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As raw material and transportation costs continue to climb, many distributors are encountering price increases from their suppliers. Waiting for prices to stabilize isn’t an option for businesses feeling the pinch of these increases. Before deciding to cut your losses with a supplier, consider these strategies for working around rising supplier costs.
Charting how much each step of the manufacturing process costs is one way to understand where increased costs are coming from. Communicate with all involved in the process – the more information shared throughout the supply chain, the better.
If you find areas where prices have increased, make changes to protect your operations from spikes in supplier pricing. Consumers can sometimes take on costs you can no longer afford.
If that doesn’t work, look for other ways to increase your profits and cut costs, ultimately helping you weather the storm of high supplier costs. Many companies, for example, stock extra inventory because of a lack of supply chain visibility. Having reliable information on future orders prevents unnecessary overstocking.
Understanding the demand can also allow you to tap into lower costs by prepurchasing or bulk purchasing raw materials. As a bonus, bulk buying often carries extra leverage with suppliers and can give you some control over the relative price of materials.
Additionally, energy costs can add up quickly in large warehouses, so explore energy-efficient equipment and conserve energy whenever possible to save cash. Other resource-saving strategies include scheduling a regular night shift instead of overtime for workers and subleasing your facility when you’re not using it.
Loyalty and respect can prove valuable in relationships with suppliers, who usually make the final call on price increases. Keep them happy by doing the little things, such as paying your invoices on time and giving ample lead time on orders.
When you’re on the phone placing orders or talking with your supplier for any other reason, open up a little. They’ll appreciate learning more about your business, and it might help you figure out more practical solutions on both ends. Taking the time to visit their headquarters or invite them to company events is another way to foster a deeper level of trust and respect.
Building strong working relationships with suppliers can help you make compromises and reach fair prices, even during hard times. Conversely, if you haven’t built a good repertoire with your suppliers, don’t expect special treatment.
When all else fails, sometimes forging ahead with a new supplier is the most fiscally responsible route. Choosing the wrong one, however, can cause more problems than it solves, so performing due diligence is a must to find the best match.
Make sure your business partner’s prices and payment terms allow you to meet your revenue targets, and the supplier will be a reliable source for you long term. In some cases, you may need to explore new options for supplies, such as sourcing raw materials from lower-priced economies. You may also need to spend more on extra management upfront to ensure a smooth transition and avoid having the supplier change disrupt your supply chain.
Rising supplier costs are a result of increasing raw material and shipping costs. To combat these cost increases, trim your costs in-house, foster stronger supplier relationships or, as a last resort, find a new supplier. To make supplier cost cuts work for you, contact our manufacturing CPAs in Florida, Michigan, North Carolina or Texas.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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