The majority of companies does without calculating the total cost of ownership – Cost savings in procurement

April 26, 2016 | News Germany

In procurement, industry ignores significant potentials. All too rarely, companies strive for keeping material costs as low as possible. “However, in a dynamic competitive environment, this is a strategic necessity and a crucial factor in the success of a company,” explains Christian Riedl, Senior Expert at the Staufen AG consultancy. “For that reason, it is important to analyze all costs prior to the selection of a particular supplier, i.e. from procurement and processing up to after-sales service.” Such a strategic approach, though, is not taken in practice. This is evident, for example, in the selection of supplier markets. As a rule, companies only look for suppliers in areas, where the market appears to be familiar, i.e. in the closer vicinity. Other markets are being ignored. The overwhelming majority of goods are purchased from Western European suppliers. Ranks 2 and 3 held by Eastern Europe and the Asia-Pacific region.  “As a basic rule, procurement close to home makes sense, as short distances to suppliers are important for lean production in accordance with the principles of Lean management. However, the thorough analysis of all relevant costs at a company’s current and potential future suppliers is essential,” procurement-expert Riedl points out. Such analysis also provides insights as to the position of the current supplier in comparison with others and whether additional potentials might be raised. On that basis, costs at established suppliers may be reduced thanks to improvement measures. An example from the aerospace industry serves to illustrate the success of such approach. A European airplane manufacturer assessed eleven suppliers in five countries for its cabin product sector. With the aid of critical findings, identified in this process, the company developed a training and qualification system for its own employees and introduces production readiness workshops (PRW) for the development of its suppliers. The result is a win-win situation for all involved.  

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