The reduction in costs of raw materials is a common issue in localized purchasing departments. Since 2008 the prices for raw-materials have been rising and reducing margins, so the natural response for a purchasing agent was to demand a lower price from their supplier and execute a RFQ for all materials. At the very first glance, demanding that your price be lowered when raw material costs are increasing is a foolish strategy.
There was a time that our country’s manufacturing segment looked to Japan for answers in process strategy. What we found was that cost cutting involves reducing administrative costs and increasing efficiencies on the production floor and throughout the supply chain. It was also advised that the first response to rising material costs is through Standardization and BOM reduction, Shared parts and platform concepts, and Maximum yield by reducing variability and defect rate; which is much different, and easier, than squeezing blood from a rock.
We were told that the objective of Lean Manufacturing is to “produce high quality products as efficiently and economically as possible while being highly responsive to the customers demand”. This is achieved through less human effort, less inventory, less space, and less time. Add Six Sigma strategy of process focus and data driven decisions to the equation and your company is on its way to an increase in throughput, a reduction in inventory, and finally a reduction in operating expenses.
Many companies, small to midsized ($5mm to $200mm), can implement these objectives by empowering a Procurement Outsourcing and Distribution Group to manage key raw materials. My company has successfully controlled our client’s costs for packaging materials without compromising quality, service, or availability. We have increased the value of these components by researching and understanding the constraints of our clients and as well as each manufacturer throughout our vast network of suppliers. We look at the “Big Picture” and understand there is a role to be filled so our clients can “produce high-quality products as efficiently and economically as possible” while being highly responsive to their customers demand.