6 Guest Editorial
THE HIDDEN COST OF PARTS
Duplicate parts are costing automotive companies millions of
pounds every year. i2’s Philippe Lasnier totals up the hidden
costs and explains how savings can be made.
I
t takes thousands of parts to make a car. information that they need to identify — let
It is not surprising, therefore, that car alone tackle — the problem.
manufacturers have well tuned purchasing
processes and astute buyers who shop globally A range of advanced software packages is
for the best deals. However, the purchase available today that effectively helps companies
price of a part is just the beginning. The cost of to analyse their parts usage and make more
ongoing supplier relations, contract renewals, strategic sourcing decisions. Integrating with
administration and invoicing must all be taken existing business applications, these solutions
into account. Throughout the automotive can be used to
industry, these hidden costs are placing an
unnecessarily large strain on margins. There
■
Centralize all parts information from all engineering
are simply too many parts! groups in all countries and for all vehicle models
■
Provide accurate and up-to-date bills of materials
In a recent report, analyst firm The Aberdeen at individual part levels across multiple divisions
Group calculated that it costs manufacturers and countries
“
Whereas it
$4500 to $23,000 per item for the introduction
■
Categorize all parts according to factors such
of a new part number. With costs this high, as price, specification, hazardous material content,
is important
automotive companies clearly need to be able supplier reliability and availability.
— and strategic
to manage their parts usage very closely — and
apply strict controls on the introduction of new These parts reuse and sourcing applications
— to introduce
part numbers. provide an invisible hand — guiding
engineering teams to use parts that are
new parts that
Whereas it is important — and strategic — to commercially right for the business. With a
are technically
introduce new parts that are technically superior clear view of parts purchased, engineers can
or functionally different, it is commercial folly to be encouraged to remove duplications and
superior or
buy two identical products from two different buy more products from preferred suppliers.
functionally
suppliers. The Aberdeen Group estimates that Procurement managers can negotiate more
30–40% of a manufacturer’s parts are either favourable volume discounts and the cost
different, it is
duplicates or have acceptable substitutes. This savings can start to accrue.
means that companies could potentially reduce
commercial their parts — and the associated hidden costs There are also many other benefits to be gained
folly to buy
— by up to 40%. from parts reuse and sourcing solutions.
Engineers can use them to conduct part
two identical
There is, however, one major obstacle searches and compare features. This saves
products from
that stands in the way and often prevents valuable time and can lead to decreased
companies from capturing these cost savings. design cycle time and faster introductions of
two different
In reality, few companies have the ability to new models. The greater visibility of parts and
analyse and fully understand their parts use. the reduction in the number of suppliers also
suppliers.
“
With parts information spread across multiple, reduces the supply risk.
disparate enterprise systems, they have no
clear view of what parts are being bought and The benefits and cost savings are there to be
why. As a result, designers are not challenged uncovered. But they will remain inaccessible
when they introduce new parts and the bill of until automotive manufacturers put proper
materials steadily grows. Too many companies solutions in place to gain accurate and
are simply missing out on a huge opportunity meaningful information about their parts. With
to cut costs, because they do not have the hidden parts, there will always be hidden costs.
Supply Chain Digital Launch 2007
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