Forty-two percent of buyers surveyed by PURCHASING are stepping up cost-control programs as CEOs look to buyers to improve profit performance in the sluggish economy. Buyers say they are under orders from top management to cut costs this year by an average 5.8%.

At some companies, the increase in the mandate is significant. DuPont for example now wants more than double-digit cost reduction. That's up from a goal of about 4% at the beginning of the year. DuPont recruited a high-profile chief procurement officer, John Campi, from GE Power Systems to drive the program. He plans to significantly step up use of reverse auctions, a tool used with great success at GE, and source more from low-cost areas of the world, such as China and Eastern Europe.

Textron, a holding company based in Providence, R.I., took a similar tack, bringing in another GE cost buster, Ed Orzetti, who told PURCHASING he has established an international procurement office in Poland and will use it as a beachhead to boost purchases of castings, forgings, fabricated metal products, and tooling. Textron is also consolidating more purchases through an enterprise-wide commodity-buying plan.

Medium and smaller-sized companies will focus on more traditional techniques to reduce costs. The survey shows these tactics leading the way, listed in order:

• Move more buying to long-term contracts,
• Build leverage through greater consolidation of purchases,
• Increase pressure through normal negotiations,
• Use product redesign and value analysis techniques,
• Buy on the spot market,
• Employ Internet-based procurement systems, such as Web catalogs, and
• Use reverse auctions.

Long-term sourcing is a strategy cited in particular by many steel buyers, who are under the most pressure right now. Hot-rolled sheet steel prices soared 54% from March to July; cold-rolled skyrocketed 42% and galvanized jumped 41%. Buyers identify steel as the product they fear will jump the most in price in coming months (see chart below). Buyers squarely blame Bush administration tariffs for driving up steel prices.

"We were able to lock steel prices through the first quarter of 2003" with long-term contracts, comments Branton Coffey, commodity manager of NACCO Materials Handling Group. "Our suppliers, however, are really getting hit hard with price increases." Buyers are also using long-term contracts to guarantee supply of steel in coming months. Longer leadtimes and spot delivery problems have plagued some plants in recent weeks.

Efforts to build leverage are pushing more companies toward coordinated, centralized purchasing. Even in companies where centralization is still a dirty word, many companies are calling their new buying strategies "center-led". Textron, for example, has no central purchasing department, but coordinates purchasing through commodity teams populated with buyers from different divisions. Teams are expected to develop coordinated buying plans for key products such as batteries, steel and resins.

Interestingly, value engineering outranks much-publicized new Web techniques for the great majority of companies. Lucent Technologies of Warren, N.J., for example, is using supplier partnership teams to develop new design approaches for products before they are rolled out. Suppliers offer blue-sky ideas on design and manufacturing approaches with internal design, supply and manufacturing teams. Buell Motorcycles of East Troy, Wis., uses a similar approach called Global Supplier Summits.

For many buyers, however, there are few high-profile techniques available. The tried-and-true approaches are being dusted off. "I plan to reduce sole-source items wherever possible," says Steve Barkel, senior buyer at Thermotron in Holland, Mich. "There's no better way to avoid price increases than to have a viable second source."