Necessity of cost reduction
Economic situation in the whole world, globalization, structural changes, opening of new markets and danger of new competition force companies to consider a change in the process organizations in order to strengthen their own competitiveness.
Logistics, especially the purchase process, represent the greatest potential for many companies. By simplifying such process, more time can be dedicated to the basic problems of production.
Once a mutually acceptable solution is reached, i.e. the offer of logistical system enables the customer dedicate his attention to the main processes and thus substantially reduce the expenses, the set aim will then be accomplished and the expenses reduced.
Determination of C parts suitable for logistical solutions
Our proposed logistical solution concerns so called C parts. C parts are such parts, whose price is below 5% of the final product price. Looking into the following chart, it is obvious that the aim of our effort will be to offer a logistical system in the segment of uncritical parts with a low purchase risk and low result influence. Fasteners surely belong to such segment.
Rule 15/85
Based on our long-term experience, we can say only 15% of the costs concern fasteners, the remaining 85% is represented by logistic and engineering expenses. Looking at the following graph, it is clear that if 10% of the price can be saved, the overall expenses for one connection will be reduced by 1.5%. If we manage to reduce the expenses of the logistical process concerning this connection, the savings reach up to 45% of the expenses. Our efforts are therefore directed towards both main elements – fasteners and logistics, with emphasis to logistics.
Following figure represents a neutral survey
of average process expenses while obtaining overhead material, so called C-parts. When using kanban system and other logistical solutions, the reduction of expenses for such purchase is clearly shown
86 manufacturing firms of different fields participated in the survey:
(Click to enlarge the figure)
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Procedural costs in current survey Source: „Outsourcing“, Hermann Schneider BME The course of an order costs an average of 135€ independently on the value of the ordered goods. This applies for orders ranging from 96€ to 115€. | Characteristic partial processes Launching an order → Stock level control → Supply planning → Purchasing material → Receiving and checking → Receiving goods → Warehousing → Placing goods at disposal → Allocating goods → Accounts check → Charge and payment → Archiving Source: „Outsourcing“, Hermann Schneider BME | STI Procedural Costs Order process – Functional expenses – Receiving goods – Warehousing / Delivery from warehouse – In-house transportation Checking – Charging – Payments – Procedural Costs Source: „Outsourcing“, Hermann Schneider BME | Optimized Procedural Costs after process change Order process – Functional expenses – Receiving goods - Warehousing / Delivery from warehouse – In-house transportation Checking – Charging – Payments – Procedural Costs – Potential / Capacity Source: „Outsourcing“, Hermann schneider BME | |||
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| Functional Costs Communication: Telephone, Fax, mail and online connection Organization / fixed expenses: administrative expenses – average Data processing: if not included in factual expenses Approval / Signatures: Additional personal expenses of chairmen, etc. who are involved in the process System of payment: Operation of an account, bank charges Functional Expenses of a fictional company Communication Organization Approval Data Processing System of payment Total Source: „Outsourcing“, Hermann Schneider BME | Process survey results Before After Value of goods Procedural expenses | Value of the total C goods purchase is traditionally 20% of the total purchase volume. However, the acquisition costs represent approx. 80%! The expenses for an order than range from 75€ to 150€, depending of the size of the company. Result: There are very high expenses for C goods with very low goods value. Solution:
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FASTENERS CZ offers following logistical solutions to our customers:
Kanban – direct supply system
- Safe conditions – repeated production with minimal fluctuation
- Unsafe conditions – repeated fluctuations
VMI – supplies controlled by a supplier
Transferring responsibility for supplies to the fasteners supplier by monitoring customer’s consumption via electronic data transfer.