TIP 6: Work with Your Suppliers

A good way to save money on parts and materials is to work closely with suppliers, says Norman. A supplier often has knowledge that customers may have lost through downsizing and the resulting loss of experience. That supplier can provide the expertise to allow customers "to not over-maintain but maintain at a reasonable level and focus more on the critical applications than one-size-fits-all throughout the whole plant," he adds.

Ed Holtgraver, CEO, QTRCO, Inc., reports his company has had positive results through minimizing its total number of suppliers. "If we buy investment castings we'll buy them all from the same company-we don't place an order for a specific part," he says. Instead, "We place an order for all the parts that company makes on a monthly basis, and we project out three or four months into the future so our suppliers know they have an assured customer." Also, this creates a situation in which there's no need to expedite, and the supplier can build ahead to even out its work load.

Holtgraver says another way to save money is to buy materials as kits. "If we bought a group of parts for any given product from a supplier, we're now ordering kits," he explains. As a result, time is saved that would have been spent getting parts ready to put together, and the company has been able to increase production volume by a factor of four with no increase in personnel, he says.

David Moser, president of DFT, Inc., says another good idea is to be vigilant and make sure suppliers' prices are in line with raw material costs. For example, though stainless-steel prices have been high, in recent months the prices of steel scrap and nickel have come down, so it's important to make sure that prices quoted by materials' vendors come down as well, he explains.

TIP 7: Don't Scrimp on Quality

When times are hard we switch from fine wine to beer and from sirloin to hamburger, but such downgrading isn't always a good idea when it comes to buying valves or other industrial supplies. "What I'd encourage," says Holtgraver, "is that users pay attention to what their total cost is after a product has been installed for a while."

Norman adds this warning: "Be wary of duplicated parts, because the tolerances, the materials, the coating and the finishes are not going to be the same as original manufacturers."

TIP 8: Compare Outsourcing, Insourcing and Backshoring

While outsourcing certain functions can save money, be careful because such arrangements often have hidden costs caused by administration headaches, unexpected labor disputes, poor communications and other factors. In fact, some companies are discovering they can save money by moving previously outsourced functions-including manufacturing-back home. For example, the most-cited reason for moving production to China was low labor costs. But Chinese wages are beginning to increase.

On top of that, shipping costs have increased. "We saw the fuel prices skyrocket," says Mark Cordell, president, Distributed Valves Division, Cameron International, and "we saw freight costs just skyrocket at about the same pace."

As far back as August 2008, Supply Chain News quoted Dr. David Simchi-Levi, Professor in the Department of Civil and Environmental Engineering at MIT, as saying increases in fuel prices and transportation costs have led many companies to a tipping point, "where logistics costs have started to negate the unit cost advantages of China and other Asian countries." Some have shifted production to Mexico, and others have brought it all the way back to the U.S., according to the article.

There also can be differences in quality between offshore and American-manufactured goods. "I don't want to be too specific," says Knox, "but I'm well aware of a number of situations where quality coming from China has not been up to expectations." And, says Oaks, there's that nagging worry: "What will happen with my Chinese sources? I wonder if they're stealing my patterns?"

Not all outsourcing is to China, of course; European companies tend to look to Eastern Europe for low-wage labor. But North America can look good even compared to Eastern Europe, according to Oaks. Many global companies have been sourcing low-tech components from that area for several years, he explains, and still are doing so, but "we're sourcing in Canada, where people are paid a good wage, where there are strict environmental regulations, and these guys provide us the material we need in a timely and competitive manner."