SMT007 Magazine

SMT-July2015

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38 SMT Magazine • July 2015 by john Daker rivErWooD SoluTionS In any supply chain survey, the issue of cost comes up repeatedly, often as the number one issue. Even when it doesn't, there's a sense that all the other issues are important, and we'd like them fixed, as long as the price is competitive and constantly being driven down. In some cases, it's worse, and every other variable, such as risk mitigation, logistics management and quality control, becomes a given, with price be- coming the only variable and influential factor when selecting a vendor. But let's not get confused about what consti- tutes price and what constitutes cost. These are quite different things, and if you are just driving the price down through pressure on your ven- dors, you'll almost definitely suffer elsewhere. Here we'll explore the downside of focussing on price and suggest some of the practical ways you can reduce costs without having a negative impact on your product. What's Wrong with Focusing on Price? The answer to this is almost everything! I've seen too many companies work their way through vendor after vendor on a price reduc- Cutting Cost, Not Price tion policy that is akin to the Spanish Inquisi- tion, their path strewn with the bodies of non- believers. The truth of the matter is that suppli- ers are like spouses—if you've had more then three, it's probably you. The strategy of driving price down in an ad- versarial manner creates a relationship that is as far from a partnership as it can be. A collabora- tive price reduction policy may work, but only when there is mutual benefit or where both par- ties are putting something in to make the sup- ply chain operate in a more efficient way. This adversarial route breeds contempt and mistrust, and may force your vendor to cut corners and compromise—certainly not something that you want when the product they are building is des- tined for your loyal customers. Their output re- flects on your brand, and could cost much more than you save as a result of field failures. let's Instead Focus on Cost! If instead of looking at price—and by price I mean the price per unit on the invoice you receive from the vendor—we look at cost, there is much more to get your teeth into and much more on which to collaborate with your ven- dor. I'm not advocating ignoring price; that's certainly part of the cost. But when working on FeAture

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