How to Create a Wire and Cable Materials Cost Savings Matrix

How to Create a Wire and Cable Materials Cost Savings Matrix

How to Create a Wire and Cable Materials Cost Savings Matrix

Author: Khoi Nguyen, Director of Marketing, LAPP Tannehill


Procurement Specialists, Purchasing Managers, Materials Buyers, and Chief Procurement Officers are constantly on the lookout to reduce material costs when it relates to the purchasing department.

Once you’ve taken the steps to build a list of existing parts, find a trusted wire and cable distributor, calculated potential cost savings, and evaluate the level of effort for each cost savings opportunity - then it’s time to bring all of this data to your engineering, product development, product management, and finance teams.

If you need help taking these steps first, check out 4 Steps to Save on Wire and Cable Materials Costs.

Sometimes it can be hard to manage a meeting (or several meetings) with this kind of information because there may not be an easy way to communicate your findings and align it with other department KPIs.

One way you can stay on track with departmental and company goals is to create a Direct Materials Cost Savings Matrix.

Find Each Wire and Cable Cost Savings Opportunity

Your team will have to place each cost savings opportunity into an EFFORT/IMPACT matrix.

To begin, list each cost savings opportunity into a spreadsheet (if you haven’t already done this), and do the following:

  • Score/classify each opportunity on the basis of EFFORT and IMPACT

 

EFFORT to Accomplish

Rank on scale of 1-10 the level of effort it takes to test an alternative part in place of the existing part. (This can also include dimensions of difficulty, technical risk, resource allocation to accomplish, etc. - depending on what is relevant to your organization.)

  • 10 = high: Major project requiring high levels of testing, qualification, and re-certification. A project with potential high technical risk due to various factors.
  • 2 thru 9: Some level of design work required but there would only be minimal or little testing.
  • 1 = low: An easy BOM change - no technical or manufacturing/production risk.

 

IMPACT of Cost Savings

List the expected cost savings under the "Cost Savings IMPACT" column.

Then divide all Expected Cost Savings by the highest number and multiply by 10 to "normalize" each part on a scale between 1 and 10.

Create Your Wire and Cable Materials Cost Savings Matrix

In this case, you’ve identified 10 potential wire and cable part numbers for Direct Material Cost Savings (parts 1 through 10).

An example of Cost Savings spreadsheet depicting EFFORT + IMPACT scores

You've worked with your wire and cable distributor to identify replacement parts and you’ve created an estimated cost savings along with technical tradeoffs.

For the EFFORT scale and score you’ve worked on with Engineering, Manufacturing, and Product Management colleagues to classify each part number change project on a scale between 1 and 10 based on level of effort, technical challenge, etc.

For the IMPACT scale you’ve simply divided each of the Estimated Cost Savings by the largest cost savings of $100,000 (for part 4) and multiplied by 10 to normalize each project with an IMPACT Score between 1 and 10.

Next, you’ve plotted each project (each part #) on a graph with the EFFORT score on one axis and the IMPACT score on another axis.

An example of Cost Savings Matrix including EFFORT + IMPACT scores

From there it's relatively easy for the cross-functional team to identify the projects with a relatively low level of EFFORT but high Cost Savings IMPACT, which would be your ‘Quick Wins’ to move forward with. In this example, the quick wins would be part 6 and part 1. These 2 projects are an obvious ‘Yes’ to move forward with.

For projects that are high EFFORT but high IMPACT (i.e. ‘Major Projects’) and projects with low EFFORT but low IMPACT (i.e. ‘Fill In Projects’), then the team must evaluate the ROI and organizational capacity (time, resources, money, etc.) versus other discretionary projects and the work of day-to-day business.

Projects with high EFFORT but low IMPACT (i.e. ‘Thankless Tasks’) can be shelved indefinitely until either the EFFORT is greatly reduced and/or the IMPACT is greatly increased.

The above methodology provides a template to approach direct material cost reductions with wire, cable, and connectivity solutions.  A more detailed analysis can be done based on your organization's situation including your unique wire and cable organizational ‘spend’, your end product and customer requirements, and your organizational priorities.

Why You Should Choose LAPP Tannehill for Your Trusted Wire and Cable Distributor

LAPP Tannehill works with hundreds of manufacturers to offer our customers millions of cable and wire products. Let us help you save on direct material costs for your purchasing team.

We can work with you to give you a BOM review of your company’s existing wire and cable parts to provide you with alternative materials, details of any tradeoffs you should expect, and a jumpstart to your cost savings calculations.

Contact our sales team for more information by filling out a form, chatting with us, or calling us at 800.633.6339.

>> Get a free wire and cable evaluation from LAPP Tannehill.



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