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One of the biggest issues facing companies is where
did these numbers come form and what do they mean? There
are four main places to get the information for documenting
the value a supplier adds:
1. Supplier Information – suppliers know quite
a bit about their customer such as freight costs, price
paid, quantities utilized, etc.
2. Industry Standards – research exists on a number
of costs for various industries. Cost of oil, electricity,
processing costs, raw materials, personnel, etc. These
can often be utilized when specific data is not available.
3. Estimates – basically an educated guess based
on knowledge of this customer, the industry and other
customers. Example; the inventory possession cost may
not be know for one customer, but you might know the
possession cost another customer uses.
4. Customer Data – of course the best place to
gather information is from the specific customer, but
that often is not possible to get easily.
A person documenting the supplier’s value could
get the information from any or all of these places.
Reduced Downtime
1 downtime reduced
* 1 hour of production saved (based on previous downtime situations)
* 50 units per hour is the production rate
$100 sales price for each unit being produced
$45 raw material cost for each additional unit produced
Reduced Inventory
1 Lot of inventory (all lines and quantities)
$10,000 total value of all inventory reduced
18% cost for carrying inventory
Reduced Freight
1.5 number of deliveries reduced per week on average (from 3)
* 52 weeks in a year
$75 average cost per delivery
Reduced Ordering, Invoicing, Receiving
$35 estimated cost for processing an order (before and after the change)
$25 estimated cost for processing an invoice (before and after the change)
$15 estimated cost for receiving (before and after the change)
3 average number of orders per week before vendor managed inventory
* 52 weeks per year
1.5 average number of orders per week after vendor managed inventory
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