7 Ways to Find Cost Savings in total Cost of Ownership
In procurement, the part cost gets a lot of attention. Buyers are motivated to drive Purchase Price Variance (PPV) savings year over year to ensure the best cost. Over time, it becomes more challenging to realize savings based on the constant time and attention you put into the effort. When looking to drive cost savings on fasteners, it is critical to consider not only the part cost, but also factor in the things that impact the total cost of ownership.
The image of an iceberg depicts this situation well. The “fastener” costs are those visible above the surface and most scrutinized. The total cost of ownership (TCO) or “fastening” costs are all those invisible or hidden costs below the surface that can be overlooked – but still make a significantly larger impact on your bottom line. These hidden costs can include logistics, procurement, material flow, design, joint preparation, scrap or rework, quality/inspection, and assembly. There is significant time and labor expense consumed just getting material to the point of assembly and the fastener put to work. Studies have shown that only 20% of the cost is in the fastener, and 80% is in the TCO/fastening.
For example, if your fastener spend is $1,000,000; your fastening spend may be $4,000,000 = and your estimated TCO expense $5,000,000!
Taking that a step further, buyers would typically be very pleased with a five percent savings on fasteners which, in the example, would yield $50,000 – 5% Savings on TCO would yield $250,000 (5x the savings).
It is not uncommon to be able to save multiple x the fastener cost when looking at the whole assembly. Here is a great example of this: https://fieldfastener.com/case_studies/laser-level-product-redesign/.
Fasteners and other class “C” components have a relatively low part cost when compared against other items typically found on a bill of material (raw material, PCB, electronics, motors, etc.), but they make up a large percent of the SKU count. Low spend + high number of SKUs = lots of time and labor expense to manage.
To assess “low hanging fruit” TCO that may exist within your organization, here are some questions to consider:
- How many parts are similar in nature that may be able to be standardized or consolidated?
- Do you tend to use more commercial off-the-shelf parts or more make-to-print specials?
- How proactive is your incumbent supplier at providing ways to save you money?
- How pervasive and accessible is the technical competency within your fastener suppliers?
- Does your supply base have the testing capabilities to analyze current and proposed fastening methods and help approve / implement cost savings ideas?
- Are there any scrap bins or rework areas your facility? What kind of assembly challenges go on today? How likely is it that you’d hear about those issues?
- How would you assess the transfer of information and demand planning throughout your supply chain (you to your supplier to theirs)? What opportunities exist to streamline or optimize that process and redeploy labor to more value added activities?
Anyone can sell you fasteners, but not many companies can find and implement TCO improvements year after year. Field has grown on average 19% per year since 1990, based on their unique ability to save customers money from a fastening perspective. There are countless examples of this on our website: https://fieldfastener.com/cost-saving-case-studies/. We’d love to walk your production floor to document and help implement ways to reduce the fastening costs at your organization.