New twist on low-cost-country sourcing
By Staff -- Purchasing, 8/14/2008 2:00:00 AM
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Among possible solutions: changing suppliers, or ordering lower-priced components. See www.purchasing.com for solution.
Testing-equipment manufacturer Instron was looking for ways to lower costs. As a global company, it has operations in the Americas, Europe and Asia. With the U.S. dollar weak, the company assumed that it would save money as it sourced materials and components for its overseas subsidiaries from U.S. suppliers. It seemed like a new and interesting twist on the concept of "low-cost-country sourcing."
Problem: Monitoring the program, Director of Global Procurement Tom Murphy learned that some of the U.S. suppliers were selling their products to Instron subsidiaries after currency conversion at twice the cost in U. S. dollars. The result was that Instron's subs were paying far more than they should have been paying. Murphy met with the suppliers in question to negotiate a solution. The suppliers said that the cost of doing business in countries such as Germany and the United Kingdom was higher than doing business in the U.S.
Solution: Murphy told the suppliers he didn’t believe their rationale and asked them to cut their prices. “If you don’t ask, you don’t get,” he says. He agreed to establish a “country” cost for each country using the U. S. cost as a baseline. Even with the country cost, which included a 10-15% increase, he saved money. Additionally, he bought some product from U. S. distributors and shipped them to the subsidiaries rather than have them buy locally.
Are you a black belt negotiator? Tell us about one of your negotiation successes, and we'll print it so others can learn from your experience. Send it to pteague@reedbusiness.com.
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