Abstract

This paper gives an overview of a methodology for reducing the cost of purchased materials for engineered products. The methodology has been successfully employed for a wide range of applications, ranging from low value-added products, such as simple processed materials (e.g., steel sheet or profiles), to high value-added equipment, such as machine tools and major components of industrial plants. We have applied the methodology in some 80 projects, achieving cost savings averaging 17% on top of the 10% savings achieved using traditional purchasing optimization approaches. The key distinguishing features of the methodology are a product-oriented as opposed to materials group-driven approach, the establishment of interdisciplinary teams that include engineers and purchasing professionals, and a well-defined, systematic method for addressing the most important drivers of materials cost together with key suppliers. The methodology is introduced by performing pilot projects, then anchored in the enterprise through organizational and procedural changes.

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