Negotiating for profit: Reviewing supplier contracts to increase profit margins and lower costs

White and orange semi trucks and trailers on high way

S&OP Maturity Series, part 3 of 5

Readers of my previous posts (part 1 and part 2) will have seen how Q Co. has successfully integrated the new ASDF account into their normal business procedures. Optimized solutions for both demand and supply planning are used to chart the safest (and most profitable) course of action. However, as always, new challenges await. To see what happens next, let’s check back with Andrew.

Cost savings for a competitive advantage

While the additional business brought in with the ASDF contract is great for Q Co.’s growth, it can’t rest on its laurels just yet – the company’s headquarters has adjusted the company’s annual plan. The bar has been set higher and the plant is falling short in achieving the financial goals set for its contribution margin and costs.

Andrew meets up with Chang (supply chain director of his business unit), Rajiv (from finance) and Janet (from logistics). Their S&OP software enables them to increase their planning horizon to 18 months. End-to-end visibility of the supply chain gives them insights into the expected costs. This makes it possible for them to identify areas of opportunity to cut costs and improve profitability.

More importantly, the insights gained provide valuable support for them to negotiate better contracts with their suppliers. Sourcing forecasts of their S&OP allows them to negotiate for lower prices for some of their raw materials. They are also able to shorten lead time in multiple areas such as sourcing and logistics. New contracts are drawn and accepted.

The next piece of the puzzle

With the current operations in optimal form, Q Co. looks to greater aspirations – such as global growth. How can Andrew step up to chart the course for business expansion? Is he ready to take his seat at the main decision-making table? It’s no more about fixing immediate problems. Here’s his chance to have a say in the company’s direction. Look out for our next post to find out if Andrew has what it takes to rise to the occasion.

Sales and operations planning brings a host of business benefits – if you can implement it well. Learn how to improve the process in this 35-minute presentation.

This post was previously published on LinkedIn.