Cost Reduction Ideas

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Cost Reduction Ideas

Post  Vadivelrajan on Sat Jan 15, 2011 12:51 am

When seeking to reduce its expenditures on goods and services,
the first thought in many organizations is "Let's find cheaper
suppliers." But in many cases, sourcing for new suppliers is
either not practical or it's a suboptimal alternative.

Fortunately, there are several ideas for achieving cost
reductions without switching suppliers. Rob Patton, an
associate with sourcing consulting firm Paladin Associates, has
identified seven such cost reduction ideas, including the
following four:

"Ask & You May Receive" - "Ask your suppliers if they have cost
savings ideas," suggests Patton. "You never know when the
answer may surprise you."

Aggregation - According to Patton, Aggregation is "any effort
that makes the buyer's requirements more attractive to the
seller by bundling those requirements with the volume of other
buyers. This can be internal across business units or
geographies or external with other companies." For external
bundling, you can build your own consortium or join an existing
group purchasing organization.

Spec Rationalization - Spec Rationalization involves looking at
the goods and services you buy and determining smarter ways to
specify them. Patton shares an example from previous
employment: "We discovered that we had between 80 and 100
different specifications across the company worldwide for water.
No reasonable person in Purchasing or Engineering is gonna say
that we really need that many specs for water."

Leveraging The Supply Chain - "In this technique, you're looking
at suppliers' suppliers, one or two steps back in the supply
chain," Patton explains. Sometimes, "the biggest cost component
in the equation is really out of your own immediate supplier's
direct control." Patton recommends working to identify
situations where several of your suppliers buy the same
material towards what they make for you and then leveraging
that combined demand to drive cost reductions from lower tier
suppliers.

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