In the eighties, purchasing was

·         perceived as clerical activities, and back-office function

·         seen as ‘the buyers’ within the Operations Department

·         a simple clerical task that could be done by anyone

·         seen as a corporate backwater

·         not seen as a strategic function

Average total material cost was about 65% of the product sale price then. Now, it is considered a strategic advantage to provide cost effective products and services to customers.  

Currently average total material cost has increased to about 70 ~ 85% of product sale price depending on the industries. On average, engineering achieves 2~3% cost savings through productivity gain, waste reduction and improvement on quality and yield.

An effective supply chain program can achieve 20~40% cost savings and high inventory turns. Many companies have committed many resources in improving sales and enticing customers but insufficient resources and commitment in optimizing supply chain.

Using $100 as total sales with 5% net profit as an example, a $1 increase in revenue would only translate to improved profits of $0.05; whereas $1 saving in materials cost is equivalent to a $20 sale done!