Many companies have exhausted the traditional sources of cost savings in their purchased materials and services. They’ve designed products with an eye toward low-cost production, aggregated purchases and exercised their buying power with suppliers, adopted sophisticated tender and negotiation tools, and optimized logistics to further enhance savings.
What’s left when cost savings from these critical levers aren’t enough? Some companies are turning to their suppliers and service providers for new ideas, setting up hands-on workshops to dig deep into ways to further improve products, processes, purchasing performance, and logistics with the goal of reducing costs, shortening lead times, improving service, and enhancing quality. A fresh set of eyes with an outside perspective can be a catalyst for new ideas. That’s why we call these sessions catalyst workshops.
Too often, companies turn their interactions with suppliers and service providers into adversarial power plays, always pushing for lower prices. But price cuts rarely confer a sustainable market advantage. Instead, by working closely with these potentially valuable partners to rethink costs along the combined value chain, companies can change their underlying cost structure for a long-term competitive edge and access their suppliers’ best ideas. Unlike the traditional supplier relationship, this approach is collaborative rather than combative, win-win rather than win-lose. It focuses on total costs, not just price, and looks at end-to-end processes and the value chain as a whole instead of as separate pieces. Because the analysis is so far-reaching, suppliers and service providers, too, can find new ways to drive out costs from their operations, so all parties benefit. At the same time, relationships between companies and their key suppliers are strengthened.
The new ideas that catalyst workshops generate can lead to cost savings throughout the value chain—major, sustainable cost savings that might never have been considered otherwise. A typical session can deliver hundreds of cost-saving ideas, half of which can typically be implemented. In our experience, cost savings range from 2 to 8 percent per year per session for product-related workshops and up to 20 percent for service process improvements, although savings of up to 50 percent are possible. Repeating a session usually leads to further savings.