Lower Costs Through Intelligent Sourcing

June 8, 2010
Using strategic vendors and online marketplaces let one company slash costs without layoffs.
Ed Howe
Enfield Technologies
Trumbull, Conn.

Over the last few years, cost cutting usually has meant layoffs. Our company recently announced significant price reductions on proportional pneumatic-control systems but, in contrast, we managed this without staff reductions. In fact, we’ve added technical staff while most every company has done the opposite. Several changes to our operations let us trim costs, and they should be of interest to any manufacturer.

Strategic vendors/partners. We moved several specialized, precision manufacturing and assembly tasks that had been done in-house to a handful of strategic vendors and made long-term, high-volume commitments. This, along with improved logistics and scheduling, lower engineering fees, and prototyping assistance all helped lower costs.

It also let Enfield operate as an “extended enterprise,” helping develop production and assembly activities that are fully managed by the vendor. This frees more of our funds for training, personnel, capital equipment, tooling, and other investments, and lets us focus on our core competencies: designing advanced products and providing superior technical support to customers.

Aggressive use of online marketplaces. We approached this carefully and deliberately over the past 18 months, and have now opened up much of the less-critical contract manufacturing to online competitive bidding. Those sites let us source broadly, like big companies, but without a large purchasing staff. The process is transformational because instead of relying on local shops, we can reach deeper into the contract-manufacturing community in lower-cost regions, mainly in the U.S. but, in some cases, overseas.

On mfg.com specifically, vendors and customers post ratings and reviews. We’ve developed a highly regarded reputation as a company that doesn’t just use these tools for price discovery to negotiate elsewhere, but as one that actually awards business and makes prompt payment. That, in turn, attracts even more bidders, to our ultimate benefit.

In-house changes. We’ve developed better and faster automated test, calibration, and data-acquisition equipment, and upgraded the skills of staff who perform critical assembly and test operations. Our personnel have become even more technical over the past year.

We also redesigned valves and electronics to engineer out costs, upgrade designs, and streamline production. The result has been better performing products that cost less, and we’re passing along the savings. The economic downturn also afforded us the opportunity to move into new facilities with better infrastructure without a significant increase in expenditures.

Commodities. We’ve taken advantage of falling prices for commodities such as aluminum, steel, and copper, though we expect higher prices will return as global demand increases. The same issues hold with electronic components such as microchips. Fab plants have scaled back capacity, and we could get squeezed by rising demand.

Also, we use rare-earth metals such as neodymium for high-power magnets. China controls much of this market and has proposed export restrictions. This could drive up our costs or force us to move production to China.

Added up, these changes let us cut prices by more than 50% and stay well below $1,000, a major price barrier in motion-control systems. We expect this will accelerate demand, boost volumes, and further ease prices.

Edited by Kenneth J. Korane

Copyright 2010, Penton Media Inc. All rights reserved.

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