Based upon the strong response we received to last month’s blog regarding how to negotiate advantageous and fair manufacturing agreements, this month we’d like to share our thoughts on how best to reliably take cost out of your supply chain. The five recommendations listed below are tried and true tactics that we find yield strong results and enhance your purchasing power and improve your company’s EBITDA.
Buy Direct and Bypass Distribution
We’re always surprised when we encounter situations where our customers are purchasing reasonable quantities of hardware through distribution because “it’s easy” or “that’s the way we’ve always done it”. Unless you’re buying only a handful of units or your distributor is providing kitting, stocking, etc., there’s no reason not to trade directly with the manufacturer.
Piggyback on the Vendor’s International Certifications
Many products require some form of international certification such as CE, Energy Star, FDA, or UL. While it’s often feasible to apply for your own dedicated registration, this is expensive and time consuming. Many product segments will allow you to piggyback on your vendor’s existing registrations. Explore adding your product listing to their registration and save time and cost..
Pay the Freight Yourself
This is a no brainer, especially if you have a relationship with a good freight forwarder. No manufacturer will coordinate your shipment door-to-door and pay the freight bill without adding in some commission or mark-up.
80/20 Split Your Orders
Or 70/30 . . . The level of granularity on the split isn’t so critical. What is important is to have a strong relationship with your majority supplier plus a hungry minority supplier waiting in the wings. This provides you with supply redundancy, a more secure supply chain and two suppliers that are fighting to make you happy.
Leverage Economically Useful Lot Sizes
We constantly see RFQs listing oddball quantity breaks: 1 – 219; 220 – 1773; and 1774 – 11,250. While an order from your customer may specify these quantities, chances are that candidate vendors’ factories are structured around very different lot or run sizes. Requests for weird quantity breaks usually yield weird pricing. Ask suppliers for quotes based upon their (not your) economically feasible or desired lot size. With some products that require significant set-up time, the aggregated cost of a larger lot may cost dramatically less than a smaller lot.
These tactics help us and our clients to be smart, get it right, get it on time and make some money for our companies!