Vendors as Cost-Saving Partners
Have you taken the time to create a partnership with your vendors? The difference between a relationship and a partnership is important. They are not the enemy, and creating that partnership will benefit both parties.
Let’s look at the cost savings that a company can attain by forming a partnership with the vendor community.
In most cases, the savings are equal to, if not greater than, going offshore to save costs. Maintaining quality levels is also greater in this situation.
This process is something I’ve used many times, and it has borne fruit. It is simple and straightforward and revolves around visits by both parties to the plants and facilities involved.
One example of what I’ve described revolves around an incident where the company I worked for was presented with a 5% cost increase from a vendor with whom we were spending two million dollars annually. The increase would cost the company $100,000 which would go directly to lowering the bottom line.
I told the Sales Manager we could not accept the increase and asked what could be done to eliminate the increase.
The Sales Manager and I had a great relationship. Based on that, he went back to his company to see what could be done to eliminate the increase.
After three weeks the Sales Manager returned and told me he could offer my company a 3% cost decrease. I asked how this could be done and he told me that the company needed to increase the yardage on each roll of vinyl, which was the product we purchased from his company.
I mentioned that some of the lesser volume colors could not be purchased in the larger-sized rolls since the minimum yardage per order had to double as well. He agreed once I gave him the colors that needed to be maintained under the original guidelines of minimum purchase and the old roll length.
I told the Sales Manager that we didn’t have the equipment to handle the larger rolls which were four times the length of smaller rolls. The Sales Manager then told me the piece of equipment that could handle the rolls would cost $2500 and his company would pay for half of that cost.
An unforeseen benefit of the larger rolls was the efficiency of the cutting process which now allowed for 1000 yards to be cut at a time versus 500 yards under the old length rolls. Therefore, all the overtime required to have the vinyl sheets keeping up with production was eliminated. This was a win-win for both parties.
Working with the local supply base as partners can lead to cost savings and as in the case below making minor product changes that will not affect the quality of or the usage of the product involved.
One of the product lines for a company I worked for was a line of casters used for everything from small chairs to beds and came in different wheel sizes. In all cases, ball bearings were used to allow the casters to swivel easily. While visiting the vendor, I was able to watch the product being made for one of our orders and noticed that the ball bearings were being loaded into the product by hand. I was told by the owner this was still the most efficient way to load the bearings without an enormous investment in time and equipment to automate the process. I asked if there was an alternative material that would allow the casters to function as well as the present design since we sold the product to consumers, not a furniture company. He told me they could try a Teflon ring and see how that affected the functionality of the products.
The company then produced a universal ring that would work on 90% of the units we purchased and ran tests to see how the ring affected the function of the casters. The test proved there was not a noticeable effect on the functionality for the uses of the product under the conditions we believed most consumers would use them for. Therefore, the change to the product was made and with no cost to the company, an annual savings of more than $75,000 was realized.
The above are just two examples of major savings by working with vendors as partners and not the enemy.