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Taking high cost out of suppliers.

Taking high cost out of suppliers

High-cost suppliers can cut deeply into your corporate profits, but often it is the customers themselves who make them high cost, according to Kevin Rollins, vice president, Bain & Co Inc, Boston.

How? By burdening them with backbreaking complexity such as too many vendors, too many steps in the purchasing process, and too many part numbers and product configurations.

Continual competition has given way to continuous improvements, says Mr Rollins. "It's recognized that the fewer suppliers, the better--if you monitor their performance, work closely with them to build a mutually dependent relationship, and reward outstanding performance with increased business."

He believes that, in addition to reducing supplier complexity, two other kinds of complexity must be reduced: 1) process complexity and 2) product complexity.

Failure to reduce process complexity in the total product design and manufacturing cycle leads to extra costs due to inefficient procurement, longer design cycles, over-designed products, respecified components and materials, re-tooled equipment, and more rejected end products.

Product complexity, i.e. having too many products and too many component configurations, is the most often overlooked cost element, says Mr Rollins. Using a "cover the market" strategy will only result in proliferating costs. He cites the example of a Japanese and an American automaker. The American model had more options available at the showroom and through special order--by far: 29 million possible configurations vs only 5000 for the Japanese, which enjoyed a 57% cost advantage in unit assembly cost.

Here's what you can do to get your house in order:

* Conduct product rationalization analysis to cull product lines based on true profitability and customer needs. Enlist senior management's aid for the tough choices.

* Approach complexity reduction comprehensively with simultaneous attacks on all three fronts: supplier, process, and product and enlist your suppliers' aid in doing it.

* Create a highly visible success story by tackling one or two product categories that have high probabilities of success in reducing complexity. Make it the first victory breakthrough that will lead to a broader initiative.

* Involve your suppliers in the complexity reduction process, making the continuous process concept a reality with the cross-functional team that you have created with supplier partner members and senior supplier and customer executives responsible for driving the continued value creation process.

Kevin Rollins is vice president in charge of Value Managed Relationship (Partnering) practice for Bain & Co, a leading strategy consulting firm based in Boston with 12 other worldwide offices and nearly 1000 employees.
COPYRIGHT 1992 Nelson Publishing
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Publication:Tooling & Production
Date:Jan 1, 1992
Words:412
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