Excessive squeezing of suppliers in LED lighting procurement is "self mutilation"

[Gaogong LED Comprehensive Report]  Soon, an LED lighting company promoted a purchaser to a supply chain business manager. It didn't take long to hear the manager preaching about how much he had reduced prices by moving some parts from one supplier to another, and how much he could save on procurement costs every year. He is also preparing to adjust the entire supplier base to save procurement costs by how much. There is nothing to be criticized for the three fires of the new official's appointment, but the way and method are worthy of discussion.
　　
First, let’s take a look at the manager’s price reduction method: he only selects the parts with the largest amount of use and makes a new inquiry. Of course, this method will get a good price. But he forgot that the original supplier still has many other parts used by the company. The usage is very low but the price is still at the level of high usage. There is no doubt that the supplier is losing money and can only rely on those parts that are used in large quantities. make up.
　　
The direct result of the adjustment is that the supplier's overall profit has dropped sharply, and the company has become their unprofitable or less profitable customer, and its business focus has shifted to other more profitable customers, resulting in the supplier's on-time delivery rate, quality and The level of service has dropped drastically. For example, before the new manager took office, the quarterly on-time delivery rate of all suppliers was above 96%; and within a few months after taking office, the on-time delivery rate of several suppliers has fallen below 90%.
　　
The second is that suppliers lose trust in the company. When the supply chain manager who was in charge of the chassis manufacturer took over this business, he found that several major suppliers were basically losing money: on the one hand, because of the overall economic downturn, and on the other hand, because of years of naked price reduction. As a result, suppliers have neither the economic ability nor the motivation to afford engineering and technical strength, because the developed new parts are likely to be transferred to competitors in the next round of inquiry, which directly affects the company's development of new products.
　　
In order to improve the service enthusiasm of suppliers, the policy adopted by the former manager is: after the new parts go through a round of bidding in the development stage, there will be no second round of bidding when they enter the mass production stage. In this way, suppliers don't have to worry about the results of hard work being transferred to competitors, so they are very willing to invest in engineering technical support during the development stage, and the on-time delivery rate of new products has also been greatly improved. Some suppliers also set up technical personnel for the company to provide technical support at any time. The second round of bidding by the new supply chain business manager broke the continuity of this policy and directly undermined the foundation of trust between buyers and sellers.
　　
A more typical example is that the parts of one supplier cannot be transferred to other suppliers, because this group of parts has a great impact on the performance of the final product, the risk of changing suppliers is high, and supplier qualification certification needs to be re-certified , and the product design department is unwilling to spend time and take risks. So what to do? The new supply chain manager adopted a strong attitude towards the existing suppliers: no matter what, cut the price by 15%. As for how to reduce, that is the supplier's own business.
　　
Suppliers can't save on labor costs, so they can only work on materials. But the price of nickel, a key raw material, has tripled in a year and the supplier has repeatedly asked for price hikes. There is no potential to be tapped in terms of material utilization, because the supplier has already processed multiple parts together, and the waste of leftover materials has also been minimized. Therefore, finding cheap materials has become the only way for suppliers to survive.
　　
Herein lies the problem. The original nickel alloy used was produced in Germany, and the price is high, but the quality is good. The price of similar nickel alloys produced in France is low, but the technical performance is different from that produced in Germany. In order to achieve the 15% price reduction target, suppliers purchase French-made nickel alloys. After the parts are assembled into the final product and shipped to the customer, the customer reports that the performance is not up to standard. This is a big problem, affecting the customer's own production line and delaying working hours. This huge loss is not enough to compensate even if the supplier is sold.
　　
The product department is in charge, and hundreds of products have been sent to all parts of the world. If the parts are replaced, the cost of the parts alone is hundreds of thousands, and there is also a huge logistics cost. At the same time, the crisis of customer trust and future business losses are immeasurable. . Interestingly, the supply chain business manager thought that he should be promoted because he saved so much money by lowering the purchase price. As for such a major quality accident, he felt that it was a matter of the quality department and had nothing to do with him.
　　
On the surface, this problem is a quality accident, but it is actually a procurement problem. The dereliction of duty in procurement lies in three aspects: First, the formulation of the 15% price reduction target is not considered carefully. It is not uncommon for anyone who does purchases to know the approximate profit margin of the supplier, especially when the price of the main raw material doubles. Although the supplier is an exclusive supplier, the price is already the lowest. When the bid was issued that year, many suppliers bid, but no lower price than this supplier could be found.
　　
Second, such a substantial price reduction means that there are great risks. Procurement needs to analyze risks, let company parties understand these potential risks, and urge quality control. Purchasing made this dangerous move to achieve its own promotion goal, and it assumed that other departments knew that it was a mistake. In the words of a professional, don’t regard other people as gods, thinking that they all have the ability of foresight, but try to get yourself as close to God as possible.
　　
Third, and most critically, instead of trying to work with the supplier to solve the problem, procurement pushed the problem onto the supplier. His problem was solved, and the supplier's problem came. In the end, the purchaser still paid for it. Purchasing managers create more problems than they solve, which is where purchasing managers fail.
　　
Reducing costs is a major task of supplier management, but the key is to stop when enough is enough. For small suppliers, big companies often cut prices like water in a sponge. Most of the time, they can be squeezed out again, but when they are squeezed to the extreme, other problems will appear. Pushing hard is not a way to solve problems together, it will push the problem onto the other side. It is okay to use it occasionally, but if it is used systematically, chance becomes inevitable, and it is only a matter of time before the supplier has problems.
　　
In addition, there is nothing wrong with thinking about promotion, "Soldiers who don't want to be generals are not good soldiers", but we still have to talk about methods and methods. As a professional said, to be an excellent buyer, the most important thing is to overcome the demons, not to betray one's conscience for money, and not to harm the due interests of suppliers for promotion. up.