In an economy working to build consistent and predictable growth, there is uncertainty impacting all stakeholders within the supply chain. Just as your company is likely facing pressure to reduce Operating Expenses (“OpEx”), your suppliers are living in the same ecosystem with similar challenges putting pressure on their profits. When the supply chain is asked to do their part in reducing the company’s overall costs, the options are to be Reactionary or Strategic.
During challenging times, there is a tendency to go after suppliers. The question becomes, “What can I get my suppliers to do for me?” This approach is reactionary and is most common when a company does not have a supplier management program in place or the value proposition of the program is not clearly understood.
From the supplier’s perspective, reactionary requests, such as across the board price reductions are punitive. This approach puts the supplier on the defensive and could leave bigger savings opportunities on the table. Pressuring suppliers may generate savings, but will simultaneously undermine long-term relationships and savings will be short-lived.
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The alternative is to be strategic.
In today’s economy, suppliers know that they must be creative and responsive to their customer’s changing requirements and are often willing to adapt their current service and pricing models. A strategic partnership can yield savings well beyond the short-term reactionary reductions/cuts pushed down on suppliers. Suppliers are willing to think creatively and take on more operational and financial risk to build and sustain a healthy long-term partnership. By working with your suppliers and sharing your needs, you open the door for opportunities that enhance the long-term partnership and meet your immediate need for reduced OpEx spending. By way of example, step back and evaluate secondary services that your existing suppliers can provide.
Many times, companies spend time sourcing new suppliers to provide a service that their existing suppliers can perform, and are willing to bundle that service reducing overall total cost. This improves speed to implementing the solution, reduces administrative costs, and strengthens the partnership to drive sustainability and additional efficiencies over the life of the relationship.
Additional opportunities to leverage supplier resources can include:
- Augment staff with strategic supplier resources vs. traditional staff augmentation firms….many suppliers are seeing the strategic value to invest in “putting boots on the ground”
- Introduce and/or improve contract incentives to influence Supplier’s to place a higher priority on Continuous Improvement
- Engage suppliers to provide tactical back-office support functions
- Enable Suppliers to solve issues and problems
Do not hesitate to engage your suppliers early in the process and ask the hard questions. Avoid the tendency to keep suppliers at an arm’s length. Even if your company does not have a mature supplier management program in place, you will see great opportunities by opening up, sharing your pain points and demonstrating a desire to become partners in each other’s successes.