Where money is saved.
WHERE COST CONCENTRATES
Purchase price of goods Freight and transport Duty and clearance Holding stock Handling Waste, damage and obsolescence Expediting and emergency purchasing
WHAT TO ESTABLISH FIRST
Total landed cost per item.
WHY
Decisions made on purchase price alone are frequently wrong.
WHAT REDUCES PURCHASE COST
Consolidating volume with fewer suppliers Longer-term commitments Competitive quotation Specification review Alternative materials or sources
WHY SPECIFICATION REVIEW
Requirements exceeding what is needed cost money for no benefit.
WHAT TO EXAMINE
Whether the specification is what the application requires.
WHAT REDUCES FREIGHT COST
Fuller loads Consolidation Mode selection Negotiated rates at volume Better packaging density
WHAT REDUCES HOLDING COST
Accurate demand information Shorter or more reliable lead times Removing obsolete stock Better reorder discipline
WHAT REDUCES WASTE
Correct storage Rotation Accurate ordering Handling training
WHAT TO EXAMINE
Emergency purchases and expedited freight.
WHY
They cost several times normal and they indicate planning failure.
WHAT TO MEASURE
Their frequency and cost.
WHAT TO ADDRESS
The planning failures causing them.
WHAT TO AVOID
Cost reduction that increases risk substantially Squeezing suppliers below viability Reducing stock below what operations require
WHAT TO MEASURE
Total cost, not individual elements.
