Increasing savings and reducing complexity in standard

Savings do not start in the cost sheet. They start in system decisions.

Basic information

Industry

Railway

Project objective

Process improvement and cost savings

Area

Logistics, purchasing, finance, production, R&D

Duration

Two weeks

Industry

Railway

Project objective

Process improvement and cost savings

Area

Logistics, purchasing, finance, production, R&D

Duration

Two weeks

Estimated results of the project

1,01

million zlotys of stock value reduction

168

hours less per month in administration

2,68

million zlotys in TCO savings

Why are standard parts a challenge and not a source of savings for manufacturing companies?

As part of the initiative Why Shopping? As part of the Why Purchasing? initiative, we spoke with Paweł Kudzia from Woodward company. He emphasized the challenges of generating savings faced by companies that have an extensive supply chain. Many suppliers provide components that are ultimately assembled in production. He described his supply chain as "low volume - high mix". You can watch the entire recording in the accompanying video.

How does this relate to our case study?

We often encounter the situation described by Paweł among our clients. Companies that are OEMs or are positioned high in the value chain are often characterized by the immortal Pareto principle:

20% of the purchased expensive components account for 80% of the material costs and savings

However, what strikes us the most is another proportion:

80% of the process costs and troubles are generated by components with relatively low prices but complex logistics and supplied by a large number of suppliers. In other words, the remaining 80% from Pareto.

The Pareto principle doesn't work in tail spent management. Solutions are needed that fundamentally change the way we operate to document attractive savings. Today, modern Industry 4.0 technology comes to our aid. It allows us to network devices distributed throughout the production facility with the supplier system.

We had to face precisely such a situation with a client in the railway industry (nowadays often referred to as Mobility).

This is important

How did we approach this? - Accounting and controlling

Part 1

Identified challenges

Manual and time-consuming invoice processing
Nearly 15,000 invoices per month
13,000 invoices represent the actual capacity of a 7-person department
An average of 2,100 invoices per person per month (100 invoices per day!)100 invoices a day!)
Overtime and backlogs up to one week in invoice entry reaching one week in the entry of invoices
Late payments to suppliers result in a backlog of firefighting in purchasing, controlling, and accounting departments firefighting in purchasing, controlling and accounting

Part 2

Proposed solutions

Standardizing invoicing terms in monthly cycles on a monthly basis
rapid uplift Rapidly increasing the percentage of electronic invoices from 12% to 80%
Enforcing the requirement for suppliers to include order numbers and customer index numbers on invoices indication of the order number on invoices and customer index numbers
Improving the electronic document workflow for resolving discrepancies electronic workflow in clarifying inconsistencies
Introducing the "noPO, no Pay" indicator to increase purchasing transparency „noPO,no Pay” in order to make purchasing more transparent

This is important

How did we approach this? - Production

Part 1

Identified challenges

Production documentation is not always updated in a timely manner compared to the actual execution of a particular component. Planners order components that are not needed and fail to order the necessary ones vs. the actual execution of a component. Planners are ordering components that are not needed and not ordering components that are needed
Some assembly sockets contain a large number of excess and unused components a lot of elements that are in excess and not used
Team leaders spend up to 2 hours per day searching for components needed for production 2 hours a day to look for elements, that they need to produce
The existing ERP system does not track the visibility of components and their inventory after they are issued from the warehouse the ERP system does not see the elements and their stocks after removal from storage
Inventory policy is not effectively enforced, and "excess" components are often not returned to the warehouse the „redundant” elements are often not returned to the warehouse
The warehouse frequently issues fewer components than what is required by the production demand

Part 2

Proposed solutions

Hiring a specialized company to map the streams of C-class parts in production mapping of streams c-class parts in production
Implementing a modern kanban system based on IoT and remote communication with the supplier's cloud, in line with Industry 4.0 principles IoT and remote communication with the provider's cloud, in accordance with Industry 4.0
Conducting a deeper analysis of errors and their root causes in the demand-reservation-issuance-receipt process to eliminate shortages and downtime analysis of the specification amendment process from design, through new commissioning engineers to fitters in order to consolidate changes/knowledge and eliminate incorrect ordering in subsequent builds within the vehicle series
Conducting a deeper analysis of errors and their root causes in the demand-reservation-issuance-receipt process to eliminate shortages and downtime analysis of errors and the reasons for these errors in the process demand> booking> issuing from stock> receipt in production to eliminate shortages and downtime

This is important

How did we approach this? - Logistics and purchasing

Part 1

Identified challenges

The procurement department processes nearly 70,000 orders annually for verified C-class components
This constitutes 70% of all processed orders
Lack of specialization among buyers, as they are responsible for the entire end-to-end logistics and procurement process
Each buyer handles approximately 30 orders per day, consisting of an average of 10 lines/items. Creating an order in the system takes around 5 minutes
Each order goes through an approval process according to the delegation of authority policy
The entire organization collectively spends approximately 30 minutes on each order
Buyers spend around 3-4 hours per day handling order-related tasks

Part 2

Proposed solutions

Outsourcing the handling of C-class components to minimize administrative work for buyers
Implementing a solution that allows real-time analysis of inventory levels, consumption, component locations, and trends based on historical usage
The recommended solution by Eveneum should free up resources by approximately 4.5 hours per day (3 hours of unproductive work on orders and 1.5 hours on invoices)
We recommend allocating the freed-up resources to purchasing category management, contract optimization, or establishing an advanced early project planning team
Developing a set of key performance indicators and implementing goal-driven management in the procurement organization in response to the company's needs and strategy

Key competences developed in the project

Cost-effective process thinking

Ability to identify and reduce costs not only in purchasing but throughout the product process

TCO management

Conscious and systematic approach to the total cost of ownership of components

Optimisation of normals

Effective management of normal elements leading to real savings

Reduction in labour intensity

Ability to identify and eliminate unnecessary administration and manual work

Cross-departmental decision-making

Coordinate purchasing, engineering and operations activities to jointly realise savings

What do market trends say?

According to recent purchasing trends, c-class components are classified as „outsourcing by capability”, especially in a low-volume-high mix situation, according to the balance of power matrix. It is assumed that for this type of component, a company wishing to focus on its core business should consider and implement lean solutions. These solutions are based on a service whose key performance indicators are: availability, flexibility, autonomy, savings. The support offered by the provider is to ensure that the client has the flexibility to deliver its core business. Current and future trends in c-suite management point to a move away from the purchase of components towards the purchase of a service related to component availability at an optimal cost.