How Price Reduction is possible every year?
How to partner with suppliers and reduce prices in the long run?
Many Auto companies negotiate with their suppliers for Price Reduction every year. With rising Raw Material Costs, Employee Costs, Power and utilities costs, is it really possible for the supplier to reduce prices every year?
Toyota and other Japanese manufacturers take a lot of steps to reduce the prices at the supplier’s end.
Work closely with the suppliers from the design stage itself. Suppliers’ inputs are considered in the design stage itself
Support the vendors in tooling and other technical areas
During the initial months, process may not be established. So the defect rate may be high.
During this time, Toyota’s team work closely with Supplier’s team in process improvements and standardisation. Over a period of time, the defects reduces.
So, the supplier also agrees to reduce the price of the component
In many Indian companies, this level of coordination and treating the suppliers as an extended part of your own company is missing. In this case, price reduction will be difficult.
What do you think? Does your company involve closely with vendors and help them in their operations or just ask for price reduction every year?
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- Ananth