Home Concepts Procurement Material Cost Management

Material Cost Management

Material Cost Management
by Florian Geiger

Material Group Management becomes Material Cost Management

Classical procurement practices solely target achieving the best price for a given material. However, significantly higher savings can result by changing the pattern of consumption or the product design and associated purchasing optimization. In our approach to Material Cost Management we expand our methods of Material Cost Optimization though a strategic steering instrument to achieve comprehensive savings potential. The goal is to make Material Cost Management a sustainable practice in the business.

New Perspectives through Material Cost Management

Through the optimization of material specifications, the pattern of consumption as well as logistics along the entire value added chain, all optimization possibilities are systematically identified. The initial step is the analysis of your current procurement portfolio. All materials used and purchased services are examined. Working from defined priorities a plan is tailored to your company and teamwork is begun.

Essential for success is the formation of interdisciplinary teams with common cost targets and the expansion of purchasing authority. Ideally, team leadership of the individual teams lies with a representative of the department who is also a consumer. Thus conflicting measures can be avoided from the start. Next the minimum costs are determined at which the purpose and/or production use can still be met. These minimum costs (core costs) are the starting point for further action. Arising from the core costs, targets are defined and confirmed with und supported by further measures. The various steps are set forth in the steering project.

ENG Materialkostenmanagement 600 - Material Cost Management

Material Cost Management tailored

In order to visualize Material Cost Development TARGUS has developed the Material Cost Management Cube (MCM-Cube). Similar to a „Materials OEE“ it demonstrates in 3 dimensions the potential for Material Cost Optimization of your entire external value added stream.

  • Consumption: For what procurement volume is the purchasing department responsible?
  • Penetration: For what volumes were the core costs established with interdisciplinary teams?
  • Rigor: What portion thereof was defined as goal and supported with agreed upon measures?

Thus the Material Cost Management Cube can be utilized as an ongoing steering instrument for comprehensive departmental planning.

Typical Results from Material Cost Management

  • Reduction of material and supply costs (unproductive Material) by 10-20%
  • Reduction of procurement costs of productive Material by 5-10%
  • Reduction of investment costs by up to 40%
  • Creation of an aware Material cost culture with interdisciplinary Teams

For an electronics company the assignment was to significantly reduce material costs. Using Material Cost Management in conjunction with the MCM-Cube as the steering element, considerable savings were achieved in a short period of time and a new Material Cost culture ensued. Instead of individual purchasing actions, now the common focus of the interdisciplinary teams was the processing of the entire external value added stream.

Our advisors supported the teams by producing separate implementation and reporting protocols that ensure that interdepartmental cooperation is functioning and the employees are utilized as efficiently as possible. Material costs have become an important topic and Procurement has become a coordinator and driver of organizational success.