The most successful business strategies must be built on four elements: competitive quotient, commitment, coordination, and cost analysis thinking.
1. The way of thinking about cost analysis
What is the way of thinking about cost analysis?This is a relatively broad and strategic way of thinking about the business economy, what is affecting the material cost, production cycle, and personnel arrangement of the businessWhat exactly is affecting their inventory, as well as other associated costs;How the manufacturer's product specifications and vendor management strategy affect the vendor's cost, and so on.
Distinguishing between "controlling" and "controlling costs" is an important first step, but cost analysis must be more in-depth.
Cost analysis is not just from an accounting point of view, but from a factory point of view, focusing on manufacturing and design techniques, production planning, loading and unloading, product flow, and all the factors that determine the overall cost of production from the first commercial plant to the customer's container terminal.
When the manufacturer has a considerable understanding of the overall cost of the "Merchant-Customer System", and accordingly formulates the Merchant-Customer Management Strategy, the manufacturer can begin to regard the Merchant-Merchant as an extension of its own manufacturing process, from design, production quantity planning, to the order model, all links are cooperating with each other. The money saved by this method is far greater than the annual cost savings of 2-3 per year by traditional procurement methods. A cost-analysis-oriented business strategy can lead to a redesign of the entire system, or a product reengineering, with savings of up to 10 -30 percent.
A New York-based equipment manufacturer decided to introduce a more analytical approach to manage the cost of purchasing first-chain, target-reduction lenses. Rate mirrors are an expensive and extremely important component. This company is quite satisfied with the quality of the products provided by the current ** manufacturer, but always feels that it seems to be too expensive.
Therefore, the company has a team of experts and managers who visit the company, explain to them what they want to achieve, and explore possible ways to reduce costs. Because the manufacturer promised to treat the company as a strategic partner and was willing to share the cost reduction, the company agreed to cooperate.
The team visited the operations of the company and tracked every step of the production process, including raw material costs, direct labor costs, equipment depreciation, installation time, ordering process, production planning, and marketing costs. They found that the direct manufacturing cost was only 30 percent of the total cost of the product, and the other 70 was hidden in other indirect support functions such as marketing, development, engineering, testing, packaging, and shipping. However, what are the indirect features that are causing the cost increase?Why?
To answer this question, the team interviewed many people from the company, including engineering, production managers, quality managers, and others who work at the New York company, including senior executives. They found that most of the indirect costs could be attributed to two factors: irregular and inefficient ordering patterns, and excessive and unnecessary post-production requirements for quality inspection and testing.
The team then made some adjustments: committed to long-term quantities, improved**, coordinated the size of orders, and revised inefficient or repetitive quality specifications, which reduced the total product cost by 46 percent from $7,300 to $4,000.
As this case illustrates, the way of thinking about cost analysis can reduce the cost of business management, but it cannot work alone. Manufacturers must see the best business as partners, and both parties should be very aware of each other's economics and cost factors, and both are interested in adopting new ways of working together. Senior executives must endorse this strategy and push for the needed reforms, both politically and practically.
For many purchasing managers, the risk of this strategy may seem high, however, through mutual commitment and the adoption of a cost-analysis-oriented coordination strategy, the company can actually better understand and control the chain from start to finish, and minimize the risk.
2. Competitive businessmen
Maximizing the number of purchases is often the most critical factor in reducing overall costs.
When a company obtains goods or services from a select group of merchants, rather than splitting the order among multiple merchants, it spreads out the potential quantity efficiency, which often results in more revenue with less. Working with a handful of top merchants, or even just one, is not only possible, but also very smart. Many companies understand this and begin to reduce the number of merchants in order to seek more profitable, better products and higher consistency.
However, to evaluate a merger, you must use the same criteria as you would find a merger:
Is this ** business competitive?How does it rank in the industry?
Can the ** supplier meet our requirements?
Can this partnership be easily agreed, or will it go through a collision?
