Tips for saving on procurement costs

I. Strategies for saving procurement costs

As far as corporate procurement is concerned, there are many ways to save costs. In summary, there are eight main types:

1. Value analysis and value engineering, commonly known as VA and VE: for new product work: research on the function of a product or service, at a lower life cycle cost, by eliminating, simplifying, changing, replacing And other methods to achieve the purpose of reducing costs. Value engineering is to study and analyze the functions and costs of existing products. Now value analysis and value engineering have been regarded as the same concept.

2. Negotiation: Negotiation is the process of agreement between buyers and sellers to achieve mutual recognition for their respective goals. Negotiations are not limited to price but also to specific needs. Using a negotiated approach, it is often expected that the purchase price will fall by about 3%-5%. If you want to achieve a greater reduction, you need to use price, cost analysis, value analysis and value engineering (VA, VE) and other methods.

3. Early supplier participation in ESI: In the early stages of product design, suppliers who choose partnerships participate in the new product development team. Through the early involvement of suppliers, the new product development team will adjust the strategy very early according to the performance specifications proposed by the supplier, and rely on the supplier's expertise to achieve cost reduction.

4. Leveraged purchases: avoiding separate purchases, resulting in different units in the organization, sourcing the same parts from the same supplier, but at different prices, but not knowing each other, without any loss of opportunity to save on procurement costs. The way to increase the volume of purchases and increase the bargaining space should be concentrated.

5. Joint procurement: mainly occurs in non-profit business procurement, such as hospitals, schools, etc., through the statistics of the demand of different procurement organizations to obtain better discount prices. This is also used in general business activities, such as third-party procurement, specifically for those companies that do not need much.

6. Designed to facilitate procurement, DFP—home-made and outsourced strategies: Facilitate the convenience of raw materials in the design phase of the product, using the standards and technologies of the co-organizers, and using industry-standard parts. This can greatly reduce the technical support required for home-made, while also reducing production costs.

7. Price and cost analysis: This is the basic tool for professional procurement. Understanding the basic elements of the cost structure is very important to the purchaser. If the purchase does not understand the cost structure of the purchased item, it is not a matter of knowing whether the purchased item is a fair and reasonable price, and also losing many opportunities to reduce the procurement cost.

8. Standardized procurement: standardization of implementation specifications, use common design, specifications, or reduce the number of customized projects for different product projects or parts, and achieve the goal of reducing manufacturing costs by economies of scale. But this is only one part of the standardization, and the scope of standardization should be expanded to achieve greater benefits.

Second, the factors that enterprises need to consider when choosing a procurement cost strategy

The above-mentioned strategies for reducing procurement costs are only theoretical methods. In reality, when companies formulate procurement strategies, the following factors should be considered.

1. The type of product or service purchased. The type of product or service purchased is a one-time purchase or a continuous purchase. This should be a more basic understanding of procurement. If the type of procurement has changed, the strategy must be adjusted accordingly. The requirements of cost analysis for continuous procurement are much higher than one-time procurement, but the amount of one-time purchase is quite large. Nor can it ignore the efficiency of its cost savings.

2. Annual demand and total annual purchases.

The annual demand and annual purchase amount are each, which is related to whether it can get a better bargaining advantage when negotiating with suppliers.

3. Relationship with suppliers. Vendors, traditional suppliers, and recognized suppliers go to maintain partnerships with suppliers and become strategic alliances, sharing costs in different ways. If the relationship with the supplier is general, it is not easy to get detailed cost organization information. Only when it maintains a close relationship with the supplier and cooperates with each other can there be a way to do it.

4. The life cycle stage of the product. The purchase volume has a direct relationship with the stage of the product's life cycle. The product has a lead-in period, a growth period, and a mature period. The purchase volume will gradually enlarge until the recession period occurs, and the purchase volume will gradually shrink.