Guest Column: Are You Overpaying for Your Outsourced Parts?

5 ways to use product cost management to meet or surpass your company's cost reduction goals


When discrete manufacturing companies farm out parts production to external suppliers, there is almost no way to know whether they are paying the best price for every part. In some cases, the company may pay more than it should because there is not enough time to solicit bids from other factories. In others, a supplier may lack the manufacturing capabilities/machines that could make the part more efficiently and, therefore, more cost effectively.

Too often, sourcing professionals rely on historical cost data in their dealings with suppliers. But with material prices changing every day, new factories coming online overseas and a host of other factors, historical data does not always reflect today's realities.

So is your company paying too much for your outsourced parts? With hundreds or thousands of parts, you can't know every possible option available, and you don't have the bandwidth to solicit quotes from every possible vendor. With so many variables, how could anyone know whether they are getting the best deal?

What if you could always get the best deal? Sourcing professionals are in a prime position to save their company money. That's why sourcing teams have annual cost-reduction goals. But while target goals have continued to rise, the sourcing function's ability to affect change traditionally has not.

Two obstacles that prevent sourcing teams from maximizing their cost-saving efforts are bandwidth and the lack of quality cost information. The time factor is self-explanatory: small sourcing staffs, too many suppliers in too many countries and too many parts. It's impossible to work through it all. On top of that, sourcing professionals lack information that would help them to easily identify cost-saving opportunities as well as conduct more meaningful (and fruitful) negotiations with suppliers.

To continue meeting cost-reduction goals, sourcing professionals require new capabilities to offset the ever increasing complexity of their tasks.

Steps to Achieve Product Cost Savings

A new class of product cost management software is helping sourcing teams overcome the time and information obstacles to achieve significant product cost savings. How? Through real-time, precise product cost information. With product cost management, sourcing professionals always know precisely how much a part or product should cost to produce. Access to precise "should cost" information enables sourcing experts to easily identify where they are overpaying for outsourced parts and to better negotiate with suppliers. The result is significant product cost savings en route to meeting (or surpassing) cost reduction goals.

More specifically, using product cost management solutions, sourcing personnel can meet or surpass their cost reduction goals by:

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