For OEMs, using Total Cost of Ownership (TCO) to guide your supplier selection process is an effective way to pursue long-term savings and avoid unforeseen costs, especially when selecting a CNC machining supplier.
The Total Cost of Ownership (TCO) encompasses all the direct and indirect costs associated with acquiring, operating, and maintaining a product or system over its entire lifecycle, providing a comprehensive view of the true cost of an investment beyond just the initial purchase price.
By prioritizing TCO in their decision-making, OEMs can use a more holistic approach for their supply chain strategy for any given product or component that yields better quality, faster lead times, and lower long-term costs.
With that in mind, let’s explore the key ways that a machined component’s Total Cost of Ownership can be reduced by choosing the right CNC machining partner.
Consistent Quality
Choosing a supplier that falls short in delivering quality can have a significant impact on a product's Total Cost of Ownership (TCO). Poor supplier quality can lead to increased inspection costs, higher rates of scrap or rework, unexpected logistics issues, and production downtime, among other challenges.
To mitigate this TCO risk, it is essential to select a supplier with a proven track record of delivering high-quality work and the necessary resources to uphold these standards. This includes having the right inspection equipment and a robust Quality Management System (QMS) in place.
Operational Efficiency
A supplier’s operational efficiency has a direct impact on a machined component’s TCO. Inefficiencies in the production process result in longer lead times, unexpected inventory costs, and supply chain disruptions. Additionally, suppliers with more efficient, consistent production processes can maintain higher levels of quality, which can further improve TCO.
When vetting suppliers, be sure to gain a thorough understanding of their production processes. Signs of operational efficiency include faster production cycles, ancillary investments that optimize their machining investments (i.e., software, tooling, automation, lights-out production), machine utilization, and high throughput rates.
Proximity
While offshore suppliers are often selected for their lower labor costs and reduced regulations, distance and complicated logistics are significant drawbacks that should be taken into account for TCO.
Due to their proximity, local and domestic suppliers can help OEMs save on costs related to shipping and transportation, making them comparable or even more affordable options when juxtaposed with their offshore counterparts.
As an added bonus, OEMs can benefit from local suppliers by being able to visit their facilities in person, as well as take advantage of Just-in-Time (JIT) inventory strategies.
Compliance
Depending on your organization's industry, supply chain-wide compliance is not only crucial to avoid unexpected delays and unplanned costs that can add to your product’s TCO, but it’s also required.
Let’s say that your product is controlled by ITAR. In this case, your suppliers must also adhere to ITAR, and compliance impacts data storage, how scrap is dealt with, which suppliers they’re allowed to use, hiring policies, and more.
As you identify machine shops that could supply your machined components, prioritize those that not only have thorough processes that comply with relevant standards and regulations, but proven familiarity and proficiency with executing those processes.
Responsiveness
Your chosen machine shop’s responsiveness has significant influence on a product’s TCO. From a metrics standpoint, it's difficult to quantify how this supplier attribute factors into total cost savings; however, a machine shop’s ability to collaborate, adapt, provide DFM, and communicate will enable your team to take advantage of cost saving opportunities as they arise.
In the case of machined components, the right supplier can work with your engineering team to optimize a part’s design, helping you avoid costs that come with unnecessary tolerances or features that are difficult to machine. Additionally, their quality team can collaborate with yours to efficiently achieve capability and lower the inspection requirements to speed up throughput.
OEMs who use Total Cost of Ownership to guide their selection of a CNC machining supplier will identify a partner that will provide the best overall value, rather than simply the lowest upfront cost.
By prioritizing supplier attributes like consistent quality, operational efficiency, proximity, compliance, and responsiveness, OEMs can strategically build in long-term savings and lower a machined component’s or product’s lifetime cost.
Hirsh Precision
