Tips on dealing with business storms before they hit
“Our business was changing, and even though we were the industry leader, we had tremendous concerns about our competitive position. Most of our customers had been regulated in the past, and were able to get approvals for their pricing based upon their cost structure. Now, as they go through deregulation, they are fighting it out over price and that’s impacting on their choice of suppliers. Some of the things that were important to our customers in the past are now ‘unnecessary bells and whistles.’ So, we have to do the same thing they are doing, and make the tough decisions to get our own cost structure to the point where we can win. There were a lot of things we had to change, often to the great disappointment of our own engineers who were used to being rewarded for upgrades rather than for cost savings. And in the case of the ingredient we buy from [the supplier in question], it’s such a significant part of our cost structure that every percentage point of savings there is huge in the overall scheme of things. And it was one of the areas where both our customers and we felt there were some of those ‘unnecessary bells and whistles’.” [Customer General Manager]
When we talked with the purchasing executive that had run the Internet auction in question, we got even more insight into this situation:
“I’ve heard a real earful about this situation, both from our own engineers and from [the supplier in question]. They did have a long history with us, but they somehow stopped listening to us. Maybe the history got in the way. We had a bidder meeting that they attended and we were very clear about the direction we were heading, about why getting to a lower cost point was the focus of our procurement. We said over and over that our world had changed. Most of the bidders heard that message. I don’t think [the supplier in question] heard it very well, maybe because it was a new message, not the one that they’ve heard over the years and probably not the one that they hear even today from their friends in engineering. Or maybe they just assume we were posturing for the other bidders in the room, thinking the message wasn’t oriented to them. And while they do have a great track record, we have confidence that we’ve put in a structure with which we can succeed with [the winning bidder]. They’ve committed to funding sufficient inventory with us so that we aren’t worried about delivery and they have the ability to produce the ingredient according to our specifications.” [Customer Purchasing Executive]
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