Updated: Jun 19, 2020
It’s 2018. Is the lack of actual supplier performance/production data limiting your ability to make strategic evidence-based sourcing decisions? Does this put you at a disadvantage when negotiating price and terms with your suppliers?
Well, you’re not alone.
According to Deloitte's 2018 chief officer report for global procurement, 65 per cent of procurement leaders having limited or no visibility beyond their first-tier suppliers.
These 65 per cent are missing, among other things, the actual, real-time cycle times of their suppliers. This lack of visibility – this inability to know real-time cycle times – is part of the reason why OEMs find it hard to evaluate their suppliers’ costs of production.
A "cycle time" in manufacturing is the time it takes for a mold, press, or die to manufacture one part (i.e. component); the lengthier the cycle time, the higher the costs of production. And when molds have been outsourced to and are operated by a supplier, longer cycle times will increase the costs of doing business with that supplier. OEMs will have to pay that much more for variable costs, including labor costs, equipment rental costs, depreciation costs, utility costs, and so on.
Usually, an OEM will accept the costs of doing business with suppliers by putting them down as "procurement costs". The problem occurs when unscrupulous suppliers overstate their cycle times in a contract.
Keeping ‘Em Honest
According Deloitte's survey, 65 per cent of procurement teams have limited or no visibility over their suppliers' actual cycle times. With such low visibility, OEMs won’t be able to tell if suppliers are overstating their production costs compared to their actual costs in a contract. The gap between the “contract” and “actual” cycle times can be surprisingly large, causing millions of dollars of unnecessary annual spending on the OEM’s part.
But what about the other 35 per cent?
35 percent of procurers have the right kind of visibility, can track their suppliers’ cycle times remotely and automatically. The best procurement practices will involve the use of IoT tracking technologies for tracking, analyzing, and crunching cycle times for cost-related analytics.
This is the sort of technology we provide. Multinational corporations such as Samsung Electronics, Amore Pacific, and HP have already adopted such technologies through our IoT mold sensors, each respectively in 2015, 2016, and 2017. The solution monitors cycle times and crunches this data for should-cost analyses and supplier benchmarking.
With the solution, our clients could see the gaps between what they currently paying and what they ought to have paid for a supplier’s services. Their purchasing and sourcing teams could then narrow this gap, creating a cost-savings effect so rapid and cutting straight to the bottom line that the solution was integrated across their entire organizations.
Have you considered the possibility of turning your procurement team from a cost-generating center into a profit-generating one? Want to make strategic sourcing decisions based on actual, hard data? We offer a free demonstration, with no obligations, at a time and date of your choosing anywhere around the world. Learn about the full scope of our pilot project services, which include: internal testing, data integration, consulting services, installation, and more.