Plywood procurement is the main battlefield for cost reduction
When the uncertainty of the external environment increases year by year, plywood importers will not only face the fact that the prices of various raw materials have risen, but also face the pressure of industry competition and insufficient product premium capacity. At the same time, they will not be able to transmit all kinds of pressure to the downstream, causing many plywood importers to be on the verge of bankruptcy.
Plywood importers should practice hard in cost management, win the battle to reduce costs, and deal with various external uncertainties with internal certainty.
Therefore, we should cut into the practical problems of plywood importers from the cost reduction of plywood procurement:
Plywood procurement, as the dominant department of expenditure, has always been puzzled and misunderstood?
How to arrange resource pool and selection base, formulate negotiation strategy and implement cost optimization for plywood procurement?
What are the development stages of plywood procurement cost management experienced by international benchmark plywood importers?
Three Values of Plywood Procurement in Cost Management
Plywood procurement is the main force for plywood importers to reduce costs
In the business process of plywood importers, the purchase cost of plywood materials usually accounts for a large proportion. In many industries, the purchase cost of plywood accounts for more than 60% of sales.
Statistical analysis shows that the profit margin of plywood importers will increase by 5% – 10% for every 1% reduction in plywood purchasing cost of plywood importers. Therefore, it is said that reducing the cost of plywood procurement is the direct source of profit for plywood importers, and the cost management core of most plywood importers is also focused on the “main battlefield” of plywood procurement.
Plywood procurement is not only the cost element of plywood importers, but also the creator of competitive elements and value elements. Plywood procurement should not only reduce the management cost, but also build a comparative cost advantage, that is, it should be better than the plywood procurement cost and resources of competitors, so as to remain invincible in the future competition.
Plywood procurement is the fulcrum for internal and external collaboration to reduce costs
Plywood procurement not only plays a role of saving money, but also serves as a key supporting point for upstream and downstream processes, connecting upstream and downstream links such as R&D, manufacturing, supply and logistics, and reducing costs through efficient collaboration.
For example, plywood procurement has been involved early in the R&D and design stage (ESI basic scientific index database), to standardize and centralize the amount of traction materials, evaluate the ability of plywood suppliers to continuously reduce costs, avoid exclusive plywood suppliers, etc., and make a forward-looking layout of resources.
In the supply fulfillment stage, plywood procurement will manage the performance of plywood suppliers, assist in managing inventory and delivery quality, and reduce additional costs and risks.
Externally, as the window of plywood supplier management, plywood procurement is the executor and partner of plywood suppliers to reduce costs and jointly innovate. Whether the plywood procurement can do a good job of supporting the internal and external collaboration to reduce costs often has a greater impact on whether the plywood importers can achieve cost reduction and income.
Plywood procurement is the intersection of exposed cost problems
Plywood procurement is the link between plywood suppliers and plywood importers. It can be extended externally to promote the improvement of plywood suppliers and deepen the value of cooperation; Internally, it extends to different departments of plywood importers, so that plywood importers can find more problems, so as to help the internal “deep Taotan” and promote continuous improvement of management and processes.
The more perfect the corresponding cost problem handling mechanism and clear the responsibility, the more space and opportunities for plywood importers and plywood suppliers to reduce costs.
Perplexities and Mistakes in Reducing the Cost of Plywood Procurement
Plywood procurement contracting to reduce costs
Plywood procurement is a big undertaking, thinking that cost reduction is our own business, instead, we fall into the dilemma of “one tree cannot support itself”.
Some plywood importers believe that the purchase of plywood is the most direct link to reduce costs, and they should shoulder all cost management work. However, the cost is inextricably linked with R&D, manufacturing, logistics, inventory and supply chain. Even if the plywood procurement “mistakenly believes” that it is omnipotent and takes the initiative to take over KPIs, it still cannot achieve the company’s profit target, which is really difficult to support.
For example, the cost pressure of a plywood importer that the author investigated before is all in plywood procurement. The plywood procurement also believes that the plywood importer’s cost reduction is the price reduction of plywood procurement. Therefore, the plywood procurement directly shares the cost target with the plywood supplier and presses the plywood supplier to reduce the price. When quality problems occurred in the subsequent contract delivery, the business departments jumped out to shirk their responsibilities and blamed the plywood procurement: “It’s all the trouble caused by the low price! The price of plywood procurement should be solved by the plywood procurement. Anyway, the business did not participate…”
This is a very typical case. The business department feels that cost reduction is irrelevant and does not need to be held accountable; The whole process of plywood procurement was led independently. Although the plywood procurement was wronged, it did not realize that all business links should be linked with itself to control cost and quality; Not only the effect is not good, but also become a cost reducing “backer”.
Neglect hidden costs
Mistakenly thinking that reducing unit price is reducing costs, while ignoring the loss of hidden costs, we fell into the strange circle of cost reduction value evaluation.
Most plywood importers only see the cost reduction space brought by the reduction of plywood purchase unit price, but do not see a lot of potential cost waste behind the plywood purchase unit price, such as quality cost, delivery cost, inventory sluggish cost, etc. In fact, many plywood importers have the situation that “it seems that the purchase price of plywood has dropped a lot, but the actual profit contribution to the plywood importers is not high”.
Because the actual cost of each segment of transportation is much higher than the unit price, the circulation, handover, and loading and unloading of goods are delivered to different logistics providers by segment, resulting in an increase in handling costs, storage costs, inventory costs, goods damage, and logistics waiting waste. If the purchase of plywood focuses on the reduction of the overall cost, the import of plywood will get better benefits than the simple unit price reduction of each section.
