How to reduce procurement costs

How to reduce procurement costs

The development direction of China’s manufacturing industry should be: high quality, low cost, and reasonable profits. Galanz, which I once worked for, belongs to this type of company: it uses the total cost leadership strategy to continuously reduce costs (especially procurement costs, which are reduced by 10-15% every year) while ensuring product quality, and continues to earn reasonable profits, so that last year Sales volume reached 13 billion yuan, accounting for 50% of the global microwave oven market. Today I will bring you some relevant information to help you, I hope it will be helpful to you!

Let’s briefly discuss how companies can reduce procurement costs based on Galanz’s experience:

1. Purchasing department: turn the cost center into a profit center

Raw material costs Accounting for 60-70% of Galanz's total cost, procurement cost is Galanz's most important cost and is also the key department for annual cost reduction.

Whether it is established companies such as Panasonic and General Motors, or emerging companies such as Dell and Hewlett-Packard, they have built strong procurement departments and perfect and sophisticated procurement systems. The purchasing department is not only a department that purchases raw materials, it is also one of the profit centers of the enterprise. Why? Think about this formula and you will understand:

Revenue - cost = profit.

That is to say, when the revenue remains unchanged, reducing costs means increasing profits. So we have every reason to think that the purchasing department is also a profit center.

2. Continuously develop suppliers and create a competitive situation

The development and management of suppliers should be dynamic. The ideal state is to use the catfish effect to continuously develop new and more threatening suppliers, so that like catfish activating sardines, it creates an atmosphere of competition among suppliers.

Ford Motor’s method of developing suppliers is: first rough selection, and eliminate those that are definitely unqualified among many suppliers based on their hardware facilities, technical strength, environmental standards and other indicators. Companies that pass the rough selection can participate in the formal bidding for Ford procurement. The winning bidder is not always the one with the lowest bid. The main criterion is the feasibility of the bid. After the supplier wins the bid, it will supply according to Ford's requirements. With every tender, new faces often appear.

There should be more than three suppliers of major commodities and materials, and at least one more should be developed every year.

3. Ask for profits from suppliers

Liang Qingde, president of Galanz, believes that the most effective weapon for procurement personnel when negotiating with the other party is to understand the reasonable cost level of the supplier. In order to cultivate this ability of purchasing personnel, Galanz's material supply department found various similar products on the market and analyzed the lowest cost to produce this product. An analysis of flashlights gave everyone the deepest impression. A flashlight that sells for about 10 yuan on the market can be made with a minimum of 2.5 yuan.

Coincidentally, most of the suppliers who deal with Wal-Mart have a love-hate relationship with Wal-Mart. What I love is that products sold in Wal-Mart will sell well, but what I hate is that Wal-Mart is very clear about the costs of suppliers, and their profit margins are kept at a low level.

4. Win the most with suppliers

Cooperating with suppliers to achieve the best win is the unremitting work of far-sighted enterprises. If you only care about your own interests, you will be abandoned by your suppliers.

"In a fight of swords and swords, doubles are always better than singles," Liang Qingde promoted his concept of "strategic alliance" when he visited important suppliers at the end of 2002. As the global champion of microwave ovens and becoming the individual champion of multiple home appliances, Galanz is a veritable "world factory". Being able to become a supplier of Galanz, as Galanz enters a high-level manufacturing platform in the world, is the goal pursued by many suppliers. Many suppliers also highly recognize Galanz's advantages such as zero inventory, and are optimistic about Galanz's potential to become the number one in the air-conditioning industry in the future.

Galanz attaches great importance to integrity and resolutely abides by the 45-day payment period in terms of payment terms. It will automatically pay when due. It will not find various excuses to delay and then wait for suppliers like some companies in the industry. Come "do the work". For these reasons, many suppliers are willing to cooperate with Galanz.

Foshan Fangpu Company has been supplying Galanz since 1993. The boss’s experience is, “The supply pressure for Galanz is very high, and it has to drop every year. I have to take the initiative to keep up with their requirements.” . But he is very happy because there is no need to engage in "public relations" to supply Galanz. "This is something I am least good at, and they (Ganz's purchasing staff) are the least willing to have suppliers have relations with them."

Galanz’s material supply line discusses with suppliers solutions for reducing parts costs and actively helps suppliers reduce costs. Galanz attaches great importance to achieving long-term cooperation with suppliers and works together towards the goals of higher quality and lower cost.

As the only supplier of thin steel plates for home appliances in China, in order to further strengthen emotional communication with Galanz, Baosteel Southern Company specially invited employees of Galanz’s material supply system during the 2003 Spring Festival to hold a special New Year’s Eve party. At the party, a banner hung at the venue showed the customer relationship between the two companies - "Baosteel Southern Galanz = good friends!"

5. Bidding and price comparison skills

March 2004 On the afternoon of the 6th, the Galanz Microwave Oven Carton Procurement Bidding Meeting was successfully held in the conference hall on the eighth floor of Building 2 after careful preparation. Representatives from nearly twenty carton manufacturers from Guangzhou, Foshan, Zhongshan, Shunde and other places each held a seat and started a fierce competition. Tendering will be conducted in accordance with the principles of fairness, impartiality and openness. After several hours of fighting, dozens of cardboard boxes of flowers each had its own owner, and the bidding meeting was a great success.

Hutchison Whampoa stipulates that all procurement must be conducted through bidding. A purchase of more than 3,000 yuan must have more than 3 bidders, and a purchase of more than 5,000 yuan must have more than 5 bidders. After bidding and price comparison, the buyer can make a preliminary price. However, what the buyer orders does not count and must be audited by experts within the company.

Audit experts routinely build a database of procurement costs. The database includes data such as market prices and cost components of similar products from many manufacturers. If the data is incomplete, extensive inquiries will be conducted. Audit experts believe that the buyer's quotation is reasonable and the purchase will be valid only after signature. Even the general manager must obey the expert's opinion.

Another tip for bidding price comparison is: each cost must be listed separately in the bid, rather than just a total price. This way you can see the moisture in it.

6. Manage purchasers well

Corrupt phenomena such as purchasers taking kickbacks have no room for survival in Galanz. Galanz's managers will directly visit the other party's senior management before the cooperation between the two parties begins, and express their firm determination to "deal under the sun" to the supplier's senior management. Since the senior management has communicated this concept, the supplier's senior management will not have this idea again. If the other party engages in such actions in private, Galanz may terminate its cooperation with the supplier.

Galanz’s quality requirements for purchasing personnel are: let the opponent fully feel your sincerity; do not promise things that you are very sure of; speak less and listen more, stay still; ask more and listen to the other party’s statements and Ask for it, then seek a breakthrough.

Galanz also places special emphasis on integrity and integrity in employee education, supplemented by strict institutional requirements. Since Galanz is a company with long-term development prospects, employees, including procurement staff, are prone to have long-term plans in the company, and usually do not want to lose their long-term position in the company by doing short-term actions such as "getting kickbacks." development opportunities. ;