Global manufacturers moving into local markets worldwide often face cultural challenges. IBM, for example, found negotiating cost-effective prices with its myriad local parts suppliers in China and Mexico especially challenging. For decades, the supplier used a home-grown cost-estimating system, but traded it in late last year for software that estimates costs based on local geography by using a mix of local labor rates, material costs, and other local factors.
The more precise a company's knowledge of costs and materials when negotiating with local suppliers, the easier it is to accurately estimate costs for the entire production process, says John Kagan, IBM manager of brand cost management. The system, by MTI Systems, is 50% to 80% faster than detailed, manual cost-estimating methods, and the company is saving tens of millions of dollars, he says.