4 Steps to Save on Wire and Cable Material Costs
Written By: LAPP Tannehill
If you’re in manufacturing and looking to save money in purchasing and procurement for wire, cable, connectors, and other electrical materials for your engineers, then you’re not alone.
Deloitte’s 2018 Global Chief Procurement Office Survey states that 78% of CPOs (Chief Procurement Officers) indicated that procurement saving is their top priority, along with new product development (58%) and managing risks (54%).
Procurement saving refers to purchasing department KPIs (key performance indicators) of decreasing procurement costs, consolidating vendors and distributors, improving supplier contract terms, and decreasing product prices whenever possible.
Purchasing Managers, Procurement Managers, and Supply Chain Managers are constantly trying to identify growth opportunities and lower operational costs to align with their company goals.
It can be a difficult task to satisfy your Finance team by saving on material costs while also satisfying engineering and product development by keeping quality products on-hand.
If you’re looking for ways to ramp up your purchasing team’s efforts to hit their KPIs, here are 4 steps you can take to save on direct material costs of wire, cable, and connectivity solutions.
Step 1: Conduct a Spend Analysis on Your Wire and Cable
You’ll need to gather spend data on all of your wire and cable parts to be able to understand spending trends and where you can find opportunities to save on these materials.
Whether you’re using a PMOS (Procurement Management Operations System), a spend analysis software, or even just an Excel spreadsheet to collect this kind of data - the data will most likely need to be cleaned up or filtered to see only wire, cable, and other electrical materials.
You’ll need to identify the BOM (Bill of Materials) for these parts, analyze the EAU (Expected Annual Usage) per part number while factoring in varying volume scenarios, as well as current cost per unit to evaluate existing direct material spend per part.
Additionally, work with your engineering team to obtain appropriate engineering drawings, specifications and all Critical-to-Quality (CTQ) and other critical engineering specifications for each part number. During their design process, your engineers have pre-identified the few product parameters or specifications that absolutely cannot change to preserve performance and quality of your end product.
Once you have a clear understanding of your wire and cable parts, and have a list created, you’ll be ready to calculate your potential cost savings for direct materials.
Step 2: Work With a Trusted Wire, Cable, and Connectivity Distributor
Working with a wire and cable distributor can definitely support you during this process. They have the knowledge and experience with a broad range of products and manufacturers to help you calculate an estimated cost savings.
A good wire and cable distributor will be able to recommend direct material cost savings utilizing multiple approaches including:
- Recommending an alternative product (from another brand and manufacturer) – also known as ‘cross references’ or ‘crosses’ with similar form, fit, and function to your existing product(s).
- Recommending the same product but from an alternative, more cost-competitive manufacturer. This approach can work for higher-volume, industry-standard products that have multiple manufacturers.
- Providing the same product from the same manufacturer but at lower material costs due to the distributor’s volume purchasing capabilities achieved via bundling demand from many customers.
This distributor should have strong relationships with their partners and suppliers, and should also suggest and provide quotes to give you an accurate list of part alternatives or ‘crosses’ that you require.
After cross-referencing your list, your wire and cable distributor should be able to detail any potential technical tradeoffs that may exist by switching to a different, alternative product or material.
These tradeoffs should not impact the critical performance parameters you identify in Step 1, but should be brought to the attention of your engineering staff.
Whether it’s physical, environmental, or has to do with specific electrical properties, these details should be obvious in order for you to bring back this information to the rest of your procurement team and the engineers you work with.
Get a free wire and cable evaluation from LAPP Tannehill.
Step 3: Calculate Your Wire and Cable Direct Material Cost Savings
After working with a trusted wire and cable distributor, you should now have a list of your existing parts, as well as a list of material alternatives and potential substitute products with pricing information.
In a spreadsheet, create a new column that shows how much your team would be saving - based on your distributor’s new price and your EAU - if the alternative wire or cable part replaced your current part so your team can clearly evaluate the options.
You can also vary the EAU’s and conduct analysis of various demand patterns to calculate a range of potential material cost savings to forward to your Finance department.
Step 4: Evaluate, Prioritize, and Select Your Wire and Cable Savings Options with Your Team
You’ll need to schedule a meeting with key stakeholders in your organization as well as your design and engineering team, product development, product management, and any other necessary departments.
Whether you’re the one coordinating this or if there’s a Project Manager within the company that can help you get everyone together, your team should discuss and evaluate each potential part or BOM change and classify each opportunity for direct material cost savings.
These opportunities will range in the amount of potential cost savings, as well as the level of effort required to make the BOM change. One approach to evaluate your cost savings opportunities is to create a Direct Materials Cost Savings Matrix with your team to visually represent cost vs. benefit of each opportunity in relation to others.
It’s very possible that your engineering team is already using parts they would rather spend the extra dollars on than to sacrifice quality, so trading that part for an alternative part won’t be an option.
That being said, technology is always changing and there’s a good chance there are more available wire and cable options available today than there was the last time your team evaluated parts.
It’s very likely your team will not only agree on cost savings from switching to alternative wire and cable parts, but also find that there are other quality parts in the market that should be considered as well.
Why You Should Choose Lapp Tannehill for Your Trusted Wire and Cable Distributor
Based on LAPP Tannehill's experience working with thousands of manufacturers the following are some typical levels of direct material cost savings that can be realized for wire, cable, and connectivity solutions when you’re our customer:
Typical Direct Materials Cost Savings for Customers that work with LAPP Tannehill.
We have a team of trusted experts that have strong relationships with our partnered wire, cable, and connectivity suppliers including LAPP, Alpha Wire, 3M, General Cable, Unified Wire and Cable Inc., TE Connectivity, and Southwire Company LLC.
We offer competitive pricing for our customers and distribute over 100 million products from over 250 leading manufacturers so there is an abundance of opportunities for our experts to cross-reference alternative parts for your team. Read more about the Top 5 Ways to Save Money on Wire and Cable.
Talk to one of our wire and cable representatives today about how we can help you save on direct material costs.
