Several companies, even today, underestimate the role of procurement as important player in EBIT result. Recent studies show a gap among the departments that directly or indirectly have an effect on the final cost of the product, especially in small / medium companies where there is no dedicated industrialization department.
Engineering: The leaning is for the engineering to design with excess of attention to the technical side neglecting the economic side. Material choice, welding process and procedures, tolerances, etc.…, all of them have a significant impact on cost of components that too many times are designed with specs that go far beyond the real need.
Planning: It is pretty common that manufacturing planners ask to buy material in quantity that goes far beyond the real need, that is for the classic “Just in Case” or anyway to avoid shortage problems. This generates inventory increase and turn reduction. Also, most of the time the requested delivery date is much earlier than real need, this generates an extra cost for expediting and urgency management that could be easily avoided.
Manufacturing: When manufacturing daily and weekly management is not well coordinated with vendor deliveries there could be urgent transportation need and expediting cost at one end or excess of inventory on the other end.
Procurement: Many times procurement employees are so busy in the day to day activities (PO entering, expediting, phone calls, …) they don’t dedicate enough time to more value added activities like cost control, alternative vendor research or negotiation. Consider for example that one of the best cards to play with negotiation is the knowledge of the product, but this implies time to dedicate for the buyers to the technical side.
Our target is to improve the efficiency of the overall procurement process, to offer a solid and measurable benefit to the company EBIT