ISM 2009: Cost modeling saves Charming Shoppes a cool million
Attendees at ISM 2009 hear case history on analyzing and benchmarking costs
By Paul Teague -- Purchasing, 5/5/2009 3:17:00 PM
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Chris Sower, director of strategic procurement at Charming Shoppes, told attendees at ISM 2009 that he used total cost modeling to negotiate savings of $1 million for corrugated paper. The key, he said, was getting reliable industry cost data before going into negotiations with the supplier.
The data allowed him to compare costs in fact-based negotiations where the supplier was forced to defend his initial price, then admit that he could bring costs down.
Among the problems with the initial purchasing agreement, Sower said, was that raw-material cost fluctuations were tied 100% to price. Raw materials costs were at historic highs.
Also complicating negotiations was the fact that existing stakeholders liked the supplier and didn’t want to make any changes. But, Sower said, there was no exclusivity in the contract, giving him maximum flexibility.
Sower used Economic Census Data as well as other government data, including the producer price index, the consumer price index, labor rates and output data. He also used financial information from a variety of other sources, including trade associations and analyst reports.
Among the things he learned from performing such a detailed cost analysis was that labor costs were down 16%. The supplier had said that labor costs had gone up. Sower said his fact-based negotiation approach forced the supplier to lower costs.
Among the lessons he pointed to:
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Get cost information at the point of bid
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Use industry cost models
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Compare costs across all bidders
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Make contract fluctuations based on mutual agreement of cost fluctuation
"Cost modeling is a good tool for negotiations, auctions and supplier audits,” he said.
<<Back to ISM 2009 Conference coverage
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