How often do you as a procurement or purchasing manager receive price increase demand from suppliers?
Receiving such demand is not unusual as a buyer as this is the norm rather then any sign of abnormality. How do you handle this situation?
Actually, your sucess in procuring proactive supplier which understand the trade and able to work closely with your organization will make this issue less of a stress. The sucess of this action will actually help you to a certain extent where this paticular supplier will tend to listen to your woes and needs for justification by them before any increase can be accepted.(refer to my previous blog on cost saving strategy)
However, you may also or rather you will normally received request from suppliers who just need to capture thier own respective profit margin and this demand for increase can be very harsh and hard on your organization and yourself. How do you handle this situation?
There could be a number of options available to you. Analyse a number of potential advantage and disadvantage to your organization.
a) Analyse if your organization is stronger in term of trading value to this supplier. If you are, your chances of slashing the increase or stopping the increase is higher as the supplier will not want to lose a good and loyal account provided the cost impact is minimum to the supplier.
b) If your organization is not a key customer to this supplier,then it is good to plan quickly and use the following strategies:-
(I) Delaying strategy by asking for cooling period of a few weeks to few months and use this period to source other suppliers to compare prices and quality of the material
(ii) Enter into a negotiation to reduce the impact. Example a 10% request can be slash to 5 - 7% for example
(iii) Review material use at present and check for substitute material with same supplier or other suppliers and this can be quite threatening to the supplier itself
There are a number of other potential strategies to be consider as well and you may review this as a team project internally for brainstorming session before engaging the supplier itself with one singular strategy.
To ensure that there is proper rule of engagement, it will be very tactical to have procedure and rules in place and introduce and implement to all suppliers which include procedure on price increase or decrease and this rule of engagement will benefit your organization as a customer.
Friday, 13 May 2011
Wednesday, 11 May 2011
Cost saving strategies
One of my favourites strategy with suppliers on cost saving is to find proactive suppliers who knew what need to be done to ensure a win-win formula instead of just passing cost increase to thier customers.
Method of indentifying such supplier is not very difficult but need careful analysis and key pointer would be as following:-
a) when discussing business opportunity, throw to them issues on price trend and how they could help and by thier answers, we can gauge thier attitude toward such matter. a proactive supplier which will assist thier customer to overcome issue on price increase is to counterpropose solution on design or alternative materials which can be considered for the material supplies.
b) have a R n D department and has work closely with customers on projects. such companies will have a open minded concept and good knowledge on overcoming this issue
c) a efficient control system in place in term of thier own procurement excercises, production and quality control. such supplier more often then not control thier cost very well to ensure optimisation of cost and these will be the supplier to look for.
Normally during audit and pre business development checks via discussion, one of your aim should be catered to these pointers before making a decision.
I will try to share more of my own experiences via practical approach to cost saving solutions.
Method of indentifying such supplier is not very difficult but need careful analysis and key pointer would be as following:-
a) when discussing business opportunity, throw to them issues on price trend and how they could help and by thier answers, we can gauge thier attitude toward such matter. a proactive supplier which will assist thier customer to overcome issue on price increase is to counterpropose solution on design or alternative materials which can be considered for the material supplies.
b) have a R n D department and has work closely with customers on projects. such companies will have a open minded concept and good knowledge on overcoming this issue
c) a efficient control system in place in term of thier own procurement excercises, production and quality control. such supplier more often then not control thier cost very well to ensure optimisation of cost and these will be the supplier to look for.
Normally during audit and pre business development checks via discussion, one of your aim should be catered to these pointers before making a decision.
I will try to share more of my own experiences via practical approach to cost saving solutions.
Monday, 9 May 2011
Top 10 Nightmare in Supply Chain Management
I will ranked the nightmare of a procurement / purchasing / material planner as following:-
No 10 - Forecast by customer less then 10% accurate in term of order not coming in as plan
No 9 - High stockpile with no order as plan which mean that high investment of stock with no short term return of investment
No 8 - Price increase which affect budget on material
No 7 - Material pilferages in warehouse due to poor recording, this will create other worst nightmare to follow
No 6 - Change of plan by manufacturing without sufficient notice which may create shortfall in supply on time to meet the demand
No 5 - Suppliers not able to deliver on time
No 4 - Low yield by manufacturing compare to budget creating production shortfall and need to rearrange more material
No 3 - High customer orders compare to forecast which create material shortages and not able to meet requirement to supply on time
No 2 - Suppliers deliver substandard material which create cost to manufacturing and elsewhere
No 1 - No material to fulfil order causing late shipment
No 10 - Forecast by customer less then 10% accurate in term of order not coming in as plan
No 9 - High stockpile with no order as plan which mean that high investment of stock with no short term return of investment
No 8 - Price increase which affect budget on material
No 7 - Material pilferages in warehouse due to poor recording, this will create other worst nightmare to follow
No 6 - Change of plan by manufacturing without sufficient notice which may create shortfall in supply on time to meet the demand
No 5 - Suppliers not able to deliver on time
No 4 - Low yield by manufacturing compare to budget creating production shortfall and need to rearrange more material
No 3 - High customer orders compare to forecast which create material shortages and not able to meet requirement to supply on time
No 2 - Suppliers deliver substandard material which create cost to manufacturing and elsewhere
No 1 - No material to fulfil order causing late shipment
Sunday, 8 May 2011
Challenges facing procurement professional
I was starting my new job 8years ago and i remember very well at that period, the oil prices was moving upward toward USD50.00 per barrel and everyone was so pessimistic and worry about the future. Now the oil price is >USD100.00 and everyone (at least most of us) are still around and surviving!
