If Your Friends Told You To Jump Off a Bridge, Would You?

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For anyone paying attention to commodity markets you probably already know prices are up. For anyone paying attention to this blog you definitely know that I believe companies are responding to increased commodity pricing incorrectly.

Do manufacturers even know where their supplier margins are?  Do they have any idea where to look for cost savings?

Once again the lemmings are lining up to knee jerk respond to commodity price pressures.  Consumer prices are rising.

We recently detailed how Whirlpool and Electrolux were planning price increases in a massively short sighted response to upward shifts in the commodity markets.  Now I see food manufacturers like Kraft are taking the leap, off a cliff, with the rest of the herd. For the love of Velveeta don't do it!  We need to keep the global recovery going and pressuring consumers is going to have consequences.  Don't believe me?  Listen to the economists:

“Consumers are not exactly in the frame of mind or economic circumstances to say ‘Oh, pay whatever they ask,’ ” said Joshua Shapiro, chief United States economist at MFR Inc. “There’s going to be pushback.”

Very recently worked with a multi-billion dollar food manufacturer.  Their discrete manufactured, engineered to order MRO part costs were spiraling out of control and they couldn't figure out why.  When we put them through the sourcing process we found out in a hurry.

The engineers and procurement professionals responsible for the in plant operations were usually responding to some sort of emergency when securing resupply for this category of item.  Each time an emergency resupply occurred the new price for the component became the last price paid in their system and the new baseline to work against.  In short, their supplier margins were spiraling out of control to the detriment of their entire business.  Working quickly and efficiently with the customer, was able to achieve astonishing cost savings.  The customer turned over almost the entire supply base and brought in fresh suppliers with open capacity.  Within a couple of weeks they hit the reset button on their MRO spend.

With a little vision and a commitment to supplier change in places many think are impossible, innovation can take place.

Ask the right questions!

Which suppliers have the biggest margins?

When was the last time I put my custom spend out to quote?

If everyone is jumping off a bridge and I am running toward the edge is it really the best idea or am I just running that way because everyone else is?



David Landsman

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