Reducing production costs is one of the most discussed topics within the walls of product-based companies. At the forefront of these discussions are raw material and supplier costs as they’re typically the most apparent and easily addressable. However, when you reduce your material and supplier costs there’s usually a sacrifice being made on the overall quality of the products themselves and if the sacrifice is noticeable enough you may end up with a lot of unhappy customers.
So what can we do to reduce costs without reducing the quality of our products? While not always easy, it can be extremely beneficial to take a deeper look into your current supply chain process. You may notice things like, delayed responses between suppliers and your buying team, a lack of tracked metrics, miscommunications regarding product samples, incorrect quantity requests, and even RFQs missing important pieces of information.
Logistics management is quite often a top-down system where sometimes you need to look past the actual infrastructure and top level metrics, and instead place further emphasis on providing your team with the right tools and training to get the job job done with the least amount of issues as possible..
An engaged and efficient team, using a well-thought-out system, can produce high cost savings without the need to make drastic changes to the products being produced.
To get true insights into your supply chain in order to identify bottlenecks and flaws give reach out to your supply chain experts that work directly with the established process so that they can provide you with their first-hand insights. Metrics can be great, but nothing beats first-hand experience when it comes to identifying potential optimizations within your companies supply chain process.
Communicate with Your Team
Communicating with your employees, especially with those directly working throughout your supply chain process, is an important step when defining organizational goals and uncovering new opportunities..
Setting either a daily or weekly meeting dedicated to collaborative problem-solving, management will be capable of making vital changes to address current performance issues.
These meetings should be focused on building a unified understanding of the entire supply chain process and a direct line of communication between staff and management. Management should be prepared with relevant metrics to share with the team. As metrics are shared staff will be able to help you identify shortcomings of the current system.
By empowering your employees through regularly meetings they’ll take more responsibility for their specific segment of the supply chain process and help develop solutions to improve it.
Loop in Your IT Department
Most of the time, IT departments are only consulted directly by management when they’ve decided to change to a new software service or something has gone wrong with the current system.
Instead of only tapping into these talented individuals during stressful times, take some time to regularly check up with them to discuss the potential pitfalls and optimizations opportunities of the current suite of tools being used in your supply chain process.. Your IT team will have a much better understanding of the different technologies being introduced in the supply chain management industry, and what your company can do to stay ahead of the game.
Standardize RFQs
A clean and concise Request for Quotation (RFQ) document is the key to a streamlined supply chain process.. The structure and format of the RFQ document is highly dependent on the products and needs of your company as well as your supplier’s. Work with your internal team as well as your supplier’s account managers to create a single RFQ format for each of your product lines. Not only will this help your team speed up RFQ creation, but it will also reduce instances of missing or incorrect information being added to the document.
Suppliers will appreciate the standardized document as well, especially if you request their feedback as you finalize your format. Time is money and being able to reduce the time required for a common process will reduce costs dramatically over time.
There are many RFQ templates online if you’re looking for a place to start, when you use Sourcify, standardized RFQs are created automatically when you input the required production data saving you the hassle of managing your own documents.
If you decide to create your own RFQ for now, these are some suggested items you should think about including when you create your template:
1.Statement of Objectives
Summarize what you’re expecting from this project and the goals you are aiming to achieve with this partnership in the short, mid and long term. This will help suppliers come up with a relevant proposal that is based around your company’s own vision while allowing them to demonstrate how they differentiate themselves from other competitors in order to add value to your company.
2. Key Contacts
Include information of the person in charge of heading up the project, along with the names and contact info of whom submission should be sent to and where to direct questions. Assigning a single point of contact is a fantastic way to hold control over the RFQ process and reduce the “telephone” effect.
3.Response Format and Timing
Laying out a framework for how you expect quotation to be sent back will allow for a quantitative comparison between each potential supplier. For this part of your RFQ, clearly, state when the deadline for submissions is and the required format of their quotation.
This practical information shall provide unnecessary delays due to misunderstandings. While not every single one of these will be relevant for your company, some of required inputs you could require from your supplier to include in the quote could be:
- Unit price
- Number of hours per product/assembly (split by resource type)
- Hourly rate (split by resource rate)
- Material cost
- Material margin
- The material handling fee
- Standard lead-time
- Details of any non-recurring engineering costs for things such as molds
In order for the manufacturing facility to submit the best possible quotation, they are likely to want to know the following from you:
- Volumes (annual usage, order and call off quantities etc)
- Target pricing
- Forecast demand
- Forecast quantity projection
- Design registration/supported pricing
- Build standards
- Confidentiality
Set rigorous goals
Setting goals is necessary in making sure your team members stay aligned and have something to compare progress to. Try to set goals based on key performance indicators of your supply chain and avoid focusing your time on vanity metrics. For instance set goals such as: Percentage of On-time Deliveries, ,Time to Quote, Production Turnaround Times, and Product Defect Rates.
When setting goals make sure they reasoning and inputs behind them are clear to both employees and management. That way when reviewing progress employees and management know which levers to pull in order to achieve those goals. Tracking goals or metrics without purpose can lead to feelings of frustration and lack of control making it harder for your team to stay focused on the tasks at hand.
Implement Quick Response Manufacturing (QRM)
Reducing lead times is the basis of an optimized supply chain and the main objective of Quick Response Manufacturing (QRM). Implementing this methodology either through the techniques we mentioned above or using a system to help you cut out unnecessary steps with software such as Sourcify is a crucial step to begin boosting your margins.
Quick Response Manufacturing (QRM) mostly concentrates on time savings and is ideally suited for high-mix, low-volume, and custom-engineering products while seamlessly being integrated into existing lean, six sigma, and other improvement efforts.
Companies that focus on scale and cost management strategies require a large degree of labor specialization and management structure that can have negative effects on lead times and contribute to a list of hidden costs.
With each step, there is a waiting period before it’s possible to move onto the next step. Implementing a QRM process will help you evaluate each process step and analyzes the wait time compared to reported work time so strategies can be created to reduce down time.
Improving supply chain efficiency is no easy task and will require you to collaborate across teams and departments, but the payoff will be well worth the effort especially over time. By improving visibility into your supply chain through open communication and setting well-defined goals goals you’ll soon cut large excess costs from your supply chain which will contribute directly to increased product margins.