Where’s the Innovation?

Jennifer Baljko's latest blog got me thinking about supply chain innovation. (See: Fending Off the Budget-Planning Monster.) Her question, "How can they lower supply and materials costs while keeping supplier and customer relationships intact?" is about supply chain. Her comment, "The approaches, however, don't strike me as particularly novel," is about innovation. She can't see it, and, for the most part, neither can I. I think back ten or twenty years when Dell Inc. gained fame for its revolutionary cash-to-cash cycle supply chain, when Hewlett-Packard Co. (NYSE: HPQ) was innovating with supplier relationship models and when Wal-Mart revolutionized retail with its...

Author: Category: Corporate, StrategyComments: 0Post Date: February 11, 2011

The Art of Pricing

Buyers want to get good value for their money, and sellers want a good return on what is sold. Coming to agreement on what price satisfies both parties involves a process of negotiation. When someone buys, it is a cost; when someone sells, it is a price. Supply chain professionals are on the buy side so they are concerned about cost: Are their costs competitive, are there cost reduction opportunities, and are they getting good value for their spending? If pricing is an art, it follows that there is no fixed formula that determines what a supplier will charge. If it...

Author: Category: Component Pricing, Cost, Product CostComments: 0Post Date: February 3, 2011

Trust but Verify

I talked to a woman on a plane a few weeks ago; not unusual. She talked about how ineffective many of the HR training programs are in improving performance; again nothing unusual. Her post-doctorate work in this area revealed that people operate with self-imposed constraints limiting their performance and potential; very unusual. These constraints can be eliminated, increasing productivity and potential; very cool. It’s unfortunate that when people work for companies, they bring these constraints to work. If the self-imposed constraint argument is true, then are we letting our offshore manufacturing friends have an easy win? Many articles have been written...

Author: Category: Component Pricing, Cost, Product CostComments: 0Post Date: January 13, 2011

Values Up or Prices Down

The Internet, enabled by cool applications, has brought the process of competitive bidding to an entirely new level. Reverse auctions, for example, have squeezed savings out of suppliers in every situation I am aware of. But it’s getting worse for suppliers. Some companies are using bidding to gauge a supplier's competitiveness. That may be clever and effective for component buyers, but it is tough on suppliers. Two-step bidding may not be new, but using the Internet changes it significantly. I have written before about the need for companies to be the low-cost producers in the market spaces they choose to be...

Author: Category: Component Pricing, Corporate, Cost, StrategyComments: 0Post Date: December 2, 2010

Eventually, It All Boils Down to Cost

We should be grateful that accountants invented the concept of gross margin. The simple formula -- revenue minus cost divided by revenue -- really becomes valuable once we get past the arithmetic and view it as the extra value seen by a customer over a product's manufacturing cost. This extra value can be a result of superior technology or service or lower costs of manufacturing from better business processes or procurement. Customers determine price. Their buying decisions set the price and assess this value. However, shareholders set the gross margin. Those who buy or hold stocks bias a company’s valuation through...

Author: Category: Component Pricing, CostComments: 0Post Date: November 22, 2010