Smart purchasing techniques reduce total acquisition costs by applying appropriate in-house and 3rd party resources commensurate with the added value the purchased material creates. Using Connect4’s Kitting and Vendor consolidation service optimizes key supply chain metrics of service, reliability of supply, sourcing economy and inventory turns.
The price of many items is just the visible tip of the iceberg – the true process costs are hidden below the surface.
Every Purchase Order issued by a modern, high-tech OEM can directly cost between $90 and $300 per event. Additional silent costs of coordination, administration, vendor communication traffic, data entry and order tracking quickly consume the workday hours for multiple employees in multiple departments. These costs rapidly increase when dealing with added complexities such as new parts, legacy parts, time zones, currencies and new Vendors.
Connect4’s Kitting Service delivers measurable bottom line impact and significant soft cost improvements throughout the Client’s operation.
A Technology OEM with medium volume / high mix spend conflicted by non-linear sales forecast engaged Connect4 to launch a Kitting Program. A Spend Analysis and detailed review of the past 2 years receipt history identified a diluted Vendor base (>500 Vendors with activity), high transaction levels (>4000 POs issued per annum), unbalanced inventory concentrations (< 4 turns per annum) and broken supply linkages (daily threats of production stoppages).
The Client and Connect4 quickly developed an action plan aligned to the Client’s SCM goals and implemented a 4 step improvement process.
- Identify all key COTS / Catalogue items – negotiate and award as Vendor Direct, to one of the 3 Top Component distributors or flag as Connect4 kitting item.
- Using run rate and forecast data calculate supply chain rules based on lead-time, reorder point, package quantity, economic order quantity, safety stock, turns expectation and negotiated volume price.
- Implement and apply rolling 26 week forecast with 2 week release window.
- Communication and training of all Internal and External role players within the extended supply chain.
Within 6 months of launch, bottom line benefits were measured including:
Inventory turns hit double digits, over 250 low strategic value Vendors became inactive, and over 150 Vendors were consolidated under the Connect4 Kitting program, Production Stoppage threats dropped by 90%, Purchase Order generation lowered by 60%.
The kitting program’s consolidation of spend realised better overall commercial purchasing terms significantly improving the Clients cash cycle.