Discussion Highlights: Competitive Advantage Through Purchasing
August 9, 2022 Executive Roundtable
The roundtable theme was achieving savings and improving supplier relationships during these challenging times. Roundtable participants shared their experience, followed by a short case study presentation on how one APD client is delivering cost savings while reducing buyer workload.
Highlights of the roundtable discussion are summarized below.
- CEO of an electronics contract manufacturer shared that they have closed two plants in China and now have 3 plants in the U.S. and 5 plants in Mexico. They have been able to pass material cost increases through to customers due to the nature of their business but is concerned about ramifications of rising prices on the other 30% of their costs. They commented that they have changed from moving material through ports of Los Angeles/Long Beach to Mexican ports, where they have found t be much faster with few problems, although the information flow is not as mature. They also shared that they haven’t been able to replace the Chinese supply chain and haven’t heard of any fabrication or electronics technology investment planned in Mexico.
- CEO of a supplier of high durability labels supplier for heavy duty trucks shared their primary cost reduction efforts have been moving their supply chain from Asia to Mexico for lower labor costs and buying in high volumes/lump sums. They noted that they have explored alternative suppliers but have found that pricing did not improve. They have successfully mitigated cost increases through a variety of activities including:
- Responding to suppliers price increase requests by requiring them to show evidence of increases in cost drivers
- Requiring 90-day notifications of price increases (using their largest customers’ requirements as justification)
- Ordering extra product as a hedge against increasing prices
- Monitoring commodity prices (e.g. resins, zinc, lead) and challenging suppliers on the size of their price increases
- CFO for a company that provides temporary seating for live events shared that freight and purchased goods have been their biggest challenges since business has returned from the pandemic. They have been able to keep their flat bed costs below market since 2021 by taking advantage of scale, maintaining good relationships with brokers, identifying cost savings on lanes (they have internal expertise because they operate their own fleet as well), and a disciplined focus on freight costs from the COO/CEO. They’ve found success recovering cost increases through temporary fuel surcharges to customers who won’t accept price increases on material costs. They’ve also been able to achieve 8-10% increases on contract renewals and are finding that customers are open to longer-term deals.
- President of an automotive electronics supplier shared that they are moving some operations to Mexico for reduced labor costs. While they are continuing to struggle to get chips for their products, they have benefited from:
- In one instance, were able to redesign a product to move from a chip with limited availability to one that is readily available
- While their customer pricing is locked in, they have been able to recover air freight costs from customers
- Some suppliers have been wiling to “share the pain” on increasing costs, including reducing non-recurring engineering fees or spreading them over the life of the program