Letting Suppliers Tip Their Cost Savings Hat

There's a new mini-series brewing over on Supply Excellence that covers a topic which unfortunately does not get enough airtime in many procurement circles. And that's the importance of working with -- and incenting -- suppliers to have them develop cost savings ideas. Far too many procurement organizations I've work with over the years have underemphasized the value that these types of supplier development initiatives can bring. But what are some concrete examples of savings? Supply Excellence suggests that supplier nominated efficiencies "can take a number of forms, from modifying service levels and delivery times to changing product specs and increasing total purchases from that supplier to create greater leverage. But the point is to tap your suppliers for their insights, creativity and expertise in a way that benefits both parties."

The post goes on to recommend transportation, MRO, temporary labor, packaging and office equipment as categories that are ideally suited to supplier nominated savings opportunities in this environment. But I'd argue that such initiatives are most likely best suited to the direct materials manufacturing environment (which is not to discount their impact elsewhere, mind you). I can recount dozens of examples I've heard about in recent years when direct material suppliers have been willing to come up with savings ideas and get more creative around cost savings when procurement organizations have initiated the discussion on the basis of their willing to be flexible and potentially even share in the benefits (examples include demand aggregation / buying groups, volume discounts, material substitutions, part/component substitutions (custom versus standard ranges), lead time flexibility based around on-shore/off-shore production, etc.)

But on a broader level, I'd also posit that "supplier nominated savings" should really be code for finding new and creative ways for working with suppliers on the basis of total cost take-out and potentially other cost/risk related initiatives rather than simply looking at unit cost savings. Such examples here include working with suppliers to reduce C02 footprints while simultaneously redesigning a part or component that saves money in the process. Light-weighting in packaging is also another great one here that plays to the two-sides of green way thinking. Regardless, let's hope that supplier-nominated savings opportunities, as Supply Excellence is calling the topic, continue to gain favor as a worthwhile investment of Spend Management time. After all, if it's not a win-win to save money and build better supplier relationships at the same time versus taking an adversarial approach to cost reduction, I'm not sure what is.

Jason Busch

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