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Regaining Cost-Consciousness

Dec. 17, 2007
The A&D industry wakes up to new ways to reduce procurement costs.

These days, it doesn't matter what your product is -- any manufacturer can afford to save a few dollars by avoiding unnecessary purchases. Even aerospace and defense (A&D) companies, which were thought to be the exception, have discovered that they, too, need to cease their free-spending ways and are adopting more frugal procurement practices.

Even so, a recent study by consulting firm Deloitte & Touche USA reveals that many A&D manufacturers continue to make fragmented, ad hoc purchases that rob them of buying power and lead to redundant procurement processes. For those who believe the issue is too complex to be addressed with small improvements, Deloitte offers a four-step approach to reducing costs:

  • Create a center-led procurement organization. The key to improvement is a procurement organization that cuts across business silos. It could even be virtual -- rather than physically collocated -- as long as it can operate as a cohesive unit. Cross-functional teams that are organized around categories and technologies can help provide the foundation for smarter sourcing.
  • Generate quick wins by reducing parts complexity. Reducing the proliferation of purchased parts can help generate immediate savings and help fund long-term improvements. Many companies can reduce their parts proliferation by 30% to 40%, which will reduce procurement costs by rationalizing parts and prices.
  • Production line for the Boeing 787 Dreamliner.Establish robust sourcing processes. More effective practices and other innovations can help create lasting improvements in all aspects of the procurement process. Small improvements are the key to big results. Examples include establishing pricing agreements, negotiating tiered pricing, using distributors and leveraging your spend across categories.
  • Develop a fully integrated procurement system. To fully leverage a company's buying power, its procurement group needs timely and accurate information to support fact-based negotiations. This requires a fully integrated procurement system that links a manufacturing parts database to financial forecasts.
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