What is the success rate of the ** quotient?What is the quality of the management team?
Is there an engineering or technical expert within the company that can increase the value of the company's products?
Let's take a look at the following example:
Company A, a manufacturer of scientific instruments, outsources circuit boards to a low-cost, high-efficiency manufacturing and assembly subcontractor. Although the company lacked design or engineering resources, Company A was not looking for engineering support, but rather a low-cost manufacturing board. The circuit board needs to have an electrical capacitor that meets the industry standard, and the first merchant purchases the electrical appliance from the other 3 ** merchants, and the cost is 5 cents each.
However, with the change of industry standards, two of the manufacturers of capacitive appliances have changed to other products, leaving only one leading manufacturer. A year later, the cost of the electrical appliances was two dollars each, and the merchant had to pay this money in order to hand over the order placed by Company A. Before Company A noticed this problem of skyrocketing costs, the ** of Rong Electric Appliances climbed to $10 each, and even ran out of stock completely. Without the circuit board, there is no way to deliver within 6 months.
Another competitor, Company B, also outsources circuit boards to third parties, but it chooses a first-class supplier with added value. Although the company started out as a high company, it had a team of more than a dozen people with design and engineering capabilities. Company B felt that it was worth paying a little more to work with a well-trained and experienced team.
And it's right. When the number of Rong Electrics has changed from 3 to 1, the added value of Company B's ** Merchant to this kind of Rong Appliance is probably about to be eliminated, and immediately redesign the circuit board and use a new type of Rong Electric, ** is still 5 cents each. The modification of the whole design is actually very insignificant, and it does not cost anything, so Company B can continue to produce circuit boards at a very competitive rate, even if the original capacitor is no longer sustainable.
This case illustrates the importance of careful selection of suppliers. As this example shows, the benefits of reducing the number of quotients are very limited if they remain the most important consideration in choosing a quotient. Especially in fast-moving, technology-sensitive industries, companies must be able to quickly recognize environmental changes in their designs and product portfolios, and be flexible, just like their partners. If you bring in the best suppliers of bulk product types and assign high value-added responsibilities to them, they often fail to fulfill their mission, and in the end they have to pay the price of the manufacturer.
3. Commitment
The biggest opportunity to reduce costs is often in the best business organizations
However, to identify these opportunities and make the most of them, the onus does not lie entirely with the manufacturer, but also with the manufacturer. Whether it is for the first merchant or the manufacturer, an in-depth understanding of the cost factors of the first merchant, and then the development of the first merchant management strategy, can often save considerable costs. However, in order to explore the cost factors within the business, and let the businessmen also understand the situation of the manufacturer, both parties must establish a basic commitment.
This is easier said than done, especially since the relationship between the first merchant and the manufacturer has been in a hostile state for so many years. The so-called "commitment" may mean letting the company know about your patented technology and other sensitive information, as well as facing situations that make many companies sit on pins and needles. At the same time, in order to have long-term returns, some short-term investments may also be required.
However, as the following case illustrates, commitment can often lead to high returns.
Company C is a manufacturer of lighting equipment, and its way of sourcing nickel components is to select the best suppliers each year using minimum standards. It has changed its business every year for the past 4 years. It is full of confidence and believes that with every conversion, the company gets the product with the lowest **.
dManufacturers take a different approach. The company selects a merchant they consider to be competitive and together builds a unique and long-term relationship. The company committed to 100 percent of the company's quantity and signed a guarantee contract with a time limit, cost determination, quality and service. The company invested $19 million to build a modern facility to build the company's best nickel manufacturing process. The nickel smelting process of the new equipment is faster, and the nickel flakes produced are also larger, and the production cost is greatly reduced. Manufacturers and vendors can share the cost savings.
For 6 consecutive years, Company D has maintained a cost advantage of 16 over Company C.