Single means of cost reduction
Plywood procurement has a single means to reduce costs, lacks professional ability and methods of linkage and coordination with internal and external departments, does not hit the “pulse” of cost reduction in the whole process, and loses the cost competition point.
The common problem is that the cost reduction of plywood procurement is simple and crude, which directly imposes pressure on plywood suppliers and requires price reduction, and lacks the overall vision and method of coordinated development with plywood suppliers.
For example, a plywood importer started to talk about the mass production price with the plywood supplier in the R&D stage, but the design changes were made many times in the R&D and design stage, and the price of 80% of the components had risen during mass production. However, the plywood importer was strong enough not to allow the plywood supplier to raise the price, resulting in a large area of capacity problems during the delivery of large quantities. Finally, it was forced to increase the price to ensure delivery, but the best time for the product to be launched in mass production had been missed.
The real cost reduction is not to simply depress the price, but to cooperate with plywood suppliers and the company internally and externally, optimize the R&D design, plywood procurement mode, both parties’ work processes and management improvement, improve the quality and efficiency, reduce the cost “end-to-end”, and advance and retreat together from a global perspective.
The root cause of these puzzles and mistakes in plywood procurement
Lack of end-to-end cost management process
Most companies and plywood importers do not think that cost reduction is a whole process, lacking the concept of end-to-end cost management, cost management organization and process.
Plywood procurement is the main battlefield to reduce costs. There should be a mechanism to intervene in the cost management process of R&D in advance, play a limiting and supporting role in the R&D process, and build cost reducing DNA and resource layout advantages in advance.
Lack of reasonable assessment on plywood procurement cost reduction
There should be a set of scientific methods to measure the contribution of plywood procurement to the cost reduction of plywood importers, and to clarify the direction of cost management.
Lack of professional ability in plywood procurement and professional cost reduction methods
Among the plywood importers we visited in the past, most of the time spent by the plywood purchasers was in the process of bidding and negotiation. They lacked the corresponding methods and abilities to understand the industry development trend, think about the plywood procurement strategy, arrange the quantity of plywood suppliers in advance, and cooperate internally and externally to jointly reduce the plywood procurement cost.
What stages did the international benchmark plywood importer go through in reducing the cost of plywood procurement?
The lowest unit price is pursued in the purchase stage of plywood
Before 2021, the procurement of plywood is mainly based on bidding, and the price is preferred. The company has used electronic bidding for a long time, preferring the plywood supplier with the lowest cost. It is normal for the plywood supplier to switch frequently, quality problems occur frequently, and the factory production is often stopped.
With the gradual increase of business volume, the plywood procurement process and operation mechanism of Company A have been gradually established, and the Procurement Committee has started to operate. The company is customer-centric, and the low price brings high quality cost and recovery cost. The company gradually changes the practice of “reducing the unit price of plywood procurement”.
Pursue the best TCO comprehensive cost in the purchase stage of value plywood
From 2021 to 2022, focusing on the core concept of “value plywood procurement and sunlight plywood procurement”, we will focus on quality, TCO and comparative competitive advantage.
Plywood suppliers gradually converge to the mainstream and focus on sustainable development; Clear the long tail of categories, eliminate plywood suppliers with poor comprehensive performance and performance, and reduce the number of plywood suppliers; Establish TCO model, pay attention to indirect plywood procurement cost, and screen high-quality and favorable price plywood suppliers.
In the procurement stage of strategic plywood, the company pursues the product premium ability of “people have their own advantages without others”
From 2022, the concept of strategic plywood supplier and strategic category will be introduced to achieve the strategic goal of plywood importers and build the market competitiveness of products, and build the plywood purchasing ability of “no one has what I have, no one has what I have”.
From the development stage of the R&D front end, we began to cooperate and innovate more with mainstream plywood suppliers to explore more value of plywood suppliers. For plywood procurement, more consideration should be given to the design of industrial chain coordination, strategic mutual assistance and product premium, and how to complete strategic positioning, get rid of homogeneous competition and improve competitiveness.
In the procurement stage of intelligent plywood, the company pursues the initiative to drive the construction of the industrial chain ecosystem and the implementation of the value of plywood procurement
With the continuous evolution of digitalization, it has begun to enter the stage of intelligent plywood procurement. Through digital tools to drive active plywood procurement, risk early warning and response, more data support is used to enable plywood procurement, so as to support plywood procurement to better realize value plywood procurement and strategic plywood procurement.
With the upgrading of the development stage of plywood procurement business, plywood procurement has increasingly become the main battlefield for collaborative internal and external resources to carry out end-to-end cost management for plywood importers!
Cost management is a top priority project. Plywood importers should establish a correct concept of cost control, apply cost control to value chain management, formulate general cost objectives from the company dimension, and decompose them into all links and departments of business activities, so as to clarify their responsibilities and division of labor. The main body of cost control should be implemented to the department heads and relevant personnel of plywood importers.
Only by establishing the awareness of cost management of all staff, all directions and the whole process, can the cost management of plywood importers be truly implemented.
Cost reduction requires end-to-end cost management and control throughout the process, tapping the potential of cost reduction at each stage, not missing every opportunity to reduce costs, so that the costs under the iceberg can surface and be broken one by one.
Effective collaboration has been carried out in R&D, plywood procurement, manufacturing, inventory, quality, logistics, engineering, etc., and concerted efforts have been made to explore the space for cost reduction.
Quality is not the victim of cost reduction. Quality should protect costs.
In the logistics module
The logistics network is optimized by point, line and area, the warehousing is lean and the operation is standardized, the logistics plan is pulled, and the waiting waste is reduced.
