Purchasing Suppliers

Objectives Develop cost competitive suppliers to meet program targets Develop relationships with suppliers Reduce supply costs

Topics to be covered Gathering commodity information Analyse information Draw conclusions/actions Develop strategy for negotiations Negotiate Regional sourcing approval Finalise the contract.

General purchasing flow chart

Commodity Definition A commodity is a product or raw material that can be bought and sold. In manufacturing commodity covers: Scope of work Available technology Points of difference Industry/market Future trends.

Commodity information Commodity information helps to: understand the product process optimise costs. Commodity information can be gathered with help from: Cost estimator Analyst Regional colleagues Supplier development Management Engineering.

Commodity information Commodity information includes: Product knowledge Outlines market trends, available technology and understand the competition Program trends Looks at regional sourcing and future programs Suppliers globally How do the regulations in other countries effect sourcing options?

Commodity information Commodity information includes: Suppliers local and regional What are the benefits of a local supply? Regional value of purchase Value of purchase What is your influence on suppliers? Price breakdown Including duty, freight and localisation plans.

Commodity information Commodity information includes: Manufacturing process flow chart Major cost drivers Supplier quality status Suppliers business history Supplier capacity Is the supplier capable of producing the product numbers required?

Product knowledge Important factors of product knowledge include: What is the function of the product? Speak to the engineer and supplier How is it assembled? Plant tours to see the process and speaking to operators about issues What regulations are in place for safety, pollution, etc? This may limit sourcing options and drive costs.

Product knowledge Important factors of product knowledge include: What are the technology requirements? Is this the suppliers responsibility? Does the product depend on global commodities? Like steel and plastic, how are they changing? Is the technology changing quickly? What is the future of this product and does the latest technology offer cost advantages?

Program trends Timing schedules influence leverage and opportunities in purchasing. New programs leverage costs for: Potential new programs Current model programs Sourcing commodities.

Program trends Implementing engineering changes at program launch requires: No additional validation or tooling Designed for manufacture Plans for localisation implemented Changes in technology easily introduced as features.

Suppliers It is important to understand the suppliers’ business and the leverage you have with them. Local and regional suppliers Which suppliers are available? Are there suppliers in the region that have not been considered? Global suppliers Should your suppliers be aligned with more technically advanced suppliers from other regions?

Suppliers What are your suppliers technical associations? What are the limitations on sourcing? Can suppliers with their technical partners offer leverage overseas? Do suppliers have business associates with tooling and development complete? Can suppliers import component parts from local suppliers?

Suppliers What is the suppliers ownership status? What are the sourcing limitations and technical agreements in place? What are the technical and royalty costs involved with the product? What is the suppliers market share? Are they an experienced supplier? Are there quality risks in using a competitors supplier? Can the supplier meet the required demand?

Suppliers Is there a monopoly for the market? Is a monopoly driving up prices? Will importing component parts be cheaper? Are suppliers being considered for new business? Identify new leverage and timing opportunities. Does the supplier have partnerships with other manufacturers? Could the other business partner help negotiate more effectively?

Suppliers Are there suppliers that competitors are using that your business does not use? Why doesn’t your business use these suppliers? Is there a threat or opportunity? What are the benefits of using a competitors supplier?

Value of purchase How important is your business to the supplier? What percentage of the suppliers production is supplied to your business? Customers who spend more have more leverage with a supplier. Which supplier has the largest market share? A small percentage reduction in the supplier price will be a large cost reduction to your business. A larger company may be able to reduce costs more easily.

Value of purchase What percentage of a suppliers business is manufactured for your business? Being one of many customers spreads supplier risk. Helps the supplier gain product knowledge and experience. A supplier that depends more on your business has more leverage for new programs.

Pricing Pricing information for manufacturing: Provides management with decision-making information. Helps to determine the break-even point. Determines the cost of raw materials, labour and other manufacturing costs for each component and completed product. Allows management to analyse unit production costs. Allows selling price to be adjusted for competition. Determines safety margins in production.

Price breakdown Product costing and cost drivers Breakdown according to the request for quotation (RFQ). Further negotiation is possible with more data. Data analysis can identify opportunities. Influences targets set for new programs. Estimating effects of engineering changes.

Price breakdown Price breakdowns indicate: Opportunities for cost reduction Comparison data Cost drivers Impact of future engineering changes Cost estimates developed through market testing.

Price breakdown Price breakdowns details include: Imported parts Country of origin and currency of purchase. Look for local opportunities. Where are suppliers buying their parts and materials? Local purchased parts Are there local opportunities to obtain parts and raw materials?

Price breakdown Price breakdowns details include: Raw materials and cost per kilogram Compare with other suppliers Compare with global indices for steel, chemicals, aluminium and plastics Imported and local Index forecasting for future adjustments. Fixed and variable labour costs Comparisons and price/volume curves. Labour minutes and rate Profit and mark up

Price breakdown Price breakdowns details include: Scrap allowance This depends on type of commodity. Assembly or manufacturing. Warranty allowance Should be removed from the piece price Tooling and other investment costs in piece price Is there any liability or opportunity to reduce piece price when volume is achieved? Rationalising quote in comparison to other suppliers.

Price breakdown Price breakdowns details include: Freight and frequency of delivery Duty Look for local opportunities and countries with different trade agreements. Packaging Who owns and maintains the packaging? Returnable or if disposable who pays for disposal? Can packaging be used across other programs? Currency rate Understand risk and opportunity.

Manufacturing flow chart Visual example

Manufacturing flow chart Product processes and major cost drivers: Include costs at each step Identify cost drivers and opportunities Analyse value added and non-value added costs Minimise non-value added costs

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