Booz Allen says it's better to play nice with your suppliers
By Staff -- Manufacturing Business Technology, 2/1/2005 7:00:00 AM
An annual "review letter" of industrial manufacturing trends from consulting firm Booz Allen, Hamilton, N.Y., points out that while 2004 was challenging, it saw the beginning of a recovery in industrial capital investment, and some U.S. manufacturers delivered "reasonably good financial results."
Themes for 2005 continue those of 2004, with an emphasis on globalization as the motive for managers pushing to lower costs through lean manufacturing and supply chains. The letter's author, Barry Jaruzelski, VP, global technology practice, says there will be no slowing of China's gains as a manufacturing powerhouse, and U.S. automotive and industrial manufacturers plan to more than double the percentage of overall spending awarded to low-cost countries by 2008.
After years of extracting 5-percent to 10-percent price reductions annually from domestic supply bases, U.S. manufacturers must now make careful decisions about where they source product based on total landed costs, even as they use lean and better supply chain management as the means to further domestic cost cutting.
The predicted supply chain management changes are perhaps the most interesting. Companies have focused their business strategies and made greater use of outsourcing, expanding their total number of suppliers. But according to Jaruzelski, soliciting bids for every new part or materials program and then negotiating aggressively on price will in the future be found less effective than collaborating with suppliers to "attack waste in the supply chain, coordinate business strategies, and jointly manage resources for competitive advantage."
With 40 percent to 70 percent of costs embedded in the supply chain—and with potential savings of a restructured supply base amounting to 20 percent during its first two or three years, according to Booz Allen—"companies that stick with confrontational and transactional pricing models" will find it hard to squeeze out costs.