When a manufacturer makes a real commitment to the manufacturer, the company will also reciprocate, make a commitment to the manufacturer, and invest in the manufacturer's business and products. Whether this commitment is in the form of people, machines, technology upgrades, or other forms, when the company makes a direct investment to provide better products and services to key customers, both parties can gain a lasting competitive advantage.
4. Coordination
In most cost analysis studies, the results will suggest that the manufacturer adopt a cost-saving solution that is fully coordinated with the supplier. However, there are surprisingly few companies that actually adopt this approach. Many companies still only pass orders over, regardless of the size of the order, the form of the order, the design of the product, and the different product specifications, regardless of how much impact this will have on the operation, efficiency, and even cost of the first business.
Therefore, the final key to a successful business management strategy is coordination: develop cross-functional teams to reduce all the inconveniences and bureaucracy that can increase costs
The team should be composed of both the merchant and the manufacturer. When both parties are facing the goal of saving costs or improving performance, the focus should be on volume consolidation, reliability**, product design, component standardization, and other overall cost-saving strategies. In the early stage of cooperation, the relationship between the first business and the manufacturer can move in the right direction through these teams, and the efficiency of the first business management can also be improved, and the product requirements of the manufacturer can also be achieved, and see the following two cases:
Case 1: Company G, which manufactures medical systems, purchased metal fiber sheets worth $13.2 million from 35 ** vendors, and its practice was to purchase them from the lowest ** vendors. This practice can be said to be a small loss, and its competitor Company H coordinated with a leading company in terms of design, and the result was that the new design required fewer parts than the original.
With fewer parts, less metal is required, which reduces the amount of scrap and scrap, while reducing labor costs, requiring less assembly time, and reducing the number of welding steps.
The result?Company G paid $550 per sheet of metal fiber, while competitor Company H paid $430, a difference of 28 costs. Get more procurement dry goods, pay attention to the procurement practitioners, WeChat***h, manufacturers and a single businessman can save up to $2.4 million a year after coordination on design.
Case 2: Company E is an engine manufacturer, and its way of ordering pumps from the first supplier is almost calculated in hours, often changing the original order, and requiring prompt delivery;Because of this uncertain, low-volume procurement, the first supplier must produce the pump in a less efficient way.
Competitor Company F also purchased pumps from the same supplier. It understands the manufacturing process of the first manufacturer - the economic scale of the production pump is 100, and the components are stocked before the final assembly. Company F will estimate a larger number of orders over a longer period of time. After the order was placed, Company F rarely changed.
The result: Company F paid $9,500 per pump, while Company E paid $10,700, saving 13. By coordinating the pump order in 90-day increments, Company E could have saved $2.6 million a year.
As these two cases show, developing a closer, more collaborative working relationship can lead to better collaboration, higher manufacturing efficiency, and thus significant cost savings.
About the implementation strategy
In the above-mentioned business strategy, it seems that each step is very straightforward: find a competitive businessman, establish a commitment to this businessman, analyze the overall manufacturing process in the way of cost analysis, and fully coordinate with the businessman, so that the benefit can be maximized. This may sound simple, but adopting such a strategy often means that companies must readjust the way they do business: the acquisition of procurement personnel, the way they engage with suppliers, the way they operate across departments, and the way they evaluate overall performance must be readjusted. As with any major organizational change, a successful business management strategy requires the full support and guidance of senior executivesNew training for procurement staff and the introduction of new remuneration schemes are needed;Executives are needed to help drive and lead the change.
Outsiders are often able to help identify areas for improvement, and this is often the starting point for senior executives to engage in this new strategy. New policies and partnerships may not be formal at first, but companies must immediately and clearly put them in writing, as a training tool and a new declaration of corporate commitment. Such a statement is important for procurement teams that have refocused. After all, if they are told to look at the business in a different way and are asked to save $2 a year, the purchaser will find that his or her role is at best a bargainer, and the partnership will quickly unravel.