4 Ways to Reduce Product Costs
4 Ways to Reduce Product Costs - The Mareven Food Europe Experience (TM Rollton, TM BIGBON)
Proper use of existing opportunities in conjunction with the involvement of new tools will allow you to see the results already in the short term
Since 2011, Mareven Food Europe has been known as one of the largest manufacturers of instant and culinary products in Europe. The company sells its products under the Rollton and BIGBON brands in more than 25 countries, develops a wide export network in Europe and MENA (Middle East and North Africa). Mareven Food Europe LLC has been recognized as the exporter of the year, and in the Baltic countries Rollton TM has been receiving the Choice of the Year award for several years in a row.
During the conversation, we learned the best practices for reducing costs from “Mareven Food Europe” - just 2 steps and 4 methods that can already be used in practice.
Step I. Find and focus on a bottleneck
Before resorting to certain methods of cost reduction, it is necessary to conduct a detailed cost analysis. In the case of mass production of products, this is primarily material costs.
What does this give us?
Segmentation of material costs, i.e. their separation into separate components allows us to highlight the bottleneck - the most expensive components of the product. They should pay maximum attention. Here the Pareto law comes into force - one or more of the most expensive components occupy a significant share in the composition of material costs. We focus on them in our efforts.
Step II Act
Having determined the focus, we choose the most optimal method of reducing cost. The following are the possible steps that we use in our practice:
I. Joining forces with other business units.
1.1 General corporate procurement (in other words, “centralized procurement”). It is possible to resort to this method if there are several enterprises that use the same or similar raw materials. Such practice makes it possible to obtain more favorable conditions for consolidated procurement volumes.
1.2. Intra-group sale - purchase / sale of products by one enterprise from another within the framework of one holding. We resort to this method if it is impossible to purchase the right product in our country, but the same unit is purchased by a business unit in another country, as well as in the case of tight deadlines. For example, the Mareven Food Europe company, before starting cooperation with the supplier, must conduct a preliminary audit of the food safety system to confirm compliance with the Mareven requirements, which are based, inter alia, on the requirements of the international IFS Food standard. This process takes a lot of time, which can cost millions for a consumer goods business. In this case, the best solution would be to purchase this product from the Mareven enterprise in another country, which is already purchasing this item from a trusted supplier and has completed the audit earlier.
II. Long-term contract with the supplier. This makes it possible to reduce the cost of the subject of the purchase due to special conditions from the supplier as part of a long-term cooperation.
III. Using procurement automation tools.
The probability of getting the best value of the product is proportional to the size of the supplier base, therefore, one of our main goals is to increase it.
Starting from step number 1, we analyzed the costs and came to the conclusion that it takes a lot of resources to search for suppliers - both temporary and human. The best solution would be to see all suppliers in one window. Through trial and error, we settled on the electronic trading platform as a tool to achieve our goals. We are currently using SmartTender.
The experience of using the site is already more than 7 months, and at the moment we place all purchases on it with a budget of 5 000 UAH.
If we talk about efficiency, then below are the intermediate results:
a) in the first 3 months, the base of reliable suppliers of Mareven expanded by 30 counterparties (previously, for the same period, this indicator amounted to 10 counterparties);
b) saving of temporary resources — up to 50%;
c) a decrease in the cost of goods and the cost of a product by 1.5 times.
Initially, the main categories of procurement through the site were tools, services and equipment. Recently, our manager held a wide tender for raw materials for more than 40 positions. Now we understand the price gradation, the next stage - the most interesting - is to verify that the actual samples comply with the Mareven requirements. We hope that the expectations are met.
Summarizing all the above, in the process of cost reduction, Mareven Food Europe recommends analyzing, then acting. A competent use of existing opportunities in conjunction with the involvement of new tools will allow you to see the results already in the short term.