Volatile and rising prices among many commodities are playing havoc with corporate budgets. While companies may have little control over the price of raw materials or fuel, they can find ways to offset these rising costs, says Greg Holt of CombineNet.
The key is to focus on costs over which a company can exercise control, and the two biggest of these are manufacturing and transportation costs. "Finding different ways to work with or collaborate with suppliers is one area where many of our customers are managing to reduce costs to balance commodity price increases," says Holt.
"The supply base knows the business of its primary customers very well and these vendors have some unique capabilities that can drive efficiencies in both the supply chain and manufacturing process," Holt says. As an example, he cites a food company that was hard hit by the rising cost of steel, since many of its products are packaged in steel cans. This CombineNet customer traditionally had purchased steel coil from suppliers, which it transported to a manufacturing facility to be cut into sheets and laminated. These laminated sheets then were shipped to another plant to be made into cans. The cans, in turn, were shipped to a food production facility to be filled.
This company went to its suppliers and asked for help in finding ways to improve the efficiency of this process and to cut costs, Holt explains. After consultations, the supplier was able to present an offer under which it would cut and laminate the steel before it was shipped, taking significant costs out of the manufacturing process.
These two companies went even further, however, and also looked at issues around fuel, transportation and freight. "Traditionally, the steel supplier would provide freight to the manufacturer, but the manufacturer is a large company that has extensive freight contracts with potentially better transportation rates," says Holt. The company identified several transportation lanes where it could further reduce costs by leveraging existing transportation contracts. "These steps didn't completely offset the rising cost of steel, but they did help significantly," says Holt.
CombineNet helps create a marketplace within which companies can identify these opportunities, says Holt. "Our solution is an advanced sourcing application platform that opens up the marketplace for more expressive and creative proposals from suppliers. This enables our customers to tap into their supply base to drive efficiency and innovation in the supply chain that reduces costs in their business, beyond material or commodity costs."
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