Study Procurement Strategy and Cost Control by a Case

2019-02-25 17:24:31 admin 519

Question:


The factory needs to purchase a piece of equipment. After market research, there are two choices:
Equipment 1, imported from Germany, is very expensive, but the cost of operation and maintenance is very low.
Equipment 2, domestic, low price, but according to market feedback operation and maintenance costs will be high.
How would you choose as a purchasing agent? The basis for selection?


How to make decisions? Different types of factories may have different choices.
Factory A is the direct purchasing department decision-making, because the head office has control over the budget, will also assess the purchase cost, so the purchasing department decided to choose equipment 2.
Factory B is the general manager's decision-making. He learned the life cycle index of the equipment from the purchasing department. He replied that the equipment can run steadily for 10 years, and the equipment can run steadily for about 5 years. After that, the high maintenance cost will be abandoned. The general manager chose equipment 2 for profit target. The reason is that the new technology is updated too fast. After five years, there will be more advanced and cheaper equipment replacement. In fact, his term of office is only five years left.
Factory C is the owner who makes the decision. He chooses equipment 1. He believes that the enterprise will be evergreen and that the equipment will not be eliminated in ten years.


1. Analysis of Purchasing Strategy


Can you judge whose decision is the wisest? It seems impossible. But it can be seen that the total cost of procurement, especially the total cost of mechanical equipment, refers to the life cycle cost of equipment, and the price is only part of the cost, not all.
Correspondingly, there are two different procurement strategies, which are based on price or cost.
Another influence on the procurement strategy is the strategic positioning of enterprises, and different strategic types of enterprises need to pay attention to different priorities in the procurement process.  Product-leading enterprises are more concerned about product quality, and the key to cost-leading enterprises is probably the procurement cost. Therefore, we need to consider the relationship between enterprise strategy and procurement cost before we can choose the procurement strategy that meets the needs of enterprises.


2. Ways to Reduce Purchasing Cost


There are three points in the overview:


Business means, which should be the focus of all enterprises'purchasing, should focus on supplier selection, inquiry comparison through bidding, goods ratio and supplier selection.


Management means focus on suppliers to establish long-term, stable cooperative relations, mutual trust and close collaboration, become a community of destiny, so that both sides procurement information transparency is high, reduce communication costs and process costs.


Through cost analysis of suppliers, technical means can evaluate the real cost of suppliers, estimate the profit margin of suppliers, and obtain the most favorable price negotiation conditions.




Business means




Many enterprises are easy to go to extremes in business means, thus increasing the cost of the procurement process itself, such as small volume, small amount of material procurement also needs a large number of approval links, but also need multiple rounds of inquiry price, which is too late.
According to different material purchasing, it can be divided into four categories from two dimensions: amount and risk.


General type: The purchase amount is small, the risk is small, this kind belongs to the type which does not need excessive attention, may authorize directly.
Leverage type: large purchasing volume, small risk, which is the most influential type of enterprise cost, need to focus on, looking for the lowest cost suppliers.
Bottleneck type: high risk, small purchase amount, the key is not cost, the key is to ensure supply.
Strategic type: high risk, large amount of money, forming strategic cooperative relationship.


Technical means




Let's start with a case: the factory purchases a part and punches six holes in the steel ring. The normal production cost is 108. Later, after the technical communication between the two sides took into account the requirements of the indicators, the supplier changed the design process, first cut and then weld, so that the material can be more fully utilized, and the cost of each part can be reduced to 58.


Once the new technical means can be used, the impact on cost will be very obvious. If the purchaser has a deep understanding of the products to be purchased, is proficient in product technology and various technical indicators, and understands the changes of processing costs in different manufacturing processes, then he will play a great advantage in the cost control of purchasing.


Another application of technical means is supplier quotation review.  Does the supplier's quotation form hide the cost quotation method, which is based on the traditional cost method or activity-based cost method? Which of the cost data in the quotation form are right and which are wrong? What will change according to the actual situation? In the supplier's quotation sheet, the cost difference related to the output may be reflected by the quotation discount. Through discount analysis, we can get a general idea of the supplier's variable cost and fixed cost.


It provides a very interesting phenomenon: high pressure and long time of pressing, on the contrary, can promote suppliers to further improve the process, reduce costs, and improve the management level of suppliers. Typically, suppliers in the automotive industry. If purchasers all think so, they probably don't have to feel guilty about pushing prices too hard, but I still believe in win-win situation.


In the market with price fluctuation, the total cost of purchasing in accordance with fixed amount and in accordance with fixed quantity is usually lower, of course, whether this can guarantee the production demand in the early stage. (It's kind of like a fixed-investment fund, which hasn't been verified yet.)


It also provides a case study of supplier cost audit to understand the real cost of suppliers and the real gross profit rate to provide reasonable profit margin for suppliers. At the same time, it also analyses the cost composition of suppliers and whether there is equipment utilization or not.