Supplier Cost Reduction Effort

Forging supply chain partnerships Relationships with suppliers and customers are arms length at best, antagonistic at worst. Collaboration up and down the supply chain is limited to transaction data. Efforts are limited to supplier initiatives focused on cost reduction, not revenue increases. Partners collaborate but roles are static. Partners pursue sphere strategies. Trading partners in the supply chain expand their value contributions. 

From this upper echelon list, the firm matches key suppliers with high-impact categories and chooses a small number of partners to participate in a disciplined, systematic supplier relationship management (SRM) effort. These partners meet with the buying firm and establish a mission or strategic purpose for the SRM effort. The focus then moves to analyzing the total cost of ownership (or total life cycle costs) and finding the hidden cost reduction opportunities and extra values in the relationships. 

The pressure to reduce prices at automotive component suppliers is intense. The assemblers have been setting annual price reduction targets for their inbound supply chains for some years. Unless a supplier can match reduced prices at which products are being sold by means of reduced costs, that supplier will gradually go out of business. As a result, many suppliers are cynical about the price down policies of the assemblers. Reduced prices are the reward of cost cutting, and that is most often a collaborative effort by several partners in the supply chain. As indicated in section 1.1, Tesco can make only limited inroads into its in-store costs without the help of its supply chain partners. On the other hand, small dairy farmers continue to be forced out of business because the price of milk paid by supermarkets is less than the price of water. For them, there are few opportunities to cut costs. 

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