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Cost Reduction and Control Best Practices: The Best Ways for a Financial Manager to Save Money, 2nd Edition by Institute of Management and Administration

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Chapter 10

Purchasing Costs

BEST PRACTICES

COST-CONTROL “GET TOUGH” ATTITUDE

“It’s about how to respond to the economy, and the change in business conditions.” That’s what respondents are saying as they describe their primary cost-control best practices in IOMA’s annual reader survey. Specifically, they are taking a tougher stand on price increases, which for the first time attracted more than half (52.3%) of the respondents, and renegotiating existing supplier contracts (55.7%). Price hikes are being fought equally hard by purchasing and supply managers and executives in both the small and midsize, and larger organizations (50.7% and 53.9%, respectively).

The mood of the respondents and their choice of practices is best shown through their comments. For example, a purchasing manager at a midsize producer of construction equipment stated, “We’ve taken a tougher stand on price increases. If the original vendor won’t budge on a new price, we will go to a low-cost country, or to a low-cost/more efficient domestic supplier.” A director of strategic sourcing at a major metals and metal-forming organization maintained, “We’ve capitalized on the current economic cycle to renegotiate all of our major supplier contracts where feasible. By so doing, we’ve also obtained better payment terms.”

Return of Supplier Base Reductions

Another indication of the impact of the economy is the resurgence of the former long-time top best practice, consolidating the supplier base. After several years of ...

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