Tell us your real costs
Arvin Meritor's cost-evaluation system required supplier cooperation
By Staff -- Purchasing, 7/14/2007 2:00:00 AM
Automotive supplier Arvin Meritor has initiated what it calls a "clean-sheet" cost-evaluation system to determine what parts from its suppliers should cost. Working on the project is a team of experts from procurement, design engineering, plant engineering, finance, manufacturing and quality control. For the "clean-sheet" program to work, the company needs the cooperation of its suppliers, who it asks for details on their own costs and pricing structures. In fact, Arvin Meritor has told its more-than-750 suppliers that future business depends on their willingness to cooperate by providing cost details to the "clean-sheet" team.
Problem: Though most of the company's key suppliers agreed to cooperate, some refused. Since they provided critical parts, Procurement Vice President Mark Purtilar wanted to continue working with them. But first, he had to find a way to convince them to provide the required cost data.
Among possible solutions: Fire the suppliers; end the "clean-sheet" program; exempt them from the program; get their cost data from other sources. Click here for the solution.
Solution: Procurement VP Purtilar called his personal contacts at the supplier companies that refused to participate. He explained that the goal wasn’t to argue with them about the validity of their margins but rather to find reasons why their prices to Arvin Meritor might be higher than their competitors. He said he would share the results with them and help them find ways to lower their own costs, which in turn would help them provide better prices to other customers while still maintaining their profit levels.
After several negotiating sessions, Purtilar convinced several of those key suppliers to compromise by providing Arvin Meritor some of the costing information, though not all, in return for a promise of continued business. Result: better visibility into the suppliers’ costing structures, and continuity in the supply chain without having to find new and untested suppliers for the critical components.
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