Uncover Hidden Profit in Your Raw Materials

If your outsourcing part of your manufacturing or procuring semi finished or fully finished material from external vendors, you have hidden profit that can be uncovered and add to your bottom line.

Larger manufacturing corporations have a system where their contract manufacturers will procure raw material through them and not from the suppliers directly. For example, a computer manufacturer may insist that their subcontractors (EMS) procure the hard disks from them instead of procuring directly from Seagate or Hitachi. As they have larger volumes of procurement, they negotiate a better price with the component suppliers and get profit from their raw materials.

While the purchase order is released by the manufacturer, delivery is directly to the sub contractor. This is called Drop Ship in Supply chain terms. Also it is to be ensured that the price at which the material is procured is masked. This is called Price Masking of procurement prices.

There will be two billing involved. One will be from manufacturer to subcontractor and one from Component supplier to Manufacturer. The margin between these two prices is for the Manufacturer to keep. This is hidden profit which otherwise will be lost between subcontractor and supplier.

While it is easy to see the process at the outline, implementing this process will involve change management in the entire supply chain. Subcontractors and Component suppliers need to be co-ordinate and orchestrated well to get the right timing of delivery and prices. Also if the raw material are of exclusive design or exclusive nature, the manufacturer also needs to shoulder the responsibility of perish-ability or technology obsolescence of the material.

Forecasting accuracy plays a major role in this process. Both subcontractor and manufacturer need to provide each other accurate forecast and current inventory position so that raw material ordering can be done efficiently.

The process of managing the raw material procurement on behalf of the Subcontractor needs a good common platform that will provide visibility to all the parties involved. Manufacturer should be able to see the current inventory position with the sub contractor so that they can plan the procurement of raw materials as needed. Also when suppliers ship the material to the subcontractor directly, Manufacturer need to be informed of the shipments so that they can do the necessary accounting transactions in their system. Return of defective material by the subcontractor directly to the supplier also needs to be managed carefully as this will involve accounting implications.

TpSynergy.com provides a platform that can effectively manage the above raw material procurement process and provide the visibility needed to all the parties involved. Visit the website www.tpsynergy.com for more details and free trial of the product.

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