Automotive, mechanical engineering, construction or energy: structurally, cost reduction represents a major challenge within industrial companies. The focus is on optimizing the profitability of the industry in increasingly competitive markets. To reduce costs, optimizing purchasing is a priority lever. Discover our best practical advice to optimize your purchases as part of an effective cost reduction policy.
Negotiation: the obvious lever to reduce purchasing costs
To transform purchasing costs into a strategic competitive advantage, knowing how to negotiate with suppliers is an essential first lever. 58% of buyers use negotiation as a cost reduction method. But knowing how to negotiate cannot be improvised. Ed Brodow in his book “Negotiation Boot Camp : How to resolve conflict, satisfy customers and make better deals” identifies 10 critical points to follow:
- Don’t be afraid to ask for what you want. Successful negotiators know that everything is negotiable. They dare to make a strong initial demand, while remaining realistic.
- Know how to listen. Negotiators must act like detectives. They ask probing questions and keep quiet.
- Anticipate. Before the negotiation, it is necessary to gather as much relevant information as possible in order to understand the other’s situation.
- Always be ready to leave. Never negotiate without options. If you depend too much on the positive outcome of a negotiation, you lose your ability to say no. The risk? Appear desperate and willing to accept anything.
- Take your time. Westerners find it very difficult to be patient. Yet this is a crucial point in a negotiation: the more you rush, the more likely you are to make mistakes and lose money. Conversely, a patient negotiator will easily get concessions from negotiators in a hurry to get it over with…
- Have high expectations. Successful negotiators are optimistic. You have to aim high to get the best result.
- Forget about the pressure you feel and focus on the other person’s pressure. Human beings tend to focus on their own stress… Forgetting that the person opposite is under it too. A good negotiator will know how to put aside his fears to exploit the pressure on the other side.
- Show empathy. By seeking to understand the other negotiator’s point of view, it is possible to show them how their needs will be met through us. The other person will then be more inclined to help us meet our needs.
- Never give anything without getting something in return. Reciprocity is essential in a negotiation. Whenever you give something, get something in return.
- Keep it purely professional. Negotiation must not fail because of personal quarrels. Even if you don’t like it, the other person’s behaviour should not be taken personally. The key is to focus on solving the problem and finding an agreement that respects the needs of both parties.
Streamline your supplier portfolio to lower your purchasing costs
Rationalizing the supplier portfolio leads to amazing results when it comes to lowering purchasing costs. By simply influencing the number of business partners and ordering processes, the industrial company can significantly reduce its purchasing costs. There are two indicators to evaluate and improve the rationalisation of the supplier portfolio:
- The number of “active” trading partners.
- The evolution of the number of lines per order.
From there, a major target: to reduce the number of suppliers. Perhaps a single supplier can provide a sufficiently broad offer to replace a multitude of others, on the same purchase volume. By reducing the number of suppliers in this way, the company reduces the number of orders and increases the number of lines per order. As a result, the manufacturer lowers its management costs and the amount of fees associated with orders. The reduction in purchasing costs is achieved easily and quickly. However, be careful not to go to extremes. The practice of sole sourcing poses a risk to the industrial company: in the event of a disruption in supply, for example, the consequences can be damaging to the internal organisation. On the other hand, it may be interesting to ask an external partner to manage your directory of small suppliers for you, who take up 80% of your time and ultimately add little value. Choosing the right partner will also improve your TCO (total cost of ownership). ISP Group is working towards this goal by putting experts in the field of cost reduction at your service.
Focus on the outsourcing of selected elements of the purchasing process to be sure to be among the best
A large part of the purchasing process, such as sourcing, the search for essential elements for negotiation or the administrative follow-up of the supply, has no reason to be handled by the company if it is not sure to do so under the best conditions. Calling on a partner specialising in purchasing outsourcing then makes sense. As long as this partner has all the guarantees of QCD and risk management, a trusted outsourcing partner can provide you with better conditions, more choices to negotiate and/or lower administrative processing costs. The invoice can thus be significantly lower, depending on the processes added together. In addition, by delegating your sourcing for components, services, or tasks that are less critical to your business, you free up time to identify more strategic suppliers and give yourself the flexibility to delegate or take over directly, depending on your business.
Read also : What is sourcing? Definition!
If you choose an ISO 9001:2015 partner such as ISP Group, you also have the guarantee of being supported by professionals who have been doing this business worldwide since 2003, always focusing on customer satisfaction.