This article is One of the many articles still to come in which I will discuss very basic yet
proven techniques that you could use immediately in your encounters with your
suppliers.
Oh but wait, to find any value in this article, you must be a firm believer that Purchasing
strategies have evolved from just 1) focusing on price and 2) focusing on quality,
reliability, responsiveness and total cost to a much broader focus of building supplier
relationships.
Did you know that for each $1.00 you save in your “total cost of ownership” reduction
efforts, you will improve your bottom line profitability by $1.00? And did you also know
that most companies do not get this concept and continue focusing their resources in
all the wrong places?
Now is the time when I want to share with you 4 basic rules that have proven to work
and work very well to help you create the partnership relationship with your supplier
and allow them to equally benefit from the experience as well.
Rule #1: Getting direct cost savings is really a thing in the past. Getting savings has
become increasingly difficult to achieve as your suppliers face similar predicaments
themselves and operate with very little room in their margins to wiggle.
Rule #2: To affect your bottom line, using 80/20 rule, work on reasonable incentives to
approach your top 20 suppliers with and build a “preferred” supplier base.
Rule #3: Communicate to your suppliers on “how to” earn a “preferred” supplier status
and what is required of them to remain a “preferred” supplier.
Rule #4: Tell your suppliers what’s in it for them (WIIFT) as they partner with you and
build a “preferred” relationship.
To earn a “preferred” status means that your supplier will have the first shot to quote
on new business, parts and project. In fact you can go so far as to create “earn a
point” program every time you achieve your cost reduction goals using these
techniques as they apply to your business.
Supplier earns a previously agreed upon point(s) when:
1) Shared tooling costs or shared engineering costs on a project
2) Extended terms: 60 or 90 day billing terms for a period of One year
3) Certified as “ship to stock” on all supplied parts or assemblies for a period of
One year and remain compliant for every year thereafter
4) Ship zero defects for a period of One year and continue as such for every year
thereafter
5) Work with purchasing, manufacturing or engineering to add value
Working with your suppliers to explore these techniques not only presents
opportunities for you to reduce your “total cost of ownership” but also helps your
suppliers to review, improve and streamline their processes and grow internally to be
able to meet your expectations and earn that “preferred” supplier status.
Use this “total supply chain cost” model as your guide to isolate and focus on the
actual cost elements impacting your bottom line profitability.
Total supply chain cost=
Buying price=
+Supplier performance cost
+Cost of acquisition
+Out-of-sync planning
-Speculation returns
+Speculation cost
+Mfg. cost
+Selling cost
+Distribution cost
+Profit
=Selling price
Vera Haitayan, Principal Consultant of The Leadership Laboratory., a California-based
employee development and process improvement consulting firm and is the senior
editor of The Stepping Stone Newsletter featuring leadership and process improvement
best practices.
http://www.1leadershiplab.com
mailto: vera@1leadershiplab.com
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Cost reduction strategies
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Suppliers as Your Partners in
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