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Monday, September 20, 2004
Antonio: Keeping a lid on expenses
By Kiko Antonio
Night manager
BUYERS. Working in tandem, buyers and suppliers can find better ways to cut costs and increase innovation.
There’s nary a company on earth that isn’t on a crusade to control costs, especially in the supply chain. For manufacturers, that means doing whatever it takes, year in and year out, to keep a lid on the prices of raw materials and component parts purchased from suppliers.
Facing such pressure, the paramount objective of the purchasing department of a typical manufacturer is to negotiate a price that is lower than the market-based benchmark for that commodity or part. This causes buyers to solicit bids from their suppliers for every new program, and then award the contract to the supplier—new or existing—that agrees to deliver the right part with the right specs at the lowest price.
To be sure, bidding out every program and aggressively negotiating prices drives down manufacturing costs.
Furthermore, the bidding process forces inefficient suppliers to understand why they lose bids and to make changes—or risk going out of business.
This system also naturally imposes some pressure on producers to improve process technologies, to implement lean manufacturing, and to make more parts in countries where production costs are low.
But in the end, purchasing executives concede that the prices they’re paying for parts and materials still are not as low as they’d like, and they still are not satisfied with other costs throughout their supply chains.
Executives struggle, in part, because when they concentrate on “piece part” prices, they overlook the substantially large potential costs generated by the constant oneupmanship inherent in the traditional bidding process.
Moreover, because buyers and suppliers are so intent on getting the price right, they don’t examine or sufficiently communicate with each other about such other significant sourcing and production variables as design, faster time to market, quality, and innovation, which are all crucial to supply-based competitiveness.
A few companies have moved away from single-transaction interactions with suppliers. The aim of these corporate buyers is for participants to jointly create competitive advantage from diverse sources—for themselves and for others.
Buyers strive to work closely with suppliers to attack inefficiencies and waste in the supply chain, to coordinate their business strategies, and to manage resources together for competitive advantage.
Efficiency and innovation in manufacturing are gained through such cooperative buyer-supplier strategies as collaborative product and process planning, integrated engineering and design, and other forms of cooperation that lower total costs, decrease time to market, and improve the quality of the entire supply base’s output.
(email: kiko_antonio@yahoo.com.)
(September 20, 2004 issue)
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