Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How a Buyer Used Design for Procurement to Cut Costs 22 Percent
Transcript
- Lucas: So there's a story I came across last week about a mid-size medical device company that makes infusion pumps — those machines you see in hospital rooms delivering fluids and medication intravenously. Luna: I've seen those. They're everywhere in hospitals. Not a lot of people think about procurement when they look at one. Lucas: Exactly. And that's the problem — or was, for this company. They were launching a new pump platform, and the procurement team, led by a senior buyer named Carla, realized they were getting involved way too late. Luna: Late in the sense that the design was already locked in and they were just handed a bill of materials to source? Lucas: Exactly that. By the time procurement saw the BOM, engineers had already specified custom components, exotic materials, parts that only one supplier could make. Carla looked at the first prototype BOM and estimated that the unit cost was going to be about 35 percent above their target. Luna: Ouch. So they were already over target before they even started negotiating. Lucas: Right. And that's where she pitched something she called 'Design for Procurement' — basically getting procurement a seat at the table during the concept and detailed design phases, not after. Luna: Was that a hard sell? Engineers can be protective of their designs. Lucas: It was not easy. But Carla had a sponsor in the VP of engineering, who had seen a similar approach work at a previous company. So they agreed to a pilot on the new pump line. The idea was simple: procurement would attend every design review, bring cost data, and flag any component that looked like it would be expensive or single-sourced. Luna: So they're basically acting as a cost conscience in real time. Lucas: Exactly. And they didn't just say 'that's too expensive' — they came with alternatives. Carla's team built what they called a 'cost table' for every major subsystem. For example, the pump housing was initially designed as a complex five-piece injection-molded assembly with a custom seal. Procurement showed that a two-piece design using a standard O-ring would cost 40 percent less and could be sourced from three qualified suppliers. Luna: So the engineers could see the trade-off immediately. That's smart. Lucas: It changed the conversation from 'why can't you find a cheaper supplier' to 'here's how a small design change drops cost by X percent.' Over the course of the 18-month development cycle, the team ran something like 30 value engineering workshops. Luna: Value engineering workshops — what did those look like in practice? Lucas: Typically a two-hour session with two engineers, one buyer, and sometimes a supplier. They'd go through each subsystem, look at the 'should-cost' model — what the component should cost based on materials, process, and volume — and then brainstorm alternatives. One buyer brought in a fastener manufacturer who showed that using a standard screw instead of a custom thread design saved $1.20 per unit. Luna: That doesn't sound like much, but at scale... Lucas: At 50,000 units a year, that's $60,000 annually. And they found dozens of those opportunities. The cumulative effect was significant. Luna: So what was the final number? What did they actually save? Lucas: Carla reported that the unit cost came in 22 percent below the original prototype BOM. That's about $180 per pump, on a device that retails for around $2,500. On an annual volume of roughly 50,000 units, that's $9 million in cost avoidance per year. Luna: And that's recurring savings, year after year. That's huge for a mid-size company. Lucas: Exactly. And it's not just the direct cost savings. By involving procurement early, they also reduced the number of custom parts by about 40 percent. That means fewer single-source risks, shorter lead times, and easier serviceability down the road. Luna: I imagine the engineers also learned a lot about cost drivers. That kind of cross-functional education is hard to quantify but really valuable. Lucas: You're right. One of the engineers told Carla afterward that he'd never realized how much a simple change like splitting a part into two standard halves could save. The next project he started, he actually invited procurement to the kickoff meeting. Luna: That's the kind of cultural shift that's worth more than any single project saving. It's interesting — you know, sometimes I think about how much of what we learn on this show is practical enough that listeners probably apply it at work. And honestly, if today's episode moved your thinking forward even a little bit, that's the kind of thing that makes keeping this show ad-free worthwhile. Lucas: Yeah, and listener support is what makes that possible. If today's conversation was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. No pressure, just a way to keep the episodes coming. Luna: Right. So back to the pump story — one other technique they used was something called 'target costing.' Carla didn't just react to the BOM; she worked with marketing to understand what the target selling price needed to be. Lucas: That's a great point. Target costing flips the equation: instead of cost plus margin equals price, you start with the price the market will bear and subtract the margin you need, and that gives you the target cost. For this pump, the target cost was about $1,100 per unit. The prototype BOM was at $1,350, so they had a $250 gap to close. Luna: And that $250 gap became the focus of all those value engineering workshops. Lucas: Exactly. Every workshop was about closing that gap. They tracked it on a whiteboard in the engineering room: 'Current gap: $250. After housing redesign: $200. After fastener change: $190.' It gave everyone a shared goal. Luna: Were there any parts they couldn't change? Like, some things have to be custom for regulatory or clinical reasons. Lucas: Absolutely. The infusion pump has to meet strict FDA standards for accuracy and safety. The flow sensor, for example, was a custom part that couldn't be substituted. But Carla's team identified that the sensor's connector could be standardized, saving $4 per unit. Small wins add up. Luna: So it's not about cutting corners on quality or compliance — it's about eliminating unnecessary complexity. Lucas: That's exactly the philosophy. Design for Procurement isn't about buying cheaper; it's about designing smarter. And the evidence from this case is compelling. I think any procurement team that's frustrated with being brought in too late should look at this model. Luna: What would be the first step for a buyer who wants to try this at their own company? Lucas: I'd say start small. Pick one product line or one subsystem that's early in the design phase. Build a simple should-cost model for a few key components. Then ask the lead engineer for a 15-minute meeting to review it. Don't come in telling them their design is wrong — come in with data and alternatives. Show them that you're trying to help them hit their cost target. Luna: And if the engineer says 'we've always done it this way'? Lucas: Then you pull out the cost table and show them what a different approach saves. But ideally, you get an executive sponsor early. Carla had the VP of engineering on her side, and that made all the difference. Luna: It's a good reminder that procurement is not just a back-office function. It can drive real innovation in product design. Lucas: Exactly. And that's the takeaway: when buyers get a seat at the design table, everyone wins — lower costs, better supply chains, and products that are actually buildable at scale.