Still Squeezing the Suppliers?

Marketplace: Supplier gets dwindling sums for its parts

This story has been in the blog backlog, but it’s always an
important topic, the idea of not just squeezing your suppliers on
price. It’s not a good idea to just demand lower prices, without
partnering up on shared improvements. Why are so many auto
suppliers bankrupt? The lack of partnership in the industry has to
be at least a part of it.

We see the same dynamic in healthcare, where “reducing costs” often
means “squeezing the suppliers” (the doctors or the hospitals).
Forcing a “price reduction” is not the same as true cost reduction.
That’s not sustainable, continually forcing the price down because
you have market power. Maybe that’s one reason more healthcare
organizations are looking at Lean. With the pricing pressure, one
to keep their profits up is to reduce cost (and a lot of that has
to do with improving quality).

Many doctors are
backing out of the Medicare and Medicaid system and more are

dropping insurance plans that squeeze them too much (via
the Kevin M.D. blog).

“We were spending inordinate amounts of time and
resources on things that have nothing to do with the quality of
patient care,” said gynecologist Felice Gersh, medical director of
the four-doctor practice. “I would be more than happy to be a
member of all the health plans if they paid me reasonably and
quickly.”

Sounds like a lot of waste and Non Value Added activity? I know my
dentist’s office complains that my dental insurer purposely delays
payment or loses submissions, another form of “squeezing.”

Back to the Marketplace piece, a long-time supplier complains:

Myers says over the years, GM has pressured him to keep
prices so low that his last price increase was in 1984.

AL Myers: The methods that they’re
using now border on cruelty to animals. They’re so relentless and
so overbearing with their requests for price reductions that they
really don’t care whether you go out of business or not.

A GM spokeswoman says the company goes to extreme lengths to keep
suppliers profitable. Because when suppliers go out of business,
she says it’s disruptive and costly to find new ones. But in 2005,
GM said it would slash purchasing costs by 30 percent.

So is GM helping take 30 percent of the cost out of the supply
chain, or are they just squeezing and paying less?

I think, for both the manufacturing sector and for the sake of
healthcare, that we need to find more ways to be Lean, to find true
cost reductions (again, quality improvement and partnership are a
good start), instead of just slashing what we spend.