Great Partnerships Start with Innovative Solutions
At the end of last year, a new customer was faced with a familiar challenge. They needed to reduce cost even though raw material costs were increasing. As most OEMs do, they looked for a new custom sheet metal fabrication supplier and found ETM Manufacturing. During our quoting process, they realized that significant savings could be had if they ordered their annual quantity at one time. Plus they could mitigate against further raw material increases.
Here’s how it worked for them:
Order 25 sets every 3 months.
In this typical scenario, they would be ordering $35,000 worth of product every quarter, paying net 45-day terms. Some material would be consumed immediately and some in 90 days, so the average carrying costs would be .75% (assuming 6% per year interest rate). Over the course of the year, the financing costs would be $1,050 per year, for a total annual cost of $141,050.
Order 100 sets at the beginning of the year.
In this innovative scenario, they would be ordering $120,000 worth of product for the year, paying net 45-day terms. The additional volume of product lowered our costs and we were able to pass that savings on to the customer. Product costs were reduced from $140,000 to $120,000, saving them $20,000 per year (14%). The financing costs for $120,000 would be $6,300. Even with the carrying cost increases, savings would still be $13,700 (10%).
This second scenario only works if two issues are resolved:
- The customer’s design needs to be stable. If they do not have a proven design, scrapping old revision parts would be very expensive.
- Either the customer or ETM would need enough space to store the material. In our case, ETM could offer space free of charge. Beginning in August, for 2/3 of the year, our facility fills up with this customers’ inventory, helping this company reduce its inventory load significantly. Why not use our empty space to help our customer?
Here’s the tally:
- The customer gets to save 10% on their product costs
- The savings are realized even after the financing costs
- They have access to product when their demand increases
- We secure a long-running job that we can schedule during our slower season
- Our best employees can earn overtime in a typically slow period
- We create jobs: we have actually hired people
Both companies benefit and the arrangement is scalable and helps stabilize future forecasting. All parties involved are very proud of this innovative partnership. Look, we run a business; we know how important it is to keep running it, and we want to help you with yours. Contact us and let’s work together to come up with some innovative solutions for your next custom sheet metal fabrication project.