Supplier prices are the result of the underlying cost structures for producing the goods and services AND the buyers understanding of those cost structures. Our work confirms this; buyers who understand and manage the cost drivers instead of focusing solely on price achieve lower prices.
There is no one size fits all approach for obtaining this cost knowledge and achieving the lowest possible pricing. That is why our cost engineering group employs a number of techniques that are applied to the purchases where they provide the best fit for understanding and cost reduction.
All of our approaches include go forward cost models that enable the purchasing team to sustain and build upon the savings that are achieved.
The major cost models used by APD are: Open Book Cost Modeling, Knowledge Based Market Testing, Benchmark and Teardown Analysis, and Attribute Modeling.
Open Book Cost Modeling
The truth can be found on suppliers’ shop floors. Our open Book Cost Modeling starts there with our cost engineers mapping labor, overhead and material costs to the production process to develop highly accurate Open Book Cost Models. Supplier pricing is efficiently validated to the models utilizing ProcureForce, our proprietary cost management software. This enables purchasing to:
- Learn who the low cost suppliers truly are and funnel business to them.
- Go forward with fewer suppliers.
- Source without completed designs from engineering enabling engineering to design to cost.
Once cost models are developed, buyers can easily compare supplier quotes to the “should be cost models” using ProcureForce.
Knowledge Based Market Testing
One step away from the shop floor is our Knowledge Based Market Testing – powered by ProcureForce. Using this process our engineers develop quotation frameworks that obtain critical information on the suppliers manufacturing processes and costs. ProcureForce enables the engineers to efficiently analyze and optimize the quotations to develop knowledge based cost models that approach the level of accuracy of True Cost Models.
Benchmark and Teardown Analysis
Our experience has led us to almost 1,000 supplier shop floors providing us with unparalleled understanding of manufacturing cost benchmarks. Combining these benchmarks with our teardown analysis techniques enables us to analyze one part or a multitude of parts and accurately estimate savings potential.
Savings opportunities can be identified and cost control can happen even in the absence of detailed cost breakdowns and supplier shop floor cost models. Attribute modeling allow cost engineers to look at a large number of parts at once to identify:
- Components that are out of step on pricing and provide savings opportunity.
- Supplier to supplier pricing competitiveness.
- Design characteristics that are driving pricing
Open Book Cost Modeling
Case Study- Open Book Cost Modeling
A manufacturing client was looking to outsource its stamping operations in order to simplify its manufacturing footprint. However, quotations from prospective suppliers indicated limited savings opportunities. Within days, APD had identified a potential savings of 20% or $600k using our existing stamping Open Book Cost Model. Since our models are based upon actual costs from supplier shop floors, we were able to assist the client in sourcing the business and capturing all of the 20% savings.
Case Study- Strategic Cost Reduction
APD was engaged by a client who was struggling implementing a 3rd Party Integrated Supply Model for MRO. After 4 years of effort only 20% of their MRO spend was being managed by the model. APD successfully reworked program scope, metrics and launch processes. The results? In 10 months spend under management had increased to 85%, annualized savings for the program tripled and the client was able to substantially reduce its MRO procurement headcount.
Case Study- Transitional Purchasing Strategies
A company wanted to improve the bottom line performance on a recent $39 mil in sales acquisition. APD provided an on-sight team of purchasing professionals that quickly identified and implemented over $1 mil of savings giving the client a 4:1 ROI.