For buyers and importers of goods from China, it’s important to obtain quality goods at a fair price from their suppliers. An insider secret to lowering the price of goods that some buyers utilize is to help their suppliers cut costs. This is done successfully by using a 3 step approach. When the opportunity arises and the steps are executed well, a successful cost-cutting initiative can be undertaken to help the buyers bottom line.
Step 1 – Carefully Choose Suppliers and Build a Solid Relationship
The first step in the process is to ensure you are working with the type of supplier that can realistically undertake any initiatives to cut costs. The type of supplier usually displays certain characteristics in the way they operate their business. They will make investments into their equipment and facility improvements. They will also generally have a long-term vision for their company.
Once a suitable supplier has been selected, it is then the buyers turn to build a solid working relationship with the supplier. It’s important for the buyer to bring substantial business to the supplier, and to consider the relative size of their orders to a supplier’s total production. A good metric to target is 30% of the supplier’s production should be going to the buyer. Ensuring that these purchases are made, as well as the overall positive communications is the responsibility of the buyer.
Step 2: Learn as Much as Possible to Assist Your Suppliers
As a buyer, you will want to share as much information you can with your suppliers. This goes against the grain of common practice, which is to run your business and allow them to run their business completely independently. You will want to share with your suppliers the best methods of manufacturing in their industry. You will also want to ask questions about the operations of your Suppliers. Ask questions and help them to understand the impact of their choices in areas such as inventory levels, manufacturing waste and quality control as it relates to producing your products.
Step 3: Help Your Suppliers to Implement Cost Cutting
Assisting the supplier in meeting the desired cost is key only once the first two steps are complete. You also may need to make some trade-offs for the lower price. These trade-offs can include providing additional lead time, or suggesting and setting up IT solutions. A buyer may also need to offer some of their design staff as on-site support, and help the supplier complete some of the “Design for Manufacturing” work with the supplier team. The buyer is now in the position to reap the benefits of successfully completing the initial two steps.
While there are many ways to cut costs, it is only through the relationship between the supplier and buyer that suggestions can be made and improvements can be implemented. By taking these steps to heart and working intently, a buyer can cut their costs of manufacturing greatly.
