Based on some recent research by APS, manufacturers spend approximately 50% of their turnover on purchasing products and services from the supply chain. Without this a business or its employees cannot function or operate.
So, it stands to reason that along with its people, the most important ingredient to the success of a manufacturing business of any size, is its supply chain.
There are six key questions that every manufacturer needs to ask in order to see where money is being tied up in their manufacturing operations and their supply chains.
As we head in to 2019, there’s no better time than the present to see how you can unlock the potential. The rewards can be staggering. Take a few minutes now to do a quick calculation on what a 5% improvement in these areas can deliver for your business. And that’s just the starting point…
Key area to focus on
Take a strategic review of how you manage operational and supply chain spend, how you can reduce it, and how you can understand the impact on productivity both on shop floor and in your back office, without compromising quality.
Within your supply chain, the vast majority of your spend will be on your manufacturing processes; consumables, PPE, tooling, maintenance and servicing. It can also have a massive impact on your productivity, due to product life/usage and machine uptime availability.
Every single product leaving your facilities will be subject to a manufacturing process, stating the obvious!
But the key is, every single process will use a consumable product, be it a cutting tool, grinding wheel, electrode & cutting fluid etc. Every single machine will require consumable products like oils and grease, not to mention service and maintenance costs. Even your operators will consume PPE and wipes etc.
Add this up and you will spend far more on this than you do on utilities, which is claimed to be the single biggest area of spend!
Given the size of spend and the impact it can have on your productivity, the six key questions are:
When was the last time you benchmarked those products and services?
Do you work strategically with those suppliers?
Do you have contracts with those suppliers on your terms?
Are you leveraging your commercial opportunity?
Are you purchasing those goods efficiently? (ie ordering processes)
Do you have a cost reduction strategy in place for those goods and services?
If you answer no, or don't know to any of those questions, then you have a massive opportunity to improve your cost base, helping your profits, increasing productivity and reducing risks.
The Return on Investment could be staggering!
Every business is acutely aware of the rising costs of utilities and are developing strategies and seeking the best deals to mitigate these rising costs. In some ways, it’s not a bad thing as it is forcing more businesses to look at more sustainable energy sources and reduce usage within their facilities, thus helping to save the planet.
Fuel costs are on the increase too, putting further pressure on logistics costs, and that is without the unknown impact of increased delays at our borders due to Brexit. In fact, companies are spending thousands, stockpiling raw material to mitigate this risk which is placing a strain on cashflows and profits.
So, to mitigate this and even create some headwinds, you need to find other areas to focus your cost reduction strategies on. Assuming you have cost reduction strategies!
As part of our research we found that the net profit of the businesses assessed was only 4.7%. To be clear, we assessed 28 companies with revenues ranging from £2.2m to £38m. (Avg revenue £13m, avg, net profit £0.6m).
The approximate spend on products and services averaged at £6.3m. But a key ratio of approximate spend to revenue was remarkably consistent, irrespective of the size of revenue.
It is therefore safe to assume that most businesses have very little room to soak up those rising costs without impacting the return for shareholders. Increase prices and you risk losing business to your competitors.
The ability to grow your business is at risk, as is the long term stability of the business too.
Take action now and get ahead of your competitors!
If you need help, don't know where to start or just don't have the resource or capability to achieve this then help is at hand.
We are the only company in the UK that focuses on this area of spend for manufacturers.
We have an extensive network of contacts across the supply chain and deliver solutions to clients that are fit for purpose. Our tools and techniques are therefore geared to supporting the manufacturing sector, and go beyond a traditional procurement process to ensure the risk impact to the manufacturing operation is negligible.
Get in touch now for a free no obligation discussion about your needs, or drop us a line and request our diagnostic toolkit so you can assess yourself and find the gaps.
Some examples of our work https://www.allianceprocurementsolutions.co.uk/copy-of-savings-example