2. VendorMigrationPromptsDramaticCostSavings For 25+ years, a pump manufacturer had secured and benefited from a long-term commercial agreement consisting of a five-year contract, automatically renewable after the five-year term. Contract’s main purpose was to guarantee no cost increase for five years with an increase at renewal. Challenged this antiquated business approach, which meant challenging a long-term strategic vendor with deep roots in the company. Questioned the value of such a contract based on the fact that technical production improvements (notably robotic assembly lines) are known to have lowered production costs. Refused to extend the contract and requested total cost transparency. Main vendor had failed to invest in research and development. Switched to a more technically advanced vendor. Saved 4.7% ($113K) in first year, 8% ($230K) second year, and another 7% ($131K) in third year. By the third year, also reduced cost by $378K due to technical changes. Corporation is now billed according to a reasonable cost of pumps (from $0.25 to $0.09) instead of the supposed “market price.”
3. True-cost Analysis Sparks Budget Accuracy Standard costs for the annual budget had always been calculated on the high, safe side. This approach falsified the reality of costs and impaired future new projects. Presented a budget detailing true, accurate costs of components, transportation, possible resin fluctuations, and known future cost reduction projects. Budget was reduced by 10-25%, and future budgets and standard costs are now dealt with by this standard.
4. Production-cost Solution Boosts Company & Vendor Profitability Company needed to tightly control the costs of component manufacturing in order to increase profitability. An in-depth knowledge of true cost of manufacturing was necessary. Most vendors were reluctant to share their true cost of production. Convinced suppliers that true cost of production plus a reasonable margin was more effective than aligning themselves on the market price used by their competitors. Prepared financial analysis demonstrating a win-win situation in which lower-cost product generated a lower retail price and, thus, prompted higher product sales. Most key vendors agreed with the approach and shared details of their cost of materials, labor, tools, and assembly. Product sales increased, and both company and suppliers increased their profits. This approach was used in future projects.
5. Annual Blanket Orders Save Significant Time & Cost Company’s sales and production forecasts were updated weekly, and buyers had to update and issue change orders to reflect these changes. Number of changes per week ranged from 10 to 25 per buyer and generated a significant amount of paperwork, faxes, and telephone calls, consuming approximately 16 hours per buyer per week. As business grew, the issue threatened to become unmanageable and would require additional staff. Proposed to streamline process through some proven techniques, encountering initial resistance from long-term staff and vendors, based on fear of change and inertia. Implemented a program based on annual blanket orders. For each line of products, only one purchase order would to be issued at the beginning of the year. Changes would be communicated to the vendor by faxing a weekly computer-generated forecast. Actions reduced buyers’ labor hours from 16 to four each week for buyers, saving $20K annually for each of three buyers. After seven years, this program is still in effect. It also benefited vendors, as it reduced their ordering process and they could directly input the information in their system without the rigors of formal processing.
6. Vendor Management Launches Ambitious Product Portfolio Hair care division decided to launch 14 new products within seven months, from inception to market. Issued requests for quotations and preliminary specifications to 15 vendors, and reviewed and approved proposals. Reserved production time with vendors through letters of intent, as firm orders could not be placed until completion of final specifications. Selected and developed 24 primary components for five different brands. The business was awarded to 10 different vendors and seven filling plants. All products reached the market on time.
7. Secured Agreement for the Redesign of 52 Products at No Cost In order to modernize and revitalize its shelf presence, the company was redesigning a product line for the Canadian market. However, there was a significant lack of resources and funds, as well as internal packaging engineers, to complete the project. Negotiated with a strategic vendor to borrow design capabilities at no cost. Wrote into the negotiations that the vendor did not have a guarantee of being awarded the final business. The vendor redesigned a total of 52 components free of charge. As a result, the company saved approximately $130,000.
