Cost is one of the most important drivers to optimize manufacturing and operations. But at the same time, this is not a single criteria when you think about optimization of your product design and component selections. The way to look about it is to think about complete ecosystem combining manufacturing, distribution and sales. Competition in cost and distribution is driven by an increased role of internet connectivity and global economy.
In order to be economically viable, manufacturers and retailer must be able to sell product faster and at competitive prices which sends which sends a ripple effect down the supply chain and manufacturing operation.
One of the aspects of cost optimization is related to component selections. In some industries like electronic manufacturing it can be a dominant factor to drive your product cost. Component selection is complex process if you think beyond simple attempt to pickup the cheapest components. You can think about few possible strategies to optimize component selection process.
Reduce number of suppliers
Distributors are offering products from multiple manufacturers. You can get an additional advantage from consolidate supplier base. It will save number of purchase orders to manage as well as save time for supply chain team. In most of situation, it can also save shipment cost.
Check multiple options – manufacturer and distributors
In some cases buying directly from manufacturers can give you the lowest price. But this is not always true. Because of different reasons such as distributorship agreements and variation of demand and supply, distributor can offer lower prices than manufacturer and you can leverage it for your product.
Minimize inventory cost
To carry inventory is not efficient. Especially for small manufacturers. One of the factors in the decision process is optimize inventory cost. You can check delivery options and variety of hold inventory and cancellation options provided by suppliers and distributors.
All options I mentioned above requires transparency and collaboration between engineering and supply chain. Thinking about potential component alternatives might require round trips to engineering department and changes in a product design.
One of the bottlenecks in this process is bill of materials. For large companies, bill of material is usually located in multiple systems and needs to be synchronized. PLM, ERP, Supply chain systems- this is only a very short lists. Larger companies might have some homegrown systems with bizarre interfaces and communication options. In smaller companies, email + Excel spreadsheet combination is a killer tool to synchronize, but also a place to introduce mistakes.
Real time collaboration between engineers in multiple departments and supply chain professionals can eliminate mistakes and streamline the process. Bill of materials is a key element to make this communication efficient and compare multiple options.
What is my conclusion? Modern manufacturing environment is increasing the bar to enable transparency and collaboration between people and departments. To have system that can enable real time collaboration using updated bill of material can be a great enabler. Unfortunately, many organizations stack with “synchronization” of data between systems. This is a core of significant inefficiency. The opportunity to improve it is huge. Just my thoughts…
Best, Oleg
