Distributors across the U.S. continue to encounter price increases on raw materials from their suppliers and waiting for prices to stabilize isn’t an option. Before deciding to cut your losses with a supplier, consider these strategies for working around rising supplier costs.
What’s the cost of each step of the manufacturing process?
Charting how much each step of the manufacturing process costs is one way to understand where increased costs are coming from. Communicate with all involved in the process — the more information shared throughout the supply chain, the better.
If you find areas where prices have increased, make changes to protect your operations from spikes in supplier pricing. Consumers can sometimes take on costs that you can no longer afford.
If that doesn’t work, look for other ways to increase your profits and cut costs, ultimately helping you weather the storm of high supplier costs. Many companies, for example, stock extra inventory because of a lack of supply chain visibility. Having reliable information on future orders prevents unnecessary overstocking.
Understanding the demand can also allow you to tap into lower costs by bulk-purchasing raw materials. As a bonus, bulk buying often carries extra leverage with suppliers and can give you some control over the relative price of materials.
In addition, energy costs can add up quickly in large warehouses, so explore energy-efficient equipment and conserve energy whenever possible to save cash. Other resource-saving strategies include scheduling a regular night shift instead of overtime for workers and subleasing your facility when you’re not using it.
Who are your strong supplier relationships?
Loyalty and respect can prove valuable in relationships with suppliers, who usually make the final call on price increases. Keep your suppliers happy by doing the little things, such as paying your invoices on time. Suppliers also appreciate getting ample lead time on orders.
When you’re on the phone placing orders or talking with your supplier for any other reason, open up a little. They’ll appreciate learning more about your business, and it might help you figure out more practical solutions on both ends. Taking the time to visit suppliers’ headquarters or inviting suppliers to company events is another way to foster a deeper level of trust and respect.
Building strong working relationships with suppliers can help you make compromises and reach fair prices, even during hard times. Conversely, if you haven’t built a good repertoire with your suppliers, don’t expect special treatment.
Is it time to find new suppliers?
When all else fails, sometimes forging ahead with a new supplier is the most fiscally responsible route. Choosing the wrong supplier, however, can cause more problems than it solves, though, so performing due diligence is a must to find the best match.
Make sure that your business partner’s prices and payment terms allow you to meet your revenue targets, and that the supplier will be a reliable source for you long term. In some cases, you may need to explore new options for supplies, such as sourcing raw materials from lower-priced economies. You may also need to spend more on extra management upfront to ensure a smooth transition and avoid having the supplier change disrupt your supply chain.
How to make it work for you?
Rising supplier costs are a result of increasing raw material and shipping costs. To combat these cost increases, trim your costs in-house, foster stronger supplier relationships or, as a last resort, find a new supplier. Consult with your financial advisor to make sure your course of action is right for your distribution company.