cost reduction delivery
Our Proven Process
Our proven 6-step process has delivered cost saving in various sectors.
Transferring business out from an incumbent supplier to a new supplier carries some risk. Sometimes the incumbent supplier loses interest in the remaining business and increases prices on the remaining parts. Sometimes the new supplier has either made a mistake in the quote or has misunderstood the requirements - resulting in price increase which could erode some or all of the planned savings.
Therefore, where there is a significant Should Cost Gap, we focus on incumbent negotiations because it delivers saving fast and with minimal effort and risk.
If the client is not happy with the incumbent supplier or the incumbent supplier does not come to the the negotiating table with a friendly face and positive attitude - than we would pursue the transfer to a new supplier route and low cost country (LCC) sourcing if the product currently is sourced in a high cost country (HCC).
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Should Cost Types & Application
There are different types of should cost estimates:
- ZBE - Zero-Based Estimate is a draft estimate based on the Cost Engineer's assumptions on manufacturing processes and other factors such as type of machine used.
- SBE - If the ZBE estimate highlights a significant gap i.e.10%+, then it is worth investing more time to refine the estimate to Supplier-Based Estimate (SBE) by aligning to the supply base constraints. For example, there may be an aspiration to achieve <1% defect rate, but if all suppliers are currently achieving >10%, then this is taken into account in the SBE to avoid a stalemate situation in negotiations.
- OE - Optimum Estimate assumes best-in-class in all areas of the estimate. This is a theoretical possibility, consisting of optimum material utilization, new technology, lean layout of factories, lean deployed in manufacturing...etc. This should be the focus of customer's supplier development teams, to constantly keep pressure on the incumbent suppliers to keep improving towards OE.
Low Cost Country (LCC) Sourcing
There is an art to successful LCC sourcing and to avoid the pitfalls we recommend using a consultancy like AMSAB to gain from our learning from past programs. We will accelerate the your cost reduction program - for example, for certain commodities we may be able to skip over steps like RFI because we already have the data from previous programs.
We give our consultancy clients access to our recommended supplier list.
This list has been compiled from our 30 years experience of cost reduction programs, supplier analysis, negotiations and customer feedback.
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