Situation: A company wants to improve the efficiency of its supply chain. The company produces a custom product, for which there are few qualified materials suppliers. From the CEO’s standpoint, this presents challenges, particularly when there are delays in materials and parts supply. How do you optimize your supply chain?
Advice from the CEOs:
- In supplier negotiations, know your BATNA – Best Alternative To No Agreement. Put this in dollars and cents so that you know your negotiating limits.
- A recessionary or slow growth environment is the perfect time to negotiate! This gives you the opportunity to work with an outstanding order on terms that either your supplier or customer needs. For example, if you are experiencing delays in shipments from your supplier, offer a purchase commitment of “x” terms for “y” years at “z” price in exchange for higher priority on their production schedule. You can work the same way with your customers.
- If you supply a custom product, especially on a sole-source basis, tie yourself to the hip of the engineering organizations of both your supplier and your customer. This gives you leverage when either the purchasing department or a contract manufacturer intermediary tries to push you on price and terms.
- Be a squeaky wheel on shipments or payments due – but not in an irritating way with too much pressure.
- Europe Union RoHS and REACH regulations make it imperative that manufacturers and service companies be aware of hazardous substances in products that they design and manufacture. The list of hazardous substances being monitored and/or restricted is expected to grow to 3,000 in coming years.
- Contracts serve two purposes: a legal tool, and a way to drive behavior. They are an opportunity to assure that both parties are on the same page and under the best circumstances serve as process documents.
Special thanks to Bijan Dastmalchi of Symphony Consulting for his contribution to this discussion.