SCDigest
Editorial Staff
SCDigest Says: |
Bottom
line pressures can also drive a wedge
into more “collaborative”
relationships between buyers and suppliers,
as the need to cut costs in the short
term can, at least temporarily, overwhelm
the longer term view of the relationship.
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Most procurement
and sourcing professionals with tenure of
more than a few years have been here before
– a declining economy starts to pinch
the top line and therefore the bottom line,
and the first place that executives often
look to cut supply chain costs is the purchase
price of direct and indirect materials.
While there
are many strategies that companies can employ
to reduce supply chain costs, the handiest
target – and the one that can have
the most immediate impact - is often an
edict to cut the prices paid to vendors
for purchased goods and materials. That
strategy can work, especially if demand
is slacking in a particular category industry
wide – but there are challenges.
“I
have customers all of a sudden demanding
price decreases to help them cut costs,”
Aaron Jennings, an independent manufacturer’s
rep of industrial adhesives based in Ohio,
told Supply Chain Digest this week. “But
for my products, being oil-based, the bad
news is that prices are going up, not down.”
That’s
true in many other product categories, from
steel to corn syrup, that continue to be
impacted by commodity costs that are still
increasing in many categories even in the
face of slowing economic growth worldwide.
Bottom line
pressures can also drive a wedge into more
“collaborative” relationships
between buyers and suppliers, as the need
to cut costs in the short term can, at least
temporarily, overwhelm the longer term view
of the relationship.
That was
true for one procurement manager at an industrial
equipment manufacturer, who told SCDigest
that “Right now, it’s sort of
like “Forget about all that strategic
stuff.” We need to lower our costs
right now.”
Notes SCDigest
editor Dan Gilmore, “I think it’s
important that procurement managers have
a dialog with senior management when these
kinds of edicts come down, so they can explain
as appropriate some of the nuances of individual
goods and relationships. It’s also
critical to be very well informed on the
dynamics of specific product-markets in
terms of cost drivers and supply-demand
scenarios.”
(Sourcing
and Procurement Article - Continued Below)
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