Purchasing leaders and C-suite executives recently gathered to discuss what’s working and not working in the pursuit of cost savings in the current economic environment. A dozen leaders from manufacturing companies from a variety of industries recently shared their insights over two online executive roundtables. Below is a synopsis of some of the topics shared shared.
- President, Americas Region for an automotive safety systems supplier shared that they are finding that sourcing from China is more of a challenge because of tariffs as well as customer push back re: supply chain exposure. They are asking key Chinese suppliers to establish manufacturing in Mexico. They are also adopting a China + 1 sourcing strategy to increase leverage with suppliers, increasing suppliers in SE Asia (mentioned Thailand and Indonesia), where a supply base has been developed by Japanese customers.
- Director of Strategic Procurement for a Lithium mining and refining company shared that they have had success leveraging overcapacity of BPA in China. Historically, China has been an importer of BPA but has been rapidly building capacity to the point that they are projecting Chinese BPA capacity will be at 50% through 2029. They have improved their knowledge of cost structures, consolidated their buy, and bypassed brokers to achieve costs savings of 50-60% buying BPA from other Asian countries.
- Global VP of Procurement for an automotive exterior component supplier shared that they buy proprietary blended materials from chemical manufacturers who will not share their formulas, and therefore do not have full transparency on costs. They have benefited from strong supplier relationships, having gained agreement from them in times of rising prices to lower prices as input costs decreased. They asked for suppliers to justify the price increases, and now are tracking the materials used against indices to prompt cost reductions. They also shared that are implementing index-based pricing agreements with their largest resins suppliers and cautioned this does not happen quickly. They also shared that they are working with sales to align material cost drivers with their customer agreements.
- Director of Global Procurement for a medical device manufacturer shared that while they aren’t able to get much cost transparency with suppliers, they have been able to get lower supplier pricing as input costs have decreased. They mentioned that they are able to do some should-costing to help with this.
- Vice President of Global Supply Chain for an automotive casting and machining supplier shared that their spend is dominated by raw materials, and they are working to get as much on contract as possible, with language that protects their ability to pursue cost downs. Their major effort to reduced costs has been consolidating spend after a major acquisition. This includes indirect spend, where they are identifying categories that can be consolidated regionally or globally, including chemicals, gases, MRO, and casting suppliers. They also have entered into 3-way agreements with customers and suppliers to pass supplier material surcharges to customers.
- CEO of a specialty vehicle engineering and manufacturing company shared that They are challenging their engineering team to design more efficient components, optimizing for cost.
- Procurement Director for a dietary supplements manufacturer shared that they have long term partnerships with key suppliers, mainly distributors of Chinese ingredients. Their focus is on redesigning products to deliver more value to customers while improving margins. They have found that price negotiations with specialty ingredients suppliers who provide branded products have not been successful.
- Global Director of Supply Chain for an automotive braking and suspension supplier reported successful cost savings through negotiations with Chinese suppliers. They are also working on Value Analysis/Value Engineering (VAVE) efforts with North American suppliers. In the case of European suppliers, they are mainly focusing on cost savings driven by index-driven materials price changes. Additionally, they’ve negotiated reduced costs on inbound freight by capitalizing on fuel economies.
- Director of Strategic Sourcing for an electric control panels manufacturer shared that while supplier capacities are back to pre-covid levels, demand is 3-5X due to electrical grid improvement projects, and they are still seeing price increases from suppliers. They have index-based pricing agreements on raw materials and are seeing some cost reductions.
- Group COO for an automotive exhaust supplier shared that they are working on a variety of initiatives other than cost reductions, including:
- Improving supplier payment terms from Net 45 to Net 60
- Optimizing stock in warehouses
- Standardizing on components that are more cost effective
- Localizing manufacturing to be closer to their customers
- Setting up consignment stock for PGM
- President of an automotive electronics accessories suppliers shared that they are shifting their focus back to Total Cost of Ownership after dealing with low-cost suppliers who couldn’t meet their quality and reliability requirements. They are in the final steps of moving their manufacturing from Florida to Mexico due to 50% labor cost savings. They are also collaborating with a supplier building a plant in Taiwan to avoid tariffs on Chinese imports while maintaining proximity to strategic chip suppliers.
- VP Purchasing for an automotive sunroof supplier is consolidating their direct materials spend with supportive suppliers who helped during supply shortages. They are achieving significant reductions in freight costs and leveraging volumes through consolidated indirect purchases. They have also finding that some commodities, such as injection moldings and assembly equipment, are more cost-effective to source from China, even with tariffs.
In conclusion, this peer roundtable brought to the forefront a myriad of strategies and approaches that global businesses are employing to navigate the intricate maze of procurement and supply chain challenges. These discussions not only shed light on industry best practices but also underscore the value of collaborative learning and knowledge sharing among peers.
Read more discussion highlights from APD executive roundtables. Recent topics include Clawing Back Price Increases, Finding Mexican Suppliers, and 2023 Purchasing Priorities.