In a manufacturing company, material cost can be as much as 50 – 70% of the company’s total variable costs. This means that the Purchasing department controls what is easily the single largest expense item on the Profit & Loss statement.
Ongoing management oversight, robust accounting systems and processes and careful budgeting and monitoring of part changes are vital to controlling material cost.
As a part is created and tracked through its life cycle, effective communication between Product Development and Purchasing is key. Robust systems that capture design, part numbers and cost changes are essential in maintaining the integrity of the reporting process. An omission of cost related to a design or negotiated change, or an error in recording the true cost of such changes on a high-volume part can have a significant impact on the bottom line.