Suppliers as Your Partners in Cost Reduction

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

---

Power Pricing - Getting the Right Price for Your Products and Services

There's an old joke about the New York City blackout.... Read More

How to Negotiate Effectively

You may be thinking, "Gary, I am a mom, housewife,... Read More

Writing an RFP (Request for Proposal)

A while back, a potential client provided me... Read More

Negotiations: The Art, Science, & Sport of Online Deals

Negotiations can seem as complex as physics, and in fact,... Read More

Do You Want a Paycheck or a Passion? 10 Qualities Managers are Looking for in Hiring You

Based upon my research of over 300 managers in the... Read More

Negotiation: A Compromising Position

Negotiating is a hot topic these days for a good... Read More

Guidelines for Ambassador Appointments

Ambassadors to other countries are a vital part of international... Read More

Negotiate Your Way to a Better Salary

1. Be persuasive: It's hard to force your boss to... Read More

Cross Cultural Negotiations

Cross cultural negotiation is one of many specialized areas within... Read More

Business: Keys To Negotiating Well

Whether it's buying a car, asking for a pay rise,... Read More

The Most Powerful Persuasion Skill Youll Ever Learn

Criteria ElicitationThis is without a doubt the most important persuasion... Read More

Managing Conflict, in Life & Work: Using Ancient and Modern Approaches

"Conflict" is a word that can have varying degrees of... Read More

National and Cultural Negotiation Style

Cultural and national negotiation styles reflect communication behaviors and the... Read More

Avoiding and Accomodating in Negotiation

The avoiding approach to negotiating is characterized by losing, leaving,... Read More

The Six Rs for Changing MInds and Overcoming Resistance

This article borrows from Howard Gardner's book, "Changing Minds" (2004).... Read More

Dont Be Afraid Of Silence

In any conversation with two or more people, there is... Read More

How Barter Can Help Your Business Online or Offline

How Barter Can Help Your BusinessBarter trade is a powerful... Read More

Just Ask!

Ask and you shall receive & knock and it shall... Read More

How To Deal With A Complainer

How To Deal With A ComplainerA Complainer Is Characterized by:1.... Read More

Four Ways To Work Out Business Disputes

Business owners have four options to resolve disputes with partners,... Read More

Can a Service Be a Commodity

Well Enron dealt with this a little for instance an... Read More

Negotiating: Forcing vs Compromising

Forcing is a hard-nosed approach that makes heavy demands from... Read More

The Ultimate Truth in Persuasion

OK, so you want to improve your persuasion power right?Why?... Read More

Where to FIND the BEST Employees --

Obviously, you might logically say, "that is good!" You would... Read More

Barter and Its Benefits

What is Barter? Barter involves 2 parties. Each party wants... Read More

Secrets of the Trade Revealed: Bartering for Business

In its simplest form, bartering involves an equal trade. One... Read More

Barter: Its Not Just for Doctors Anymore

Time was, in the country, the local "doc" was as... Read More

Resolve Conflict In 6 Easy Steps - The BEDROL Method

The principles of Negotiation can work for you in any... Read More

7 Tips for Bartering Products and Services

What better way to gain a new customer than by... Read More

Suppliers as Your Partners in Cost Reduction

This article is one of the many articles still to... Read More

What Are The Four Types Of Negotiating Outcomes?

Negotiating outcomes are the types of results that can happen... Read More

Making the Deal: Women as Negotiators

Negotiating is no game. It is not for the weak... Read More

Ask for More - You May Get More

If you are involved with sales, how do you feel... Read More