W. Edwards Deming once said, “End the practice of awarding business on the basis of a price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust."
These are some of the wisest words I have heard regarding suppliers in a manufacturing environment.
We all know consumers want to save money. So, a common practice is to cut costs by pushing suppliers to reduce pricing of their components, materials, and services. This model has been around for a while as the standard manufacturing procurement model.
There is nothing wrong with renegotiating costs with your suppliers. However, if you push for too many price breaks, they might start to cut corners. Quality, on-time delivery, and customer service might suffer, so the supplier can meet your requested lower price. Is that what you really want?
Developing partnerships with your suppliers can be a key strategy to help them reduce costs without making sacrifices.
Here are some simple ways to build relationships with your suppliers that are based on more than price.
- Early involvement. Involving suppliers at the beginning of product design allows them to develop their manufacturing process as the product takes shape. By bringing their expertise—as well as any potential limitations—to the table early, there is greater opportunity to eliminate potential roadblocks or sidestep capacity and process development issues, which can result in quicker product roll-out, giving you a potential increase in market share for the new product and helping to develop a better cost model for the supplier.
- Communication. Sharing quantity forecasting, product roll-out, and timelines with your suppliers will allow them to plan and be in sync with your needs and operation. By keeping them in the loop, they can run their operation and scale to volume easier, reducing set-up costs and increasing efficiency.
- Buying power and discounts. Offering your buying power and discounts to your suppliers allows them to get high-volume price breaks for components and materials, reducing their raw material costs. At the same time, it can increase your total volume buys, which might give you additional cost reductions from your raw material suppliers, lowering your overall material costs.
- Training. If you use lean manufacturing techniques or other cost-saving tools, include your suppliers in the roll-out, invite them for training, or pay for training at their facility. Training your suppliers on the same skills and techniques you are using allows them to be more closely aligned with your strategies, which will help you to be culture and process compatible, driving positive gains for both companies.
- Equipment. If you have equipment you no longer need, offer it to your suppliers for purchase. Purchasing your used equipment could reduce their operational costs as well as their debt load.
On the other hand, if you treat a supplier as a commodity, they will not feel like a partner and may be more reluctant to pass cost savings onto you. Remember, time is valuable, and your procurement people should be working to improve the supply chain, not tying themselves up with time-consuming price negotiations. They might be able to shave a few pennies off the part by applying pressure, but if you have an open and sharing relationship with the supplier, they may come to you with cost savings.
You rely on your suppliers, so why not make it a partnership instead of a pricing game?