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There are multiple strategies:
1. Negotiating a price/cost reduction from your suppliers.
2. Purchasing materials at the lower end of specification at lower price
3. With engineering help having a VAVE to reduce the bulk density of your final product by adding a foaming agent
4. With engineering help VAVE to change the mixture to increase the % of the lower cost component
We may look into the consumption of the parts and make the agreements with the suppliers to have fixed prices all the period. And we may go thru the current prices with us and compare it with market prices in order to make stratigy of getting the best prcices all the time and save as much as we can.
by changing the specs to be fit with your min requiement and remove all extras, re negotiate the prices, check for new suppliers, bulk buy
The Procurement Manager needs to be "creative" in achieving his goal, based on his environment; Some of the options to consider include:-
BULK BUYING - The companies which have greater geographical presence or are multi locationalcan achieve better price by buying bigger volumes instead of buying for individual units. Central buying policies are recommended for such unit .Bulk buying results in annual contracts for a period of six - twelve months for entire year requirement with prices being finalised for the entire period .
OPPORTUNITY BUYING-Most of the commodities and raw material has seasonal cycle of prices as they peak and fall in intervals .Hence we can book maximum amount of our requirement when prices are low .
LOCAL VENDORS -Vendors should be located in close vicinity of company which helps in keeping low inventory as well as low freight cost .
PARTNERSHIPS WITH MAJOR VENDORS-It is highly recommended to have partnership with vendors in either having equity or technical collaboration so as to pass on savings to the customer . Which results in cost reduction in manufacturing cost. Most of the Automobiles Majors has this kind of arrangement with their vendors .Vendors are assured of business .
E PROCUREMENT-Putting up tenders and requirement on Internet and setting up auction for requirement on web which helps in reaching out more numbers of vendor base . This also helps in cutting cost when we opt for conventional way of asking tender / quotation . Most popular way of procurement strategy is reverse auction , where the lowest price bidder takes away the order
BUYING MATERIAL FROM TAX EXEMPTED AREA .-In several countries the federal/ State govts provide tax heavens for manufactures for certain period say10-15 years .Hence buying from these area s helps in cutting cost .In common parlance it is called TAX HOLIDAYS . Look out for such places prior to placing orders.
ALTERNATE MATERIAL-Select high cost items and replace it by some low cost material . eg ; steel by plastic/aluminium .
VENDOR MANAGED INVENTORY (VMI). With the appropriate incentives, allowing suppliers to assume the responsibility for replenishment of your inventory, because of their visibility into both their own inventory and production schedule and your demand data, can almost always reduce your inventory.
VENDOR STOCKING PROGRAM (VSP). Used primarily for maintenance inventories but applicable to all, VSPs require a supplier to commit to an extremely high service level for delivery of specific SKUs within a fixed time at a predefined markup. VSPs can reduce or eliminate inventories for slow- moving products
