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3 Strategies to Reduce Procurement Costs in Small and Mid-Sized Forges

July 25, 2016 / , , , , , , , , ,


Cost reduction will always be a top priority for manufacturers. However, in today’s ultra-competitive and uncertain market, manufacturing executives need to be both creative and strategic as they look for new ways to reduce costs.

As stated in the white paper, Top Five Operating Challenges for Forges that Cut and Process Metal, there are several ways forges are reducing operational costs. Measuring total cost, monitoring blade life, and instituting ongoing preventative maintenance programs are just a few examples. According to the recently revised Forging Industry Technology Roadmap, the forging industry as a whole is also working toward finding new ways to reduce material and energy usage costs—two of the most significant cost factors in forging.

A recent article published by Thomasnet, however, notes that while the tendency is for small and mid-sized businesses to focus on reducing costs for their overall operations, there is also a huge benefit to reducing costs within specific business functions, most notably procurement.

“Small businesses spend between 45 and 65 percent of sales revenue on procurement of inputs,” the article states. “Therefore, procurement should be considered a viable opportunity to reduce costs and improve efficiency. Even basic changes to the procurement process can cut procurement costs by 5 to15 percent and start a smaller business on the road to strategic sourcing.”

The article goes on to list five strategies small and mid-size operations can use to improve procurement. Read below for a summary of three of the five best practices (You can read the full article here.):

  1. Build and Maintain Strategic Partnerships. Small firms should seek strategic partnerships with key suppliers. Purchasing from fewer suppliers saves time and resources while building trust. A small business owner can talk openly with a strategic partner and ensure the company is not overspending due to unnecessary costs.
  2. Improve Internal Procurement Processes. Procurement efforts should include annual analysis of spend and demand, with supplier pricing reviews occurring semi-annually or even quarterly. Use spend analysis to detail all costs and terms associated with procurement and demand analysis to define essential needs with a focus on improving cost and quantity.
  3. Organize with Others to Increase Buying Power. Partnering with other small businesses can yield volume discounts and achieve savings. Consortiums put the benefits of economies of scale into effect for small businesses that would otherwise be left paying premiums.

Of course, there are no quick fixes when it comes to cost reduction. However, by taking the time to approach cost strategically—and perhaps even one business function at a time—small and mid-sized forges can make improvements that may have a long-term and sustainable impact on the bottom line.

What strategies has your forge adopted to reduce costs?