COST REDUCTION IN MATURE MARKETS

How can you further reduce costs in mature markets where the margin by suppliers is already lowered, or very low?

Apart from doing trainings by Santin Consulting, I am responsible for the purchasing team of plastic parts in my company, a market where average margin is already low. Regardless, we reduce prices further every year. But how do we manage this?

One easy way is to push the suppliers below the limit. I don’t recommend this at all because while it could work in the short term, this is obviously not a long-term solution. Insolvencies by suppliers will follow, creating additional cost and risk for our company.

The other (better) way is how we work, and exactly what we explain during our trainings:

With a systematic approach to bring transparency in prices, target calculations to define the GAPs and priorities, optimization of processes and specialization of suppliers, analyzation of the market and potential suppliers, we can define the right strategy to create competition and to negotiate based on facts and potential improvements.

So once the competition is there (and for that we need the right strategy), the key point during negotiation is not to push suppliers to reduce the already low margin, but to optimize the shares (budling), technologies and processes (VSM) and overheads according to what we really need (nobody is the best for everything) eliminating all non-added-value processes.

It is not easy, but always possible with the right approach and excellent purchasers on board.