A great procurement manager lives and dies by the cost savings they achieve. This can be a huge challenge with many global market factors influencing a manager’s ability to achieve cost reduction goals.
Here are 5 simple strategies to get your OEM to reduce your cost:
- Know Your Inputs and Their Markets. If you are purchasing a finished good in which there is a significant cost associated with plastic, be aware of the price of the raw material in your market. Use that information to push your OEM to reduce costs. If the cost of the OEM’s raw materials are going down, your cost can go down as well.
- Push Your OEM For Information - Get a cost breakdown that shows all of the components of your product, labor, overhead, raw materials, etc. from your OEM. Know their margins. You want your OEM to be financially healthy, but not taking advantage of you. Visit your OEM and suggest process improvements that cut out time from their processes. Get quotes for the products that they buy and verify they are getting the best deal. Ask for the money you find in their supply chain.
- Volume Pricing - If you aren’t already pushing to lower costs as your forecasted and purchased volumes increase, you have a big opportunity to improve your cost. You may be able to take on some small risk in raw materials to help the OEM secure better component costs from their suppliers - these savings can be yours.
- Shop Around - Get quotes from as many competitors as you can. Drive your OEM to match those quotes. You must be sensitive to your relationship, but when used properly, this can be a strong tool.
- Ask For a Specific Cost Reduction - This may seem too simple, but it works. Years ago I sent letters to our OEM partners announcing the acquisition of the company for which I worked. In the letter, I explained that the new owners expected a reduction in cost of 10% and I asked for that in the letter. While it wasn’t universally accepted, I did achieve some significant reductions in cost with some of our partners. All it took was an official-looking communication and the nerve to ask.
There are many strategies for finding cost reductions. Do not be afraid to get into the vertical supply chain of your OEM Partners and push them to operate better. You are unlikely to see any cost reductions if you are not informed and persistent.
Happy Hunting!