3 Tips to Help Reduce Part Costs

Cutting your parts costs is a big deal.

Not only will it make you look good in the eyes of your boss, but it’ll make your company that much more competitive. And, of course, that’s super important in today’s increasingly competitive global market.

But to get the most out of your sourcing efforts, you need to not only think about getting your parts made, but how to regularly locate, acquire, and analyze cost-saving opportunities. To help you with that, here are 3 Quick Tips on Slashing Your Parts Costs. (And while some of these points might seem obvious, it never hurts to get a quick refresher on the best tips and practices for sourcing your parts).

1. Perform A (High-Level) Sourcing Analysis

Assessing and implementing cost savings isn’t always easy, so you need a repeatable model for your sourcing strategy. We talk in-depth about how to implement a repeatable strategic sourcing strategy here, but we won’t get into the tall grass here. Instead, we’re going to cover some quick points on how to close gaps in your sourcing strategy.

Efficient Sourcing Begins With 3 Things: The Purchasing and Procurement Center has some really great in-depth tips on reducing overall sourcing costs, but let’s briefly look at some of their key points:

Take advantage online marketplaces: By posting an RFQ on online manufacturing marketplaces, you’re often able to drive down the cost of your parts during the bidding process and find lower prices than you might otherwise. Marketplaces also bring the action to you. Instead of having to go looking for suppliers, suppliers come to you. And what’s more, you’re also able to quickly — sometimes instantly — compare prices, lowering supplier risk and (potentially) part cost.
Take advantage of supplier discounts: Be open with your suppliers up front: Your sourcing strategies may shift throughout the year to take advantage of various cost savings. Ask your suppliers up front if they provide bulk sourcing or other potential cost-saving initiatives. You may be surprised what you find out…
Take advantage of efficient part replacement strategies: If you’re sourcing needs revolve around part replacement, are you sourcing replacement parts on a regular basis, or when you have the need? The sourcing needs matter because of the cost of waiting for replacement parts factors into your sourcing strategy. Buying in bulk can reduce your overall costs and reduce wait times.

Supplier Performance: Evaluating the manufacturing capabilities of your suppliers on a regular basis can help you find gaps in your sourcing strategy and your incumbent suppliers’ capabilities. And of course, this also helps save money.

Ask questions like: Are my suppliers using the most cutting-edge technologies and manufacturing processes? Are my suppliers practicing lean manufacturing techniques? And are my suppliers taking advantage of efficient on-time shipping strategies? All of these factors can and do contribute to overall part costs.
And here’s another tip: Building a “should-cost” model where appropriate for your custom manufactured parts can reduce costs, too, as a “should-cost” analysis will give you a good idea on price trends regarding the materials and labor costs required to manufacture your custom parts. A “should-cost” analysis won’t necessarily solve all your problems, but it sure helps.

2. Think About Near-Sourcing to Possibly Offset Parts Costs

In recent months, there’s been a lot of talk about nearshoring (we’re sure you’ve heard a little of the chatter). Often, the term is used interchangeably with near-sourcing by sourcing professionals and thought leaders to describe outsourcing production to suppliers overseas.

But at MFG, we tend to think of near-sourcing a little bit differently. To us, near-sourcing means helping engineers and sourcing professionals uncover innovative job shops and manufacturers close to home that they may not be aware of. All in an effort to help them save money on their custom parts.

By making more goods close to home, whether it’s in the U.S., Europe, or Asia (depending on your company’s location), you’re able to potentially leverage untapped lean suppliers, and of course, save your company money and reduce supplier risk.

When you near-source your parts, you can automatically reduce shipping and logistics costs, which are HUGE contributors to part cost. You’re able to physically visit the shop floor (if you ever want to), assuring your supplier has the exact capabilities to meet your sourcing needs. And you’re able to better communicate with your suppliers because there are zero time zone constraints.

We’re not saying near-sourcing is exactly right for your needs. But what we are saying is this: If you’re looking to reduce the cost of your parts, take a good look at near-sourcing for at least some of your parts or products. It may very well be worth your time.

3. Build an Effective (And Repeatable) RFQ Process

Doing this ONE thing can save drastically reduce parts costs. And according to Ryvit, there are 4 ways you can potentially do it:

Concentrate on the need at hand. Seems obvious, right? But when you’re building an RFP, be crystal clear on what your expectations and use cases are for the part being manufactured. For suppliers, there’s nothing better than clarity when it comes to evaluating RFPs. Be painstaking in your attention to detail. It only helps your supplier do a better job and get your part made RIGHT the first time.
Provide background – and use case – information where applicable. Like we said above, the more information your potential supplier has on your sourcing need and why you have it, the better that supplier can identify the best procedures and processes by which to get your parts made at cost, without sacrificing quality. What’s more, this will alleviate possible miscommunications between you and your supplier, building more efficient sourcing and manufacturing workflow.
Be transparent with “project scope and desired delivery timeline.” This is a HUGE help to your supplier – and you. Doing this shows you, up front, who the best contenders are for your job, especially if you’re using manufacturing marketplaces to source your parts. “Serious vendors are the only ones you need to have a return on your RFP. It is important to be clear and realistic about your scope and timeline. Don’t downplay the size of a huge project and don’t try to get a huge project done in no time flat.”
Be available for your supplier. This is REALLY BIG when it comes to saving money. If your supplier has a question, make sure you’re available to answer his question in a timely manner. To make sure your project doesn’t “miss the mark,” fluid communication between sourcing professional and manufacturer is essential. Miscommunication can cost you thousands in costly re-work. And we all know you don’t have the time for that kind of a hassle.

So, What the Heck Do You Do Next?

Start small. We know, evaluating your sourcing strategy can seem super overwhelming at first. With all the work you’ve got going on, reevaluating your sourcing strategy probably isn’t at the top of your list. But, just like you learned to crawl before you walked, doing the same here is the rule of thumb: Pick one of the tips above, and start finding the gaps in your current process (and if you don’t find any gaps, hats off. You’re WELL ahead of the game.)

But to begin, we suggest starting with Point 3. If you can hammer down a repeatable RFQ process (one where you focus on clear communication with your suppliers and the detail you put into your RFQ descriptions), that single point will generally be the foundation upon which to build the rest of your sourcing strategy.

And, of course, if you ever find yourself swamped and needing a little help finding gaps in your sourcing strategy, the MFG Sourcing Advisory Team is never more than a single click away.

Sources:

https://www.esourcingwiki.com/index.php/Spend_Analysis_and_Opportunity_Assessment
https://ryvit.com/rfp-best-practices/