Collaborative Supply Chain
3M conducted a study with Purchasing Magazine and identified collaboration as one of the four best practices that separated the best purchasing organizations from the rest. MAPI (Manufacturers Alliance for Productivity and Innovation) conducted a study and found that Industrial companies that buy on and measure Total Cost are 35 percent more profitable than ones which do not. For sales it means better account retention, improved penetration and better margins as seen in a study by the Industrial Distributors Association which found that 74% of customers would give distributors more business if they could prove the value they added.
This is the foundation as to why collaboration works: mutual profit and benefit. Suppliers that focus on how to make their customers more profitable and customers that work with their suppliers to increase Total Operating Profit, can both win. The key is to learn how to identify, measure and track savings beyond price paid. This includes increased production rates, reduced reject rates, reduced downtime, reduced energy consumption, lower waste, lower disposal costs, the value of technical support, design support and a host of other costs.
Through collaborative efforts BP was able to reduce the loss of 1.8 million cubic feet of gas a day in one field. Chevron calculated that the price of a pump was only 7.5% of the total cost of a pump, and by focusing on the other costs they could reduce operating costs to a far greater extent than by focusing on just price. The U.S.P.S. was able to cut costs by $3 billion dollars. And We Energies saved over $50 million a year.
But this only occurs when purchasing organizations and their suppliers work together to find ways to reduce Total Operating Costs.
Perhaps the most widely understood example of Total Cost savings is lighting
Manufacturers such as GE and Philips have done an outstanding job of demonstrating the energy savings in switching from a lower priced bulb/lamp to a higher priced one that cuts energy costs and lasts longer. But lighting is only one example. There are thousands of products that cost more from a pricing stand point, but deliver savings well beyond the additional price paid. And beyond products there are also hundreds of services that can reduce customer’s operating costs significantly…If you know how to purchase on a total cost basis and if you have suppliers who can prove the savings are real.
Walk through savings from lighting to see how Total Cost can be calculated.
Strategic Business Solutions helps companies achieve Total Cost Savings
"LewisGoetz has always worked hard to differentiate ourselves by documenting the value we bring to our customers. However, since implementing SalesStrat in 2007; that process has become much easier, quicker and better articulated to our customers. The SalesStrat system and specifically its management reporting process is user friendly, very powerful and since using it we’ve increased our annual documented cost savings by $15 million."
Dave Antoline
Corp. Manager Sales & Marketing
Lewis-Goetz and Company, Inc.
"ITC Transmission worked with Tim Underhill, president of Strategic Business Solutions, who helped develop a cost-management program for ITC Transmission and its supply chain. Through the program, purchasing and suppliers work together to impact the bottom line by reducing costs, increasing revenues, minimizing risk and improving performance. ITC Transmission tracks this impact through software developed by Strategic Business Solutions called SourcingStrat. The first year results: about $30 million in savings."
Steve Sczytko, Sourcing Manager
ITC Transmission