A Manufacturer's Secret Savings Sauce in a Tough Climate

At Ariba LIVE, I had a conversation with one manufacturer that shared part of their secret sauce to cutting costs when commodity markets and global prices were rising (this is a multi-billion dollar company that is on track to save nearly 3% of their total revenue through better sourcing and supply chain processes). They told me their recipe to achieve these returns was to focus on the "value-added" aspect of direct materials sourcing, among other areas, looking at total landed costs / TCO to drive savings. In addition, they also factor in supply risk to all of their decisions as well, quantifying the potential of disruptions, quality shortfalls, etc. Their VP of global sourcing suggested to me that given the “price of raw materials and basic commodities ... now we have come to the next level [of savings] ... we're looking at how much it costs us to source a part not only when it's sitting inside my product -- perhaps it might be a better value if a supplier makes the assembly or component rather than us". All of these approaches are classic strategic sourcing levers to pull. But this organization's results prove that old tactics can still save significant sums, even in difficult market environments.

- Jason Busch

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