Supplier Collaboration Lowers Costs

Dec. 16, 2006
Manufacturers tap suppliers' expertise to lower packaging and raw materials costs.

The best way to run a manufacturing company is to extract knowledge from every corner of the business. C-level executives tap managers' knowledge to help them be first to market. Managers tap factory floor employees for help in streamlining production. It is only natural that suppliers are pulled into the mix as well.

According to a recent study by Best Practices LLC, a Chapel Hill, N.C.-based research and consulting firm, leveraging supplier relationships is one of the most important ways to increase raw and packaging material productivity.

The study, "Driving Raw Material and Packaging Material Productivity Excellence," gathered data from packaging and procurement leaders at 17 manufacturing companies, including Kellogg Co., Kraft Foods Inc., Unilever, Hershey Co. and BirdsEye Foods Inc.

One food manufacturing company manager noted that his company encourages transparency with key suppliers by sharing sensitive market research and allowing them to see company operations so they can offer suggestions for improvement.

"Our suppliers know their portion of our business better than us," he explains.

For example, suppliers are privy to many industries and can offer insight into applications they have seen elsewhere.

The study also found that respondents pushed suppliers hard on price, leveraging competition within the suppliers' market segment to achieve greater savings for the buyer.

"Never assume your rates are the cheapest," comments one procurement manager. "There's always someone getting it cheaper than you."

His practice is to get rate quotes from his supplier's competitors and then use those quotes to get a better rate with his preferred supplier. Not only does this help him keep current with the market, he is building a relationship with other suppliers in case of emergencies.

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