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Standardization can take two main forms: either you match your needs to the standard offers of the market; or you buy only one product, which becomes your standard.
Buying the market standard
It can be tempting to choose exactly the component that will perform the precise function requested by the customer. It is your duty to verify that this component corresponds to the products commonly sold by your supplier. If not, you increase the risks:
- longer lead times ;
- higher price ;
- sudden stop of the production.
Buying fewer different components is undeniably a sure way to control purchases. You will be vigilant on this point from the very beginning of the development. All ERP systems on the market easily accept item creation. On the other hand, you will encounter the worst difficulties to delete components from the database. We advise you to force your contacts to ask themselves all the necessary questions before creating a new item.
Set up a very restrictive procedure for the creation of new articles. This will be the first line of defence against the proliferation of useless items in the database.
Standardization is an essential discipline to activate the lever of massification as efficiently as possible. The fewer different components you have to manage, the more volume you will have per component. You can thus play on the volume distribution.
Massification allows a price reduction through two mechanisms:
- dilution of fixed costs. By a simple arithmetic, a fixed sum divided by a larger number tends to decrease ;
Well-organized competition is necessarily a vector of competitiveness. The buyer is in a way an arbiter of competition. To do this, you must have two concerns.
An organization for competition
Is your company organized to animate a sufficient climate of competition?
It is very important to have this concern from the early stages of the purchasing process. Otherwise, you are likely to run into obstacles that the incumbent supplier has put in the way of his competitors.
Maintain a competitive climate
Establishing a multi-sourcing culture is a long-term task. It will sometimes be tempting for a particular prescriber to return to the incumbent supplier, once the latter has made the effort to align itself with the competition. You will need a lot of persistence to insist on giving a significant market share to the “challenger” supplier.
4. Cost awareness
At first glance, it is not obvious that knowing your supplier’s costs is a cost-cutting factor. However, this is constantly demonstrated by all professional buyers.
This being the case, do not think that your supplier will spontaneously provide you with all the information necessary to break down the costs of the product purchased. It is a long and patient task that you should undertake as soon as possible. Every opportunity is good to gather information, to cross-check it, to refine it.
When, after a rigorous hunt, you will have obtained a good knowledge of the cost breakdown, you will be able to organize the value analysis and develop cost reduction plans.
Don’t hesitate to knock on your Cost controller’s door on a regular basis. Knowing the breakdown of costs, their behavior and their links is his job. He will be happy to help you understand your supplier’s cost structure.
5. Continuous improvement
In Japan, we talk about “Kaizen”. This approach was invented by Toyota engineers and is based on the principle that any process can be constantly improved. The ISO 9001 standard has made it a requirement for any organization that uses this framework.
Some economic sectors have made a habit of including productivity clauses in contracts. The recent report of the industrial subcontracting ombudsman, the so-called Volot report, denounced this practice, which can be considered as an abuse of a dominant position. It is up to you to keep the idea and to contractualize it with your suppliers while respecting the principle of consensualism.
6. The collaborative mode
While competitive bidding is a reliable way to improve economic performance, it is not the only way. You can also increase the value provided by your suppliers by using collaborative work methods.
Innovating together, forming strategic alliances, taking risks together to attack new markets are all opportunities to create new economic value.
Six purchasing levers:
- standardization: you can either buy the market standard or reduce the number of reference to buy ;
- shigher volume: taking into account the Learning curve and/or the better overhead cost dilution, you’re allowed to request lower price
- competition: an excellent way of reducing prices ;
- deep knowledge of cost: less obvious than other levers, but for sure the knowoledge of cost breakdown is an efficient driver to reduce price or avoid price increase ;
- continuous improvment: if your supplier is ISO 9001 certified, you are allowed to request every year a better and cheaper product ;
- cooperation with suppliers: in this case you’ll be in coopérative mode and will work together with you supplier to wipe cost out of your processes.
Map your purchases with the Kraljic matrix
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