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20 Reasons You're Paying Too Much for Raw Materials - And How to Reduce Costs

This slideshow describes 20 areas for opportunity to reduce raw material costs. It segments the ideas into cost reduction opportunities within sourcing, manufacturing, and post-manufacturing. Some of these opportunities could be captured relatively easily, resulting in significant cost reduction. Others will need to be incorporated into your longer-term Continuous Improvement Strategy.

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20 Reasons You're Paying Too Much for Raw Materials - And How to Reduce Costs

  1. 1. 20 Reasons You’re Paying Too Much for Raw Material Author: Calvin Williams Principal / Continuous Improvement Strategist Manuficient Consulting Manufacturing Strategy, Analytics, & Implementation
  2. 2. Raw Materials is usually the greatest cost of a manufacturer’s total cost of goods sold (COGS) Cost of Goods Sold Raw Materials Direct Labor Indirect Labor Salaried OH Utilities / Services Warehousing Distribution Total COGS There are always opportunities to reduce raw material costs Illustrative Raw Material costs consider all costs charged to the manufacturer for the materials used in production Cost of Goods Sold, or COGS, considers the total cost charged to buyers
  3. 3. There are 3 segments of your supply chain where there are opportunities to reduce material costs Supply Chain Segments Sourcing Manufacturing Post-Manufacturing Considers contracting arrangements with sellers of the materials used in production Considers the processes used for converting raw materials into finished goods Considers all material handling and supply chain activities subsequent to the manufacturing process
  4. 4. The first segment of material cost reduction opportunity is in sourcing Raw Material Cost Reduction - Sourcing Accepting higher prices instead of taking advantage of market competition Paying higher prices by ordering smaller quantities from too many suppliers Accepting higher prices due to not leveraging favorable supplier payment terms Accepting higher prices instead of utilizing negotiation techniques Accepting higher prices by not collaborating with competitors to get bulk discounts Utilizing materials that are more expensive than what is needed for the product’s function Accepting higher prices by not commiting to long-term purchasing contracts Purchasing materials at full rate instead of leveraging bargains Purchasing based on your manufacturing schedule instead of the suppliers production schedule 1 2 3 4 5 6 7 8 9
  5. 5. The next segment of material cost reduction opportunity is in the manufacturing process Raw Material Cost Reduction - Manufacturing High fill / packing variation resulting in high fill targets and over-fill / over-pack Scheduling using a “push” production model resulting in excess or obsolete inventory Scrap and material yield loss created by “leaks” in the system Too many low-consumption raw materials caused by high SKU complexity Over-application of material that customers do not find valuable due to over-designing products Over-application of material due to inefficiently designed products 10 11 12 13 14 15
  6. 6. The last segment of material cost reduction opportunity is post- manufacturing Raw Material Cost Reduction – Post-Manufacturing Material lost in the supply chain being scrapped instead of recycled or reclaimed High supplier production costs, which could be reduced by providing CI services High supply chain costs for suppliers, which could be reduced by providing warehousing and distribution services Accepting higher prices due to not leveraging buyers to take advantage of bulk discounts Too much shrinkage, or goods being lost, damaged, or stolen in supply chain processes 16 17 18 19 20
  7. 7. Quantification & Pareto Analysis of Opportunities Through detailed analysis of opportunities and their impacts, a plan can be developed to drive significant cost reductions Raw Material Reduction Opportunity Analysis … … … $ $ $ $ $ $ Opp 1 Opp 2 Opp 3 Opp 4 Opp 5 Opp 6 Implementation Prioritization Analysis High Priority Low Priority High Impact Low Impact Low Cost High Cost Sourcing Opportunities Manufacturing Opportunities Post-Manufacturing Opportunities
  8. 8. We offer an array of services to help manufacturers across industries to realize their business objectives Manuficient Service Offerings Operating Cost Reduction Optimize process efficiency to increase labor and asset utilization Production Throughput Increase Eliminate process bottlenecks to unlock untapped capacity Material Cost Reduction Close material loss points and/or identify favorable sourcing options Business Case Analysis Evaluate overall business impact to support decision-making Should-Cost Analysis Determine what a product should cost to make or procure Network Optimization Assess the optimal manufacturing footprint and associated benefit Efficiency & Opportunity Analysis Provide on-going process improvement support All services are founded in principles of Lean, Six Sigma, Agile Manufacturing and other leading disciplines designed for operational excellence
  9. 9. Contact Details Calvin L. Williams, MBA, BSIE, LSS Principal / Continuous Improvement Strategist (404) 480-2307 calvin.williams@manuficient.com Manuficient Consulting Manufacturing Strategy, Analytics, & Implementation 2300 Holcomb Bridge Rd Suite 103-103 Roswell, GA 30076 www.manuficient.com Visit my Excelville Profile for tools and resources for your operations excellence initiative. Engage with us: Subscribe | Request Material | Schedule a Call | Request a Proposal Connect with us: Facebook | Twitter | Linkedin | Google+ | Blog

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