The document discusses product consolidation to reduce costs by decreasing the number of unique product parts and increasing orders of preferred parts. It provides an example of consolidating notebooks, CDs, and pens to increase volumes of fewer SKUs. This allows negotiating volume discounts from suppliers. The example shows the total annual spend is initially higher but decreases below the original once discounts are applied, demonstrating cost savings from consolidation.

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2. Why consolidate products? The objective of product consolidation is to reduce the overall number of parts and increase the number of preferred (higher volume/lower cost) parts.In doing so, one can increase order quantities. This will reduce the part and material overhead costs. Ordering larger quantities of standard items increases the economies of scale (higher volume/lower per piece cost).

3. Lower cost replacements In addition to consolidation, one might be able to identify lower cost replacements for some of the items. Ask yourself the following questions: Can you substitute one part for another standard part that fills the same function? Can you substitute one part for a lower cost part that will meet your requirement? What is the minimum list of parts we need to build our products?

5. Since the demand for the 800mb blank CD's is higher than for the 750mb CD's and the price cost difference is not very large, only 800mb CD's will be purchased.

7. Example (3 of 4) The annual volumes of the selected items have now all increased as shown below.

8. Example (4 of 4) These increases in annual volumes will support negotiations with the respective suppliers to reduce the cost of the consolidated list of items. Taking those discounts into account, the purchasing data is now: The total annual spend is now lower than the original spend ($3,054.65). This consolidation has lead to cost reduction.

9. For more information on “Product Consolidation” and other Cost Reduction techniques, visit www.aheadconsulting.com Use to analyze your product consolidation opportunities