Purchasers are pressured to ensure the stable supply of metal parts to various manufacturing facilities, while constantly keeping pace with demand, meeting lead times and, most importantly, keeping costs low.
However, while sourcing cost reduction strategies can decrease the cost you pay up-front, this doesn’t serve purchasers’ needs long-term.
Metal Sourcing Cost Reduction vs. Cost Avoidance
When sourcing metal parts, many purchasers take a cost reduction approach, reducing current costs through short-term solutions such as comparing metal fabrication vendors, negotiating cost per part and calculating transportation costs. Furthermore, buyers are unlikely to support metal fabrication processes that require high upfront costs, even if they might lead to larger production cost reductions over time.
A cost reduction approach to sourcing favors negotiation of cost per part and transportation costs, price shopping and affinity for low upfront setup and tooling costs in what becomes a race to the bottom. But smart sourcing can be so much more than cutting costs upfront. Strategic sourcing has the potential to contribute to long-term cost management, supply stability and risk management if problems arise.
By shifting to a cost avoidance approach in sourcing—avoiding future increases in cost—purchasing could reap long-term costs benefit and develop a more favorable long-term sourcing solution.
Cost Reduction Through Cost Avoidance in Metal Fabrication
There are a number of ways to adopt a cost avoidance mentality to reduce long-term metal sourcing and production costs when sourcing metal fabricated parts, including:
- Metal part reengineering: Investing time in the product’s infancy stage could mean long-term payoffs, especially in an upward trending metals market. Bring internal design engineers and your metal fabrication partner into the conversation early, and encourage exploration of alternative design concepts. If your supplier has an in-house sales engineer, utilize this service. Their third-party perspective could catalyze a new design concept, resulting in reduced material costs, production costs and shipping costs by as much as 40%.
- Alternative production processes: Consider alternative metal fabrication options, weighing the upfront set-up costs against long-term reduction in cost per unit. Depending on the length of the product lifecycle and production volume, a high-volume solution like roll forming might be well worth the investment.
- Tooling cost amortization: Seek out a metal fabricator that offers tooling cost amortization. Spreading out the investment over time, without accruing interest, will lessen the immediate impact of set-up costs, stabilizing cash flow while gaining the benefit of a high-volume, long-term production solution.
- Inventory management: Holding and managing inventory is another overlooked aspect of a metal manufacturer’s total cost of ownership. Offsite inventory storage and management cuts down on needed storage space and labor costs. Further, just-in-time delivery will allow a steady supply of parts to keep pace with manufacturing demand.
Sourcing can move beyond cost-per-part negotiation to a mentality of continually eliminating waste and reducing total cost of ownership. By proactively avoiding expense along the supply chain, sourcing can increase their profit margins while creating sustainable supplier partnerships and improving the competitiveness of customers.
Reduce Metal Production Costs Long-Term
To learn how Hynes Industries can partner with you to reduce your overall costs, from design and prototyping, to fabrication, view our supply chain services.
Photo Credit: 401(k) 2013 via Flickr
Editor's note: This post was originally published in October 2013 and has been updated for comprehensiveness.