Cost Optimization

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Cost Optimization

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Cost Optimization

  1. 1. 10 SIMPLE POINTS TO SUPPORT YOUR PURCHASING EFFICIENCY The following presentation may show your company how to save $Millions per year of waste that could be avoided or recovered through financial audit and/or lean manufacturing workshop processes. PRESENTED BY:
  2. 2. DISCLAIMER: The information contained herein is hypothetical and/or fictitious in reference and is to be used strictly for educational and training purposes only. Lextron Group Inc., its shareholders, directors, employees and affiliates assume no liability for any resemblance to any person, place, organisation, company or firm, or as may be presented as coincidental, or for any effects this content may have on any said person, place, organisation, company or firm, nor for any actions taken in reliance thereon. The information contained herein has been supplied solely from creative and suggestive script and it’s visual effects as provided by the writer. Certain links on this site may take you to other websites. Lextron Group Inc. provides these links only as a convenience and not as an endorsement by our company and associates. These linked sites are not under the control of Lextron Group Inc. If you decide to visit any linked site, you do so at your own risk and it is your responsibility to take all protective measures to guard against viruses and other destructive elements. Lextron Group Inc. is not responsible for the content of any such linked sites or any other web page that is not part of this site. Unless otherwise expressly provided, Lextron Group Inc. makes no representation or warranty regarding, and does not endorse, any linked site or the information, products or services appearing thereon. Accordingly, you agree that Lextron Group Inc. or it's associates will not be responsible or liable in any way for the accuracy, relevancy, copyright compliance, legality, or decency of material contained in any presentation or site linked from this site.
  3. 3. DETAILED REVIEW OF A TYPICAL COST MODEL TEMPLATE Let us explore the enormous cost saving opportunities with the review of a typical cost model example. THE COST-WALK...
  4. 4. 1) REVIEW YOUR MATERIAL USAGE Some suppliers may inadvertently overestimate their material usage based on initial tool design concepts and prior to its’ actual engineering and construction . A careful review of the quoted material calculations compared to the actual requirements after tool build may be needed here.
  5. 5. 1) REVIEW YOUR MATERIAL USAGE An audit of actual material usage for the product and it’s sub-components can have a dramatic influence on your true costs. Review the suppliers set-up sheets and/or measure the tool layout to determine the real cost metrics. ?
  6. 6. 2) SCRAP REIMBURSEMENT Do you receive reimbursement for the off-cuts and scrap materials generated through production of your products? Are they calculated correctly? Do you know there is a 5 to 30% scrap return available for every dollar spent on raw materials used in your products?
  7. 7. 2) SCRAP REIMBURSEMENT You should consider to compare the raw material calculation with the net weight shown on each component drawing. The difference is YOUR money. Today’s scrap steel value is $358 per metric ton and could offer potential savings on your purchased products. ? or..
  8. 8. 3) MANUFACTURING EFFICIENCY – Value Stream Analysis Do the quoted machine cycle times match the actual output? Is the quoted equipment being used? Are there any secondary labor costs that are not actually required? These are areas where suppliers may use some creative accounting in their calculations.
  9. 9. 3) MANUFACTURING EFFICIENCY – Value Stream Analysis Again, please consider to compare the supplier’s equipment set-up documents or MRP/Operations system data against the quotation or cost model. Quite often the quoted calculations do not match actual output conditions. ? ?
  10. 10. 4) SECONDARY PROCESSES It may also be prudent to review some of the value stream and secondary process items to determine if the quoted values match the production practice.
  11. 11. 4) SECONDARY PROCESSES A review of the supplier’s measurement systems, performance records and/or operations system would be a good indicator of process metrics and related costs.
  12. 12. 5) PURCHASED COMPONENTS & SERVICES Also an area to investigate is the “quoted cost” v.s. “true cost” of purchased components and sub-contract services. Quite often there may be differences from the original estimates to when the suppliers purchase orders go out, just prior to program launch. Especially when there are inter-company transactions.
  13. 13. 5) PURCHASED COMPONENTS & SERVICES A request to your supplier for reconciliation of accounts can address this concern. Review of your supplier’s purchase orders to the lower-tier supply chain, or review of your supplier’s MRP system, may offer opportunities to recover costs or to prevent loss.
  14. 14. 6) SECONDARY EQUIPMENT BURDEN Careful review of machine rate calculations, process speeds and further review of all evidence for the associated costs of those machine rates, may provide additional opportunities for savings and/or cost avoidance.
  15. 15. 7) DUPLICATE PROCESS COSTS You may also consider to review the cost model for duplications or errors.
  16. 16. 8) OTHER COSTS (eg. EXCESS LABOR) Optimize the value stream to eliminate excessive labor costs and/or ensure that what is on the quotation, is actually needed. In the example above, the packaging cost can be incorporated into the assembly labor.
  17. 17. 8) OTHER COSTS (eg. EXCESS LABOR) In this example, the suppliers’ packaging operator can be eliminated.
  18. 18. 9) ASSOCIATED PROFIT, SG&A & SCRAP ALLOWANCE For every dollar captured through your efforts of optimizing costs and reducing waste, in this example an additional 11.4% of those savings are automatically realized from reducing the respective overhead and margin costs.
  19. 19. 10) PACKAGING & FREIGHT COSTS Another area for close investigation are the packaging and freight costs, as they may be amortized into the product piece price.
  20. 20. In summary review of the costs presented and the associated hypothetical savings... here are the results. SUMMARY OF COSTS
  21. 21. TOOLING, FIXTURES & GAGES A further area of cost saving opportunities, not detailed in this presentation, is in the audit of tooling programs. These must be studied very carefully and a deep dive into the allocation of tool build related materials, hardware, engineering, labor and other associated direct and indirect costs.
  22. 22. THANK YOU FOR YOUR TIME TO REVIEW THIS PRESENTATION. WE SINCERELY HOPE THAT THERE ARE COST SAVINGS OPPORTUNITIES IN THIS REVIEW AND THAT IT MAY ALSO HELP TO STRENGTHEN THE INTEGRITY OF YOUR SUPPLY BASE. SHOULD YOU REQUIRE FURTHER SUPPORT TO REALIZE THESE COST BENEFITS, PLEASE CONTACT US AT YOUR EARLIEST CONVENIENCE.

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