Cost Management Certification program. For more information click below.