Transitioning one business unit, one commodity family, or one component at a time is feasible, and may be advisable. Making incremental changes rather than changing everything at once is both much less difficult and more likely to succeed. But doing nothing is not acceptable.
As competition intensifies, we expect manufacturing companies that stick with the confrontational and transactional pricing model will find it harder and harder to squeeze out costs. Rather than worrying today about giving up a little margin to a supplier in the pricing of a specific part, we believe it is far more cost-effective to develop deeper knowledge of suppliers’ strengths and weaknesses — and help them to improve their business. Ultimately, the proof of our argument is in the outcome. The current bidding model has its merits, but it will not, in the long run, be as beneficial as the advantaged supply network model for managing price and driving innovation.
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Bill Jackson ([email protected]) is a vice president with Booz Allen Hamilton in Chicago. He works on major organizational change programs, including restructurings, post-merger integrations, and growth, for a variety of industrial clients, especially in the global automotive industry.
Conrad Winkler ([email protected]) is a principal with Booz Allen Hamilton in Chicago. He advises companies across industries on supply chain management improvement and manufacturing strategies, with a focus on the automotive and aerospace sectors.
The authors thank Brian Long, formerly of Booz Allen Hamilton and currently director of supply chain management for International Truck and Engine Corporation, for his contribution to this article.