As a purchasing manager at that period, i was worry what will the increasing cost of purchased material will do to the bottom line of my employer bottom line. Well, eight years has passed by and the challenges is getting and will be getting more challenging.
These past one year, the impact are much more worsen than previous years as the oil prices is increasing but not only due to the scarcity of supply due to political crisis in the countries concern, but due to the weakening of the USD creating a inflated prices to match the depreciation of the currency against major trading countries currency. The currency situation also directly impacted all the commodities as USD are and still will be a major currency preferred by countries trading with one another.
And if you are working for a organization that rely on the US for your market, then the situation will be much worst due to the economic situation there and a weaken currency is much to the advantage to the US for trading of goods and services. This is due to the Halo effect and buyers from the US will try not to acknowledge the reason for increasing the prices and there is many other companies willing to sell thier product to them.
Thus, as a procurement manager, your job will be more stressfull unfortunately as everyone in the organization will be looking at your position to ensure that the material cost are within the budget and if the prices are "out of this world" then you will need to explain for this situation and start looking for cheaper replacement material.
One example i can relate to this recently, the suppliers of corrugated carton boxes decided to increase the prices due to higher imported prices of Kraft paper and the impact was in the 6 figures to the company bottom line. Supplier has all the backup details for this increase and it is as genuine as a innocent baby crying for milk. To accept this increase meant that we have to increase the selling prices of our product but this at a risk of the buyers looking to review your supply base.
It is very normal for procurement professional to review thier supply base when there is a price increase coz it is (a) part of the job requirement and (b) they are the defender of the organization costing structure.
I then decided to review the supply base of the suppliers and also decided that we should look for alternative material which is available.
That will save the day for the organization. But happen when there is no alternative?
Well, if there is no alternative, the procurement professional has to convince the organization that the price are genuine and prove this by making more alternative sourcing elsewhere. Never two companies will offer exactly the same price for similiar material and that where this is extremely important. If the current price is the the most competitive, then you have done a job you suppose to do it in the first place.
We can always review and study companies financial reportings and one of the reason a company achieve higher turnover but reduce margin or even losses is due higher cost of operation and these include a big bulk of raw material cost.
Thus, handling price increase is one sensitive area facing procurement professional everywhere around the world and especially if you are based in a country where the economy rely on cheaper product exporting to developing countries.
This is a highly stressful occupation during this time and every consumers need to remember when making purchases on the invisible professional making sure thier organization stay in business by making sure the price is of fair value to the organization and everyready to go to battle to ensure the bottom line stay healthy.
As a purchasing manager at that period, i was worry what will the increasing cost of purchased material will do to the bottom line of my employer bottom line. Well, eight years has passed by and the challenges is getting and will be getting more challenging.
These past one year, the impact are much more worsen than previous years as the oil prices is increasing but not only due to the scarcity of supply due to political crisis in the countries concern, but due to the weakening of the USD creating a inflated prices to match the depreciation of the currency against major trading countries currency. The currency situation also directly impacted all the commodities as USD are and still will be a major currency preferred by countries trading with one another.
And if you are working for a organization that rely on the US for your market, then the situation will be much worst due to the economic situation there and a weaken currency is much to the advantage to the US for trading of goods and services. This is due to the Halo effect and buyers from the US will try not to acknowledge the reason for increasing the prices and there is many other companies willing to sell thier product to them.
Thus, as a procurement manager, your job will be more stressfull unfortunately as everyone in the organization will be looking at your position to ensure that the material cost are within the budget and if the prices are "out of this world" then you will need to explain for this situation and start looking for cheaper replacement material.
One example i can relate to this recently, the suppliers of corrugated carton boxes decided to increase the prices due to higher imported prices of Kraft paper and the impact was in the 6 figures to the company bottom line. Supplier has all the backup details for this increase and it is as genuine as a innocent baby crying for milk. To accept this increase meant that we have to increase the selling prices of our product but this at a risk of the buyers looking to review your supply base.
It is very normal for procurement professional to review thier supply base when there is a price increase coz it is (a) part of the job requirement and (b) they are the defender of the organization costing structure.
I then decided to review the supply base of the suppliers and also decided that we should look for alternative material which is available.
That will save the day for the organization. But happen when there is no alternative?
Well, if there is no alternative, the procurement professional has to convince the organization that the price are genuine and prove this by making more alternative sourcing elsewhere. Never two companies will offer exactly the same price for similiar material and that where this is extremely important. If the current price is the the most competitive, then you have done a job you suppose to do it in the first place.
We can always review and study companies financial reportings and one of the reason a company achieve higher turnover but reduce margin or even losses is due higher cost of operation and these include a big bulk of raw material cost.
Thus, handling price increase is one sensitive area facing procurement professional everywhere around the world and especially if you are based in a country where the economy rely on cheaper product exporting to developing countries.
This is a highly stressful occupation during this time and every consumers need to remember when making purchases on the invisible professional making sure thier organization stay in business by making sure the price is of fair value to the organization and everyready to go to battle to ensure the bottom line stay healthy.
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