How to reduce material costs with a high performing supply chain.
Supply chain management factors heavily into lean manufacturing and a tight partnership with suppliers is necessary. The key to lean procurement is visibility. Lean suppliers are able to respond to changes. Suppliers must be able to “see” into their customer’s operations and customers must be able to “see” into their supplier’s operations. This is achieved with the implementation of a two-way flow of information, helping both customer and supplier fix and/or avoid problems and share savings.
For example, the supply chains among several manufacturing facilities within the same geographic region were each operating independently of one another. Although all facilities had basically the same vendors, the laid-in costs were markedly different. These raw material cost differences manifested themselves most noticeably during the monthly P&L COGS analysis. Each supplier was brought into the loop of our lean activities. Through these discussions it very quickly became obvious that the supplier in many cases was not aware of how their product was used. Plant tours were arranged between the suppliers and the factories. Purchasing agents met with customer service personnel, thereby matching a face with a name. Our IT staff met with their IT staff to set up e-procurement and automated procurement. E-procurement processes transactions such as strategic sourcing, bidding, and reverses actions using web-based applications. Automated procurement uses software that removes the human element from multiple procurement functions and integrates with financials. Trucking companies were brought into the equation, and as a trio, were able to negotiate long term, money saving contracts for the delivery of materials. As the person responsible for the P&L, I was able to develop a culture of continuous improvement. Through negotiation, coordination, consolidation, and systematizing the Supply Chain between facilities and suppliers, we were able to negotiate savings of $100K in material and realized a reduction of $75K in labor costs within the first year.
Question: Are you losing bottom line dollars due to a supply chain not performing at maximum efficiency?
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