Tag Archive: cost reduction

The Resilient Supply Chain: Does Supplier Negotiation Work?

October 29th, 2018

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.  

The Squeeze
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.

The Win-Win
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”?



Manufacturing is on the Rise

February 6th, 2017

There is an air of excitement about the future in manufacturing! Last week, I talked with several executives of manufacturing companies and the next day I was the chair of the innovation awards at the Manufacturing Council of the Inland Empire (MCIE) Manufacturers’ Summit, and it is clear that profitable growth is in the air. Of course, it will not occur unless we focus on the customer, innovation and our people ….to name a few priorities. What are you focused on?

Lisa speaks at MCIE

One tip to implement this week:

Just because many manufacturers are seeing a positive outlook to the future doesn’t mean it will turn into a reality unless we back up the talk with action. The speaker at last night’s executive roundtable was amazingly organized and structured about continuous improvement and cost reduction strategies which have been ultra successful year after year in delivering bottom line results; however, he freely admits that it didn’t start out that way. Start with what you have and improve on it over time.

He said one of the keys to success was to involve and ask the people for improvement ideas. You can certainly gather a small group of colleagues over lunch and ask for ideas. If they think you are serious, they just might give you a few. Write them down. Stop worrying about variance tracking which can spiral into a lot of nonsense that doesn’t tell you whether you are truly improving. Instead, track reality and trend it over time. Go see it. No matter how unimaginative you think you are, keep pressing forward, be curious and ideas will start to emerge.

Looking for more ideas to keep your supply chain connected? Access more tips and resources on my blog. And keep connected by subscribing to my newsletter and email feed of “I’ve Been Thinking…”

 



Strategies to Reduce Operational Cost without Capital Investment

February 12th, 2015
reduce operational costs

Focus on operational cost reduction strategies to continue growing efficiently while also giving yourself pricing wiggle room.

As businesses look to find ways to grow profitably and build efficiencies into the process upfront, maintaining low operational costs remains paramount.  It also provides pricing flexibility as you are able to reduce your breakeven point for covering costs. A few strategies to consider include:

1. Reduce waste – sounds obvious but often requires significant focus. Focus demands priority. Dictating priority doesn’t last long; instead, it must be a priority backed with support when “the going gets rough”.  Reducing waste reduces raw material cost – if raw materials are a significant portion of your business cost, consider prioritizing. If they aren’t, ignore this item!

2. Improve operational efficiency – find a way to resolve roadblocks, analyze root causes and improve your throughput. Improving operational efficiency frees up capacity for growth. You might be able to free up crews/people that can be re-focused on other, value-added activities that will increase profitability and support business growth.

3. Minimize machine breakdowns – it is obvious that minimizing machine breakdowns will improve operational efficiency. In addition, it typically also reduces waste because lining out the machine when starting back up uses extra materials. A healthy focus on preventative maintenance combined with operator training programs typically does the trick.

4. Reduce inventory levels – although the main benefit of lower inventory levels is increased cash flow, it also can reduce operational cost. For example, if there is less inventory on hand, it is typically quicker and requires less people to cycle count, pull inventory, etc. It also can reduce costs significantly if your company is at the breakeven point in terms of warehouse space.

5. Continuous improvement – don’t forget to ask your employees for ideas! In my experience, employees are able to generate significant ideas to save operational cost when asked. Be genuinely interested and you’ll be amazed with the results.

Continue reading on how to be the Strongest Link in your organization:

Quality Tips for Manufacturers

Inventory Velocity