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Introduction
In most of the companies, it is expected that procurement department should bring cost reduction in raw material. Now since this is the department which arranges material based
on production requirement, follow-up with finance for payment of suppliers, manage day-to-day supplier related issues, a purchaser will hardly get any time to move out from day-to-day fire-fighting and focus on cost reduction activity. Moreover, most of the time the performance indicator for a buyer are set as on-time delivery and inventory reduction which reduces the focus of purchaser from cost reduction activity.
Hence, the foremost importance is to form a dedicated team for cost reduction, whose prime focus will be only to do cost reduction and sourcing projects. It will be the responsibility of this team to identify the opportunities for cost reduction, develop new parts, they will do internal follow-up regarding part development, and after part approval, they will hand over the material to procurement department, who will manage the procurement related activity of the part.
To synergize the efforts in a direction of cost reduction, a company has to adopt a cost reduction strategy and communicate this to the people to ensure that efforts of all are in line with a particular strategy only.
Following strategies can be adopted for material cost reduction: -
Vendor Consolidation
Value Engineering
Assembly Outsourcing
Standardization
1. Vendor Consolidation: It is always desirable to have less number of vendors with more business per vendor rather than having more number of vendors with less business per vendor. The prime focus of this activity is to realize economies of scale by minimizing the vendor base for a particular category, with due consideration given to capacity and financial constraints of vendor.
Vendor consolidation not only provides a volume discount but it also reduces the other overheads pertaining to vendor management, e.g., a buyer will have to do less follow-ups, with vendor, finance will have to manage accounts of less vendors, and quality department will have to manage less vendors for quality-related problems.
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Manish Jain is B.E. Mechanical from MBM Engineering College, Jodhpur, and holds PGDIE qualifications from NITIE, Mumbai (Class of 2005). He has worked for a year at TVS Electronics, Chennai, in Sourcing & Production Planning, and is currently working as Dy. Manager (Materials) at Fibcom India Ltd., Gurgaon.
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