Manufacturing cost reductions: 6 actions to avoid
For the procurement, sourcing, and purchasing specialists, cost reduction is a way of life. While there are several reliable ways to reduce overall costs, there are just as many decisions that may initially seem promising, but ultimately lead to an increase in cost. To prevent production delays and unexpected costs, the following recommendations are six things not to do when reducing costs.
#1 – Don’t Choose the Lowest Quote
First, do not automatically choose the lowest quote for a given part. It seems obvious that if the same drawing is sent out to multiple vendors for a quote that the vendor who can provide the part at the lowest price should be chosen.
However, procurement specialists should always be wary of vendors who provide quotes substantially lower than other suppliers. Oftentimes, low bidding results in cost changes down the road when the vendor realizes they cannot manufacture the part at the quoted price.
The buyer then must decide whether to stay with the vendor and pay more, or find an alternate source, further delaying delivery. Price should be only one factor, along with delivery record and quality standards, upon which a supplier is selected.
#2 – Avoid Offshore Vendors
To prevent costly delays, procurement should not be tempted to select an inexpensive offshore vendor for a quick cost savings. For years, offshoring was thought to be the ideal solution to cost reduction. Especially in the Pacific Rim, suppliers promised components at a fraction of the price quoted by their domestic counterparts.
However, as these promised savings never materialized, there has been a strong resurgence of on-shoring, and for good reason. Communication is spotty and difficult with offshore vendors, making the initial development process lengthy and time-consuming for sourcing and procurement personnel.
Once the initial samples do arrive, which can take months, they are rarely completely to spec, leading to yet another iteration of sample production and shipping.
Offshore vendors are notorious for delaying already extended lead times and missing the quoted delivery schedules. Once a shipment is on the water, parts can be tied up in customs for an undetermined amount of time, adding yet another factor of uncertainty.
When the product arrives at the customer’s facility, it must typically be inspected, and rework is routinely required. The extra labor required to process shipments easily counteracts any initial cost savings that were realized by switching to the offshore vendor.
Domestic manufacturers are easier to communicate with, can provide shortened lead times, and are able to produce parts in lower quantities as needed. This allows manufacturers to place JIT orders and better dictate orders according to their inventory management needs.
#3 – Don’t Rush a Prototype to Production
Three oversights which harm cost reduction goals include rushing prototypes to production, skipping valuable iterations during development, and making post-production design changes. These three actions to avoid are all inherently related.
Rushing a prototype to production does not give the engineering team enough time to evaluate reliability of a component and optimize the initial design for manufacturability, leading to an inferior part. Multiple design and prototype iterations allow engineers to ensure that the part will perform as expected, will reliably stand up to the intended operating environment, and can be efficiently manufactured.
#4 – Don’t Change a Product Post-Design
The ideal time to make an improvement is before hard tooling is manufactured and full production runs are started. Post-production design changes can lead to challenging inventory management situations and scrap parts, both of which negate any time and cost savings that were initially realized by rushing a part into production.
#5 – Don’t Overlook New Technologies or Processes
As new technologies develop and existing technologies improve, procurement specialists are doing themselves a disservice by ignoring new manufacturing processes when they look for cost reductions.
Especially in the fields of welding, molding, machining, and finishing, there are multiple ways to produce a part, many of which can meet a wide range of quality standards.
By being open about the process used to manufacture a part, vendors may be able to provide an innovative production method to meet the volume and quality requirements of a given application. When seeking cost reductions, do not overlook new technologies or production methods.
#6 – Don’t Overlook the Savings Potential of Value-Added Processes
The sixth thing not to do when reducing costs, is do not overlook the savings potential of value-added processes. Parts that must be heat treated, deburred, welded, or powder coated often require shipment to a third party after initial production. This adds shipping costs and increases the lead time of an order.
Many fabricators, injection molders, and machine shops have expanded their service offering to accommodate a range of value-added processing needs.
While these vendors may not be the lowest bidder on any individual aspect of the manufacturing process, they may be able to provide cost savings when performing multiple processes, such as fabrication, welding, heat treating, and painting.
Additionally, vendors situated in industrial hubs may have a network of vetted partner vendors that allow them to provide turnkey manufacturing as needed. Exploring opportunities to streamline the manufacturing process can lead to not only per part cost savings, but an overall reduction in the time required to manage the supply chain.
The Long Term Value of Cost Planning
By focusing on long term savings and making educated decisions during the part development and vendor sourcing phases, procurement and purchasing specialists can provide their companies with true cost reductions.
Avoiding these six mistakes will minimize the risk of delays and unexpected costs down the road. When seeking true cost savings, knowing what not to do is critical to the overall success of a cost reduction project.