In today’s Amazonian environment, it is quite clear that the customer’s experience is #1. It doesn’t matter what issues you have. If you cannot make sure that your product or service is delivered on-time with a value-add at a reasonable price, you will lose the business.
In talking with a group of aerospace CEOs who are being squeezed between the Tier 1/2 suppliers (those who supply Boeing and Airbus with plane ready parts) and their suppliers who are metals suppliers (mills/metals service centers) and outside processors, it is a tough position to hold! However, just as Mirna Elnar, CEO of Acrua Spas said in our supply chain resiliency video series, there is always a solution when you think innovation.
In this example, many of the suggested solutions from executives and procurement resources alike were to find opportunities to redesign/improve the product and process to achieve a “win” for the Tier 1/2 suppliers (improved manufacturability with better efficiencies and/or less scrap, less materials while maintaining specs/ performance, having the “right” inventory in the “right” place at the “right” time etc.) while also achieving a “win” for the CEO (better margins/ better cash flow) and ideally a “win” for their suppliers (more predictable demand, etc.). A win-win-win is achievable if you look hard enough.
A Dose of Reality
This relates to a situation I found myself in while VP of Operations & Supply Chain for a mid-market manufacturer. We found private-equity backers and were able to make cash flow by the “skin of our teeth”. We even were able to convince suppliers to take a haircut. So far, so good. Then, oil and gas prices rose which impacted 70% of our material cost which impacted 70% of overall cost. NOT good. Also, we found that our product lines were all mixed up (which ones cost less to produce vs. the sales price for various customer segments) because we had recently merged three companies into one. Also NOT good.
Our customers were a bit angry about service issues that arose when we cut over to a new system and merged the three businesses into one. Also NOT good. And the largest segment of the business hadn’t updated products in years because they planned to sell and were desperate need of an upgrade to grow sales. A fact but also NOT good. Lastly, our product is light but fluffy (which makes it larger in size) which carries a high transportation cost. NOT good either. But we had good suppliers and an innovative and committed team. GOOD! So, how did we turn this into a “win-win-win”?
We decided to kick off a redesign project to find a way to straighten out the product tiers, improve performance of the product, reduce the cost of the product and reduce the freight cost associated with the product to boot. A bit of a tall order? Yes, but a challenge as well!
We were successful in achieving ALL of these objectives by turning supplier negotiation on its head. Instead of demanding price concessions, we partnered, provided upfront information on our objectives (including cost reduction objectives), collaborated on the design of new/improved materials, redesigned products and packaging, collaborated with customers to make sure we aligned with their needs and priorities, collaborated with equipment suppliers to put it all together and turned supplier negotiation into customer collaboration.
The Result? We achieved a win for our customers, our business (and therefore our private-equity backers) as well as our suppliers. There are too many people to thank but a quick shout out to Bill Weber, Keith White and Rick Finlayson seems appropriate.
Are you stuck in thinking about cost concessions or are you looking for the “win-win-win”?