This week’s featured event was presented by Directworks on total cost visibility. Particularly in direct materials procurement, achieving total cost visibility requires data on components as well as the supply chain that moves them. This event is available on demand, and can be viewed here. There is also a whitepaper on this topic available for download.
The event started with an overview of the five components of total cost, as defined by Directworks, focusing on best practices in each:
If it were easy to collect all of this information, all purchasing decisions would be relatively simple cost optimization scenarios. But this is not the case: the necessary data comes from a number of places including suppliers, finance (inventory), transportation systems, and should-cost models. Collecting it and ensuring its accuracy requires a coordinated effort from a cross-functional team.
Be realistic and take a phased, prioritized approach. Start with the costs that are largest (probably component and transit costs) and then work your way into the other costs. Keep in mind that in order to get suppliers to provide all of the data you are looking for (hopefully directly into a sourcing solution to automate the optimization and award scenario comparison process) you have to be willing to provide them with something of equal value. They are able to benefit from detailed feedback about their labor or tooling costs compared to their competitors. Taking this kind of approach should be accommodated in the project plan with sufficient time, assuming multiple rounds of bidding and negotiation.
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