I was the Chief Purchasing Officer of a company when the economy tanked, and the CEO told his senior staff of the requirement to cut headcount by a significant amount. Inside my head, I rejected the directive:  How could my team manage the supply chain disruption of a major recession, deliver our strategic plan, and reduce our headcount?   Outwardly, I raised no objections because those who did were facing stiff opposition. Instead, I waited and put a plan together detailing the actions … [Read more...]

This blog is the third of a three-part blog series designed as follows: How cost models help companies succeed The types of cost models buyers of manufactured products use. How buyers can use cost models effectively Earlier this year, we surveyed over 30 sales and marketing professionals and CEOs at automotive suppliers to understand which types of cost models their customers were using and how they are using them. Their insights, added to our experience, provide interesting … [Read more...]

This blog is the second of a three-part blog series designed as follows: How cost models help companies succeed The types of cost models buyers of manufactured products use How buyers can use cost models effectively We see four types of cost models being used by buyers today: Open book cost modeling Knowledge-based modeling Hyper-optimized cost modeling Attribute-based cost modeling Open Book Cost Modeling Open book cost modeling utilizes information provided by … [Read more...]

This blog is the first of a three-part blog series which will discuss: How cost models help companies succeed What types of cost models do buyers of manufactured products use How buyers can use cost models effectively Cost models provide buyers with valuable benchmarks to validate supplier pricing. Used effectively, they help drive optimal design, reduce the time required to bring products to market and help companies succeed. When it comes to understanding supplier cost … [Read more...]

100% of the CEO’s we surveyed want purchasing to deliver value, only 58% think value is being delivered. When we look at the metrics used to measure performance we often find: Purchasing is measured on price reductions alone, not on value provided Purchasing alone has ownership of the cost/value goal Metrics are short term/current year focused Price vs. Value Our experience indicates that Chief Purchasing Officers are measured on purchase order price reductions. We rarely … [Read more...]

When writing about cost breakdowns, famed negotiation trainer Chester Karrass opined “Buyers should always ask for detailed cost breakdowns and suppliers should always refuse to provide them”. Buyers often win this first battle of the cost breakdown war through the use of carrots and sticks; carrots being incentives like new business awards or preferred supplier status and sticks being punishment that your quotation will not be accepted without them. However, that is just the first battle … [Read more...]

Experience has taught us that buyers who understand should-be costs achieve prices that are 8-18% lower than buyers who do not. One practice employed by buyers is the use of cost breakdowns. Buyers who achieve the best results from breakdowns employ the following: Utilize commodity specific cost breakdowns - Trying to use one format that incorporates the needs of many commodities often results in a breakdown that is too complicated and unlikely to provide useful data from suppliers. … [Read more...]

Customers who have engaged us to develop should-be cost models usually do so for one of two reasons: To validate quotes being provided by suppliers. To estimate pricing without sending out Request for Quotations to their suppliers. Good should-be cost models fulfill both objectives enabling buyers to buy at prices 5-11% lower than buyers who do not have cost models. Should-be cost models can provide additional benefits: Knowledge – Improved knowledge within the buying … [Read more...]

As the economy starts to slow purchasing leaders are telling us that they are under increasing pressure to increase cost savings efforts and results.  A commodity-by-commodity review of company spend can often turn up untapped, easily implementable savings.  To start, take the time to write down the questions you should be asking about each commodity in your spend that will help you identify which commodities have a savings potential.  For example: Here are some of the questions we ask … [Read more...]