Situation:  The independent variables driving total cost of supply were analyzed.  Two relatively small quantity specialty ingredients represented 40 % of the cost of the product and were critical to physical properties and quality of the product.   Facilitating a team of R&D, manufacturing, procurement, and supplier stakeholders, a study of the elements impacting the total cost of quality and supply for the product and the two high cost components was done.   Manufacturing insisted on small quantities of these materials since they were unstable and had short shelf lives that impacted product quality and therefore production scheduling.

Finding:  Both material specifications had been created by R&D without an understanding of the physical properties that impacted stability of the materials and their impact on the cost of production.   The supplier did not understand how these components were being used in producing the product.

Solution:  Having a common goal and shared knowledge, tapping resources in both companies, the product formulation was changed in a way that allowed the supplier to provide materials with stable shelf life and reduce costs of both materials by 50% with a resulting 20% reduction in the cost of the product.

Result:   This positioned it to be marketed for its superior performance characteristics while netting above average margins. Initial direct material savings were $250,000 and growing as the new product gained market share.