Cost reduction: working the supply chain

Dynamic 1 RGBSupply chain manager for Dynamic EMS, Paul Freeman, explains how working the supply chain offers a win-win for all parties.

A constant pressure facing sub-contract manufacturers is supporting customers to maintain or reduce their product’s manufactured cost. This is especially challenging as we face spiralling costs caused by fluctuations in exchange rates. To mitigate this situation, we need to be aware that, for some customers, being able to set and maintain the right pricing level may well be the difference between a product being successful or not.

One obvious way to introduce cost reduction is to collaborate with the supply chain and customer to identify and implement cost improvements to the bill-of-materials.  Often opening this dialogue generates significant benefits for all.  The customer, working directly with a sub-contractor’s supply chain partners, can gain component cost reduction, often with very little engineering resource required.

The subcontractor itself can often gain improvements by replacing components that might have been sourced from outside the managed supply chain to components sourced within.  This also delivers the benefits of contracted agreements, improved pipelining, reducing inventory without adversely affecting availability, plus the other benefits of a reduced, controlled supply chain.

Supply chain partners stand to increase sales and retention. This approach can be applied to existing bills-of-materials as well as encouraging good design-for-manufacturing on new products through Early Supplier Involvement programmes.

In addition, the sub-contractor can work with the customer to identify and advise the best way to structure contracts and purchase components.  Whilst it would be lovely to have fixed term, volume contracts with guaranteed sales of a product, this is rarely the case.  However, deciding on whether a product is best suited to a fixed term, with forecast quantities, or a fixed quantity with forecast timescales, is an area where a sub-contractor’s experience and understanding of the supply chain will help it identify which will provide the best material and production costs.

For example, for one long-standing customer who traditionally placed annual contracts for forecast volumes, Dynamic EMS was able to demonstrate a significant cost reduction by moving to a fixed quantity, but with the time period remaining flexible.  As a result of passing on these cost benefits, the customer is now selling more product which is driving increasing demand for Dynamic EMS.