If your procurement team took steps to reduce the total cost of ownership for a piece of equipment, they’d probably deserve a pat on the back (at least!).
But what if they took a further step and looked at the function of that piece of equipment and determined a better way?
That piece of cutting equipment that is rarely used, but now needs replacing?
- Instead of investing in all the costs associated with replacing that item (risk assessments, training staff etc), would it be possible to get a service from elsewhere at a lower total cost?
- Could the supplier of the raw material pre-cut the items for you?
- Or is there a local company that could do this on an as-needed basis?
How would that service compare with the lifetime cost of the machine?
This isn’t as simple as it looks, of course!
On the upside, procurement needs to consider things like:
- What could you do with the extra space created by removing the machine from your business premises?
- Could the service you buy actually improve quality and reduce wastage?
- On the other hand, they need to think hard about the potential negatives: Is this introducing another risk and/or delay into the supply chain by outsourcing this part of the process?
- How could that be mitigated?
- Is there some Intellectual Property (IP) in the process of cutting the items that the business would not want to share with outsiders?
In other words, procurement should be looking at the TCO of the function that the asset performs, or the process it’s involved in, not simply the TCO of the asset.
This is just one example of the way that we work.
Yes, we aim to reduce costs - that's a given.
But we aim to do it in a way that is sustainable, impacts the bottom line for longer, and (where possible) impacts other business drivers at the same time.
For more detailed examples of our work, please download our eBook: "11 ways to increase profit by 20%". It includes more real-life examples of our work.