Supplier Cost Reduction Strategies: Building Strengths for a More Competitive Future

Supplier Cost Reduction Strategies: Building Strengths for a More Competitive Future

Within the last month, we have been introducing steps to cutting supplier costs in a three-part series. Maintaining that achieving greater affordability is the key to keeping up with supply chain demand and evolution, OEM buyers and manufacturers are most likely to develop a competitive edge by first gaining better insights into the supply chain and then improving negotiating skills.   

In the third and final part of the blog series, we expound on the Boston Consulting Group’s formula for acquiring key capabilities to deliver on the skills and tools previously learned.   

Putting It All Together  

Reducing costs through procurement is a good first step, but the problem is that many companies simply stop there, implementing one-off fixes without follow-through. Stopping so early in the process does not carry them through the process of cutting supplier costs.  

The Boston Consulting Group believes instead that companies should invest in analytical tools and build underlying key capabilities to make permanent changes.  

To better understand supply costs and improve negotiating tactics, you might focus on major spending areas: 

  • Complex electronics systems and software 
  • Commodities like raw materials, components, and basic parts 
  • IT, travel, freight, and contract labor 

By leveraging your new approaches and skills, you could potentially generate, for example, an average of 20% supplier cost reductions by starting in these areas. Then you could create a training program to roll out the new model to the entire organization, meanwhile applying incentives and check-ins to make sure the new protocol is sticking. 

Specific tools you may invest in should allow you to accurately track component costs and consider identify cost reductions earlier in the production process. You can also adopt best practices and identify typical cost leverage factors when purchasing future products and services that have different federal acquisition regulations.  

What Else Do You Need? 

The overarching point of this strategy is that procurement tools and new tactics are not enough. No real lasting changes will be implemented unless you develop internal capabilities within your procurement team.  

OEM buyers are so used to the usual dynamic with their suppliers that they don’t think to challenge the process. Buyers need support in developing strong resolutions regarding costs and understanding exactly why and how the supply costs change. Thanks to the Boston Consulting Group plan, we have a strategy.  

Being static is no longer working in the game. Top research recommends you improve at assessing performance, understand where you fall short, and take deliberate steps to improve, using the tools available for you in the current market. etaGLOBAL can also help point you in the direction of concrete tools and methods you can apply today to start challenging supplier costs. For more questions about constructing supplier cost reduction strategies, contact us today.