Mar
23
Supply chain cost reduction activities
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One of the key activities within the supply chain community is managing cost. Organizationally the supply chain team co-ordinate much of a companies cost drivers which not only affect margin but can also influence competitiveness. As a result of the impact that cost can have, many organizations implement ongoing supply chain cost reduction activities.
It’s important to remember that cost reduction should be seen as a multi-disciplined approach – it is not just a case of negotiation with suppliers. There are various work streams to consider that can deliver cost reduction – the benefits that could be delivered from each may vary from company to company but the overall toolkit remains similar.
Remember too that while supply chain can contribute towards costs targets – design for cost and value engineering activities should not be forgotten either.
Types of supply chain cost reduction activities
1/ Economies of scale
One of the most obvious opportunities is leveraging scale – Large volumes of production can be significantly more cost effective than producing smaller quantities. Consider machining costs where setup time, run time and labour rates can be amortised over larger quantities resulting in a lower piece part cost.
2/ Learning
Learning and improvement initiatives can have a significant part to play in cost reduction – consider the example of assembling a manufactured part – there may be a learning curve that stipulates that the optimum assembly time might be achieved after producing 20 parts. Further benefits may be approved through applying lean techniques or optimizing part supply (for example Direct Line Feed or Kitting).
3/ Capacity / utilization
Capacity can have a substantial impact on cost – poor utilization, over capacity, low productivity can affect cost. Strategic planning in this area can be a key to ensure that costs are managed.
4/ Process inter-dependencies
Consider how processes are interrelated – for example – Assembly time may be hindered by parts not being made available due to poor supplier schedule adherence. These linkages can facilitate costs contracting and expanding.
5/ Interrelationships
Exploiting relationships to reduce costs is more common that you might think. Supplier / trade associations where organizations come together to share buying power and increase leverage on commodities can optimize spend. However, these organizations can be complex to manage and also attract a level of management cost which should be taken into account.
6/ Geographic Location
The geographic location of the supply chain can impact a variety of costs – from freight and logistics costs through to lower labour rates in low cost economies. The selection of local supplier base can also be an emotive one where an organization may feel that a local supplier may be better situated to resolve issues and problems.
7/ Institutional Factors
Some factors are outside the direct control of the organization these include regulations, taxes, trade tariffs etc. These can all have an influence on the cost and should form a part of the strategic planning process (consider utilizing a PEST assessment).
Mar
20
What is a Product Life cycle
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Most products have a defined life cycle – consider the humble VHS video recorder or the 3 1/2 inch floppy disk drive – they were introduced into the market, became mass produced, saw huge growth as a global product were overtaken by technological change and saw their market retract and were withdrawn from the market.
Most products don’t have infinite life spans. The Product life cycle model is the concept that all products and services, left in their original state, have a life that goes though numerous stages – products are born, they mature, they grow old and they die!
The product life cycle stages are
• Introduction
• Growth
• Maturity
• Decline
• Withdrawal
The primary reason for the stages of the product lifecycle is the range of influencing factors – for example consider the impact of the following on a given part:
• Introduction of new technology
• Environmental factors
• Consumer factors / demand
• Obsolescence
• Governmental factors
The example of the VHS recorder earlier is a prime example – new technology was introduced (DVD and Blu-Ray) that impacted the position in the market – new entrants become more widespread, captured market share – which resulted in lower sales.
Charting the Product Lifecycle – The Gopertz Curve
The Product Lifecyle is often seen as a graph, sometimes called a Gopertz curve. This plots the sales through the various stages of development
Example Product Lifecycle chart
The product life cycle
Life cycles are not uniform – they will vary from product to product, industry to industry and commodity to commodity – there are a number of factors that might determine the particular shape of the life cycle from development time of the product – through to customer and lifespan of the product i.e. fad products or fashion products will have a different shape to say an automobile.
Product life cycles are an important factor to consider in developing supply chain strategies as they can provide an insight into the movement of price and availability and ensure that your strategy is representative of the current situation of the parts.