8. Negotiation Leadership Secures First-ever Competitor Licensing Agreement A major competitor, Procter & Gamble (P&G), owned a patent on a packaging component, which offered the ideal technical solution for an internal product. P&G was willing to consider a licensing agreement. A licensing agreement with a major competitor was a company first. Personally took the lead on negotiations, under extreme pressure to finalize within three months. Due to the high visibility of the project, several internal departments tried to interfere. Reviewed the basic terms with P&G, presented the financial facts to senior management, negotiated a lower cost, and spent several hours fine-tuning the legal aspects with the lawyers of both parties. A three-year licensing agreement was finalized and signed within the allotted time. Total cost was in the high six-figures. Resultant product was launched on time.
9. Innovative Negotiation Offsets Critical Capital Investment Due to technical malfunctions, including a poor design and old injection tool, a major component (dispensing cap) had to be redesigned. As this component was used on a large piece of business, the issue had become crucial. Company had not budgeted for custom-made injection mold, which would cost approximately $225,000, and creative cost negotiation was needed. Reviewed the financial implications and found that a new, more-modern tool would offer an immediate cost saving and improved reliability. Convinced the supplier to pay for the tool upfront and be reimbursed by not extending the cost savings to the company for two years. Offset $225K investment by foregoing $112K annual savings for first two years (kept by the supplier), after which the company enjoyed the full annual savings. Project was successfully completed.
10. Inventory Revamp Ensures Planning Goals & Efficiency Company’s inventory was micromanaged in a reactive, rather than proactive, manner. As a result, days-on-hand inventory frequently exceeded the 45-day goal, while out-of-stock situations (4+ weeks) were routine. Forecast inaccuracies, micromanagement within planning team, and constant unexpected fluctuations in sales compounded the situation. Held extensive training sessions with planning team to ensure macro-management by analyzing the medium term, rather than micromanagement on a very short-term, week-to-week basis. Negotiated and obtained full cooperation from vendor on some basic principles, such as make-and-hold programs, JIT programs, and minimum/maximum inventory in vendors’ warehouses. Planning reached its goal of 45 days on-hand inventory by 98%. Production ran at maximum economical cost of production and registered a savings of 10% per component. Maintained constant availability of material at vendors’ cost instead of in-house cost. These programs are still in use.
11. Acquisition Reengineering Reaps Notable Savings & ROI In acquiring Curel brand, some severe flows were identified, such as high cost of components, erratic ordering patterns, and large vendor base. Overall strategic reengineering was necessary in order to optimize profitability. Ensuring a steady flow of supplies with unreliable injection tools while reengineering the business was a challenge. Determined the scope of the project, and analyzed feasibility at financial and technical levels. Consolidated the majority of the business on a few core vendors. Purchased new injection molds. Ensured the agreement and support of all parties, including senior management and marketing, finance, and planning staff. Reaped significant annual cost savings and returns on investments in the high six-figures. New injection molds ensured supply reliability. The project represented the highest cost savings in the last three years.
12. Vendor Relationship Enables Cost Savings on Multiple Launches The company had a current relationship with a vendor that was not as profitable as it could be. The vendor abruptly left its previous company due to conflicts, and became both owner and associate in a newly formed packaging company. Evaluated and carefully monitored the capabilities on design and costs by the Sourcing Department. Over the course of three years, secured the vendor as a major partner to assist in new product launches. The relationship was of mutual benefit as it led to the development, technical redesign and cost savings of multiple product launches for the Company and the vendor grew from $200,000 in annual revenue to over $3 million.
13. New Packaging Design Nets $975,000 Savings The company supported the launch of a new packaging design with annual expenditures of $10 million. Assigned to the project just three days after joining the company. The head of Packaging Engineering, along with multiple members of the team, had recently resigned. Gathered data on the scope of the project, including volumes, part numbers, specifications, graphics and current costs. Extended a bid to eight separate vendors through newly acquired E-RFQ software. Analyzed the cost results and led cost negotiations. Awarded the business to three of the vendors. The consolidation of purchases effectively saved the company $975,000. Received personal congratulations on the accomplishment from Company President.
