That’s right. The eSide. Not necessarily where you would expect them if you’re old school and always flipping to the b-Side, but that’s the beauty of high-tech. Even though the goal of Supply Management should be to increase value to the organization, the reality is that the C-suite in most organizations, big or small, global or local are still focussed on maintaining — or, preferably, reducing — the costs for procured goods and services. Plus, quick wins in these categories give the organization more leverage to take-on bigger, value-focussed, projects.

However, as the article notes, before you start, it’s worth noting that there’s a discernible difference between price reduction and cost reduction. Cost reduction is typically sustainable over the long term, while price reduction is often a short-term commercial concession, which is then typically reversed later when the power balance in the buyer/supplier dynamic changes. And, most importantly, managing cost with suppliers who can often considerably help with cost savings is complex and requires a lot of effort.

However, costs are controlled by drivers, and suppliers often have a better understanding of these drivers than your organization does, especially since your organization is typically buying components from these suppliers that are buying raw materials that are the primary components of your cost. And even if the supplier provides a cost breakdown that underpins the price structure, it can be very difficult to understand what the information is telling you. You need a cost model that allows you to provide repeatable analytic capability that lets you understand what the information is telling you and whether costs are going up or down or staying flat. And, as you know, this will require working with knowledgeable colleagues in other functions such as finance and engineering, and the best candidates for the latter will often be in your supplier’s organization. Plus, suppliers will often bring new and innovative ways of reducing cost to the table that might not have been considered previously. Especially if you explore looser specifications with suppliers to broaden the opportunity for cost reduction through innovation and generation of alternative solutions. Remembering that for manufactured products in particular, the majority of suppliers’ costs are incurred at their factories, the suppliers will often have the best ideas for cost reduction — which might come in the form of an alternative (easier to manufacture) design, different raw materials, or even a different manufacturing process.

Suppliers are your allies, not your enemies, and collaborative efforts, focussed on profit sharing, can be the best way to control cost for the long term.