DEMO: Supply Chain Optimization with Matrix Product Costing

Lily Thomas: Hello everyone, and welcome to Supply Chain Optimization via Matrix Costing. My name is Lily and I’m a Senior Applied Services Consultant at aPriori. So let me tell you a little bit about myself. I joined aPriori in March, and before that I held positions in manufacturing and supply chain management for a division of GE, which was later bought by Baker Hughes. I spent most of my time there as a commodity manager, I was responsible for PCBA assemblies, plastic parts, and wire harnesses. Now, at aPriori, I work with our customers to help them analyze their costed parts and identify parts most likely to yield savings and to prepare for supplier discussions.

Supply Chain Operations and Customer Expectations

Okay, let’s get into matrix costing and how it can help you make supply chain decisions. I think the most common phrase I’ve heard this year is supply chain disruption, we’re hearing about backups of shipping containers at US ports and skyrocketing prices of air and ocean freight, maybe your sourcing and supply chain organization is wondering what parts could we get from regions that are easier to get parts in and out of without significantly impacting cost? And if you’re a supplier with multiple manufacturing locations, you may need to know which of your factories will be easiest to get parts to the customer without a significant impact on cost?

Inventory levels, raw materials, transportation costs, lead times, responsiveness, global supply chain issues, and optimal customer experiences all lead to your decision-making here. Customer demand has not slowed down, so you can’t slow down either.

Competitive Advantage: Matrix Costing

Now, aPriori has always been able to help with that decision by allowing you to cost the same part in different regions and compare costs, but we’ve also introduced matrix costing, which makes it much quicker to do that analysis. So I’m going to show you matrix costing in aPriori. So here is an example part, let’s say I currently purchase this part in China, but my factory that uses it is based in Canada, I want to know what will be the impact to the cost of purchasing it in Canada, the US, or Mexico. So if I go to cost and matrix costing, I’m gonna keep the annual volume that I’m currently purchasing it at, and I’m going to look at it in Canada, Mexico, and the US. So I’ve added all three regions and I’m going to click okay. So you can see that it utilizes our existing bulk costing, and it fills in all of the information that I just put in the matrix costing window, so it’s got that annual volume and the three digital factories.

So now I just put cost. And one of the great things of costing parts this way is while this cost in the background, I can go in and still use aPriori and look up other parts. So I could, for example, pull up another part that I’m working on, and I could even cost this one in aPriori, change the volume, save a new scenario. I could cost a brand new part as well, because the matrix costing is going on totally in the background, and you can see the status as well, is you can kind of check how far along it is while it’s going. And now it’s given me a pop-up that it’s done, so when the matrix costing is done, it’s not only going to save each part, but it’s going to automatically save all of them in a roll-up, which makes it really easy to compare costs. So I’m going to go ahead and open the roll up, so you can see it saved an individual scenario for each one, and has put them all in the roll up, and I’m going to add my original scenario which was costed in China. aPriori offers me end-to-end visibility.

So now I can quickly see that I’m currently paying 47 cents and I could actually get it cheaper in Mexico, and the reason for that is you can see that actually the labor rates in China are more expensive than the labor rates in Mexico. You could also go in and add logistics costs to each of these scenarios to make a final apples-to-apples comparison, and now maybe I’ve realized that I could potentially get the part a little bit cheaper in Mexico at the same quantity that I’m purchasing now. So maybe if I’m a savvy procurement professional, I’ll realize that I could get potentially some inventory savings if I purchase less without going over the current price that I’m paying now, so I could keep the price as is no inflation, we get some inventory savings. So I’m gonna open up the Mexico scenario. So I’m purchasing in batches of 83 per year, and now I’m gonna try costing this in different volumes, so I’m gonna keep my annual volume the same, but I’m gonna try batches of 30, 50 and 70. I’m gonna click cost. So you can see this time, it’s kept that digital factory of Mexico, and it’s put in the different batch sizes that I entered.

Now I’m going to open that roll up. You can see I have the original roll up that I saved and then the one that I just did, they’re time-stamped, and I can also change the name if I want to. Alright, so if you recall when I started this exercise, I had a price of 47 cents from purchasing it in China, so it looks like I could actually purchase it for 50 cents, so about the same price can reduce the quantity that I’m purchasing at the time from 83 was the batch size in China, to just 50. So I could reduce the inventory that I’m holding and keep my total cost the same.