Cost reduction levers lower the total cost of a purchase. It is imperative to identify them during the Conceptualize Need task to ensure that cost reduction levers are implemented. These levers will aid in the creation of a more effective, efficient, and innovative SCM process.
Cost reductions can be attained through supplier consolidation (e.g., leveraging volume and choosing “best suppliers”), continual improvement (e.g., improving operational efficiencies, changing usage patterns, and eliminating inventories), and innovations. Analyzing the preliminary TCO and then performing in-depth analysis of the relevant cost component area(s) will lead to identification of the appropriate cost reduction levers. Additional information on cost avoidance and SCM impact can be found in Section 2-4, Formulate Project Budget and Request Funding.
The factors involved in identifying cost reduction levers include:
