March 24, 2022 Strategic Cost Reduction Roundtable
This small group online roundtable included Purchasing leaders from mid- to large-size manufacturers. The roundtable theme was adapting purchasing strategies to recent global shocks (Covid, supply chain disruptions, inflation, war in Ukraine). Highlights of the roundtable discussion are summarized below.
- Vice President of Purchasing/Supplier Development at an electric vehicle manufacturer shared:
- They are working to understand the supply chains of their Tier 1 suppliers and how their Tier 1’s view them as a customer (strategic vs. transactional)
- They have gotten executive buy-in to prioritize supply continuity over costs
- They’ve found that supplier sales teams are not always empowered to resolve supply and cost issues – they pull executives in to “get the right people in the room” and create an executive -to-executive discussion.
- There’s more risk in supply chains more frequently, and company executives should consider the “insurance” aspect of accepting less than optimal cost and cash terms
- Supply Chain Director at a fiber optics electronics manufacturer shared that they are concerned about supplies of aluminum, nickel, and neon gas for semi-conductors due to capacities in Russia and Ukraine becoming unavailable. In addition, they worry that air-expedited freight from China is going to be backlogged due to regional Covid-19 shutdowns. They shared:
- Buyers are being instructed to forward-buy 6 months ahead and land all materials 6 weeks earlier than MRP due dates
- They are holding monthly update meetings with 20 key suppliers to review 12-month rolling forecasts and 6-month looks (with 3-month guarantees)
- They hold weekly pone calls with all Asian suppliers on master schedule attainment
- Director of Strategic Sourcing for a manufacturer of energy transport control panels shared that they expect steel pricing and availability will become even more volatile as distributors can no longer hedge their sales prices. They shared:
- They provide the sales team with current supplier lead times so they don’t overpromise to customers based on manufacturing lead times
- They’ve found that expediting is no longer possible, shelves are empty for many of the things they buy
- Customers are sometimes flexible on alternative materials – but it’s often not possible
- They are counseling company leadership that they may have to pay more to keep plants running – a choice must be made between achieving best margins or ensuring manufacturing continuity
- Director of Procurement for a propane supplier shared that they are participating in customer calls to help the sales team increase pricing. They shared:
- They focus on informing leadership earlier about bad news
- They are training their team on Commodity Leadership
- They have increased subscriptions to research services and are summarizing for company leadership
- They are holding weekly calls with critical suppliers and involving VPs from other functions (Operations or Technology)
- In a previous company, they held a monthly Sales and Inventory Operational Planning Meeting to get all the VPs in a room and make decisions (collecting data from all the different functions in advance)