Based on years of experience in reducing costs in procurement, I have summarized six practical and efficient ways to reduce costs.
The six cost reduction methods are:
(1) Value analysis/value engineering;
(2) Supplier Early Intervention Method;
(3) price and cost analysis;
(4) standardization method;
(5) Centralized Bidding Law;
(6) Bargaining direct reduction method.
Let's introduce them one by one:
Value analysis
The first is the value analysis/value engineering method.
It is usually applicable to the following categories: standard products, customized products, and customized services.
The so-called "value analysis/value engineering method" refers to the functional analysis of a product or service through collective intelligence and organized activities, so as to realize the necessary functions of the product or service at the lowest total cost, so as to improve the value of the product or service.
The main idea of the value analysis/value engineering method is to improve the value of the selected research object through the analysis of the function and cost of the object, which is expressed in mathematical proportions as follows:
Dimension 1: Value is equal to output divided by input
Dimension 2: Value equals revenue divided by resources
Dimension 3: Value equals function divided by cost
In our day-to-day work, we generally use value analysis/value engineering in the following way:
(1) Function improvement, cost unchanged: used to set the entry threshold and maintain a competitive advantage;
(2) Appropriate reduction of functions and significant reduction of costs: suitable for products or services with cost sensitivity and excess functions, so as to maintain competitive advantage;
(3) Function improvement and cost reduction: suitable for all new product development projects;
(4) The function is greatly improved, and the cost is appropriately reduced: it is suitable for products or services with serious homogeneity and increases differentiation;
(5) Function maintenance, cost reduction: suitable for mass production of mature products.
For example, gasoline company A needs to purchase valves, and the conventional way to reduce costs is to reduce the use of its materials as much as possible.
However, the cost reduction method using the value analysis/value engineering method is as follows: through the analysis, it is found that 75% of the cost of the valve is to meet the secondary function (such as preventing oxidation, fixing the valve, wrapping the valve, etc.), and only 25% of the cost is related to the main function (regulating the flow of oil).
Therefore, the company designed a new internal piping system, which wraps the valve inside the pipe, eliminating the secondary function, reducing the raw material cost of the valve by 70% and greatly improving the market competitiveness of the product.
Supplier Early Intervention Method
The second is the early intervention method of suppliers.
It is usually applicable to customized products, OEM products and ODM products.
The so-called "early intervention of suppliers" refers to the method of purchasing and recommending suppliers with partnerships to participate in the development or continuous improvement of new products in the early stage of product design, so that both supply and demand can benefit from it.
As shown in the figure, in the early stage of product design, 70% of the cost is determined by design.
We can achieve the purpose of cost control through the early intervention of suppliers, with the help of suppliers' professional knowledge, technical advantages and mold sharing and other resources.
(▲Relationship between product cost and development stage)
The early intervention of suppliers is that the R&D department and the supplier lead the design and development, and the procurement department is responsible for determining the business terms and development costs, signing confidentiality agreements, supply guarantee agreements, exclusive intellectual property agreements and monitoring the performance of the contracts with the suppliers.
For example, a company plans to produce a UPS product in the form of OEM, so OEM B is invited to participate early.
Under the suggestion of vendor B, the design engineer optimized the material packaging, heat dissipation structure and cable layout, which not only shortened the proofing cycle but also controlled the cost.
Price and cost analysis
The third is the price and cost analysis method.
It is usually used in both standard and customized categories.
The so-called "price and cost analysis method" refers to the method of purchasing to understand the composition of the product, analyze the reasonableness of the cost item by item, and make a judgment on whether the overall price of the product is reasonable.
For customized products and standardized products, the starting point of the analysis is different.
For customized products, procurement usually requires suppliers to quote itemized according to a unified template, and then check the reasonableness of each itemized cost;
For standard products, the starting point of the analysis is the market price of similar products, including historical prices, competitive prices, and prices of potential suppliers.
For example, when I am dealing with multiple quotations for "carton" products, I split the cost of the carton into the following items to ensure that the supplier's quotation is not inflated:
(▲Schematic diagram of "carton" cost split)
Standardization method
The fourth type - the standardization method.
It is usually used in the following categories: customized products and services.
The so-called "standardization" refers to the selection of the same design and specifications for different products or parts, or the reduction of the number of customized products, through the scale effect, to achieve the purpose of cost reduction.
In practice, procurement, when participating in the development of new products, needs to make recommendations to the design engineer to recommend the preferred components. Such as plates, handles, locks, screws, nuts, etc., to assist design engineers to carry out modular design and do building block construction.
For example, a vehicle air-conditioning production plant in Jiangmen has standardized and integrated plates and pipes, greatly reducing the types of raw materials, inventory backlog and capital occupation, and finally achieving an average cost reduction of 29%, with remarkable results, as shown in the following table:
(▲Schematic diagram of standardization and integration of plates and pipes)
Centralized Bidding Law
The fifth type - centralized bidding method.
It is usually applicable to the category of general materials of the group.
The so-called "centralized bidding method" refers to the method of concentrating the procurement volume of the same materials purchased by each branch/subsidiary, increasing the bargaining space, and then obtaining the due cost reduction.
For example, if all the office computers of the group company are purchased in a unified manner in the purchasing department of the group, the bargaining power of each branch will be much higher than that of each branch purchasing itself.
Bargaining direct price reduction method
The sixth type - the direct bargaining method.
It is usually suitable for materials that are used in moderate quantities, have stable demand and are used frequently.
The premise of using this method for bargaining is:
(1) The product is mature and stable, and the price has been reduced many times year by year;
(2) The demand is moderate and cannot reach the amount of bidding;
(3) The expectation of cost reduction is not high, within 5%.
For example, the chip resistors commonly used in the manufacturing industry are used in large quantities, the unit price is very low, and the overall bargaining power of the enterprise is insufficient.
Considering the consistency of production and the stability of quality, procurement will adopt a cost-reducing method of annual bargaining to negotiate with suppliers.
Well, the six commonly used cost reduction methods for enterprises are shared here.
Friends, have you learned?
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