Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Used Supplier Collaboration to Cut Costs 24 Percent
Transcript
- Lucas: So let's say you're a procurement director at a mid-sized manufacturer. Your margins are thin — call it 8 percent if you're lucky. Your CEO wants a 15 percent cost reduction from your supply base this year. And your suppliers are pushing back, because they're also squeezed. Where do you go? Luna: That's the classic squeeze — and most buyers respond by beating suppliers down on price. Which works once, maybe twice, before the relationship sours. Lucas: Right. And that's why I wanted to talk about a company that did something different. Summit Sheet Metal — based in Canton, Ohio — they're a mid-tier metal fabricator. About 200 employees, $45 million in annual revenue. Their head of procurement, a guy named Mark Delaney, told me about a supplier collaboration program they ran starting in early 2025. Luna: And the result was a 24 percent cost reduction — not just on one category, but across their top ten suppliers, covering about 70 percent of their direct spend. Lucas: Exactly. And what's interesting is that they didn't get there by threatening to rebid contracts. They got there by sitting down with suppliers and saying, 'Let's open our books. Let's find waste together.' Which sounds naive, but they had a very specific structure. Luna: What was the structure? Was it a formal program, like a supplier council or something? Lucas: It was a three-stage process. Stage one: joint cost transparency. Summit invited each of their top ten suppliers to a two-day workshop where both sides shared their cost breakdowns — labor, materials, overhead, profit margin. Not just Summit's internal costs, but the suppliers' costs too. Delaney said the first day was uncomfortable, because nobody wants to show their margin. Luna: I can imagine — that's basically asking your supplier, 'How much do you make off me?' Lucas: Right. But the rule was: everything shared in that room stays in that room. And Summit committed not to use the data to squeeze the supplier's margin below a mutually agreed floor. Instead, the goal was to find cost drivers that both parties could attack together. For example, one supplier was using a specialized steel alloy that Summit specified. But the supplier pointed out that if Summit relaxed the tolerance by 0.2 millimeters, the supplier could use a more common alloy, cutting material cost by 12 percent. Luna: And Summit agreed to relax the spec? That's a design change, not a procurement change. Lucas: Exactly. But Delaney brought in an applications engineer to verify the new spec would still meet the part's functional requirements. It did. So that single change saved Summit about $180,000 a year. And the supplier saved on material costs too, so they shared some of the gain. Luna: That's stage one. What was stage two? Lucas: Stage two: shared risk-reward contracts. Instead of a fixed price for the year, Summit and each supplier agreed on a target cost based on the transparent data. If the supplier beat the target, they split the savings — 60 percent to Summit, 40 percent to the supplier. If costs went up due to raw material spikes, Summit covered 70 percent of the increase. Luna: So the supplier isn't forced to absorb volatility. That's actually a big deal — I've seen so many contracts where the supplier eats the risk and then comes back for a price increase six months later. Lucas: Exactly. Delaney told me that in the first year, two suppliers hit cost overruns on steel — but because Summit shared the burden, those suppliers stayed engaged and actually proposed further cost-saving ideas. One suggested switching to a just-in-time delivery model that cut Summit's inventory holding costs by 18 percent. Luna: And that's where the collaboration becomes self-reinforcing. Suppliers stop hiding ideas because they know they'll benefit. Lucas: Stage three was the innovation sessions. Summit hosted quarterly cross-functional meetings with each supplier — not just procurement to sales, but engineers talking to engineers, quality people to quality people. In one of those sessions, a supplier's manufacturing engineer noticed that Summit's parts had a surface finish requirement that was driving extra machining time. They proposed a minor design tweak that eliminated a separate grinding step. Luna: How much did that save? Lucas: About $95,000 annually on that one part. And the supplier got a 40 percent share of that saving, so about $38,000. For a small supplier, that's meaningful. Luna: And Summit didn't have to invest anything upfront — the ideas came from the supplier's expertise. Lucas: Right. The total program cost Summit about $80,000 — travel, meeting space, a part-time facilitator. But the first-year savings across all ten suppliers came to $2.7 million. That's a 34-to-1 return. Luna: I want to dig into the cultural shift a bit. Because I think a lot of procurement leaders would say, 'Our suppliers aren't going to share their cost data. They'll think we're trying to lowball them.' How did Summit overcome that? Lucas: Delaney said the key was starting with suppliers they already had strong relationships with — not the ones they were constantly fighting. They picked three suppliers first, proved the concept, and then used those case studies to bring in the others. He also said they signed non-disclosure agreements that were specific to the cost data, and they had an independent facilitator from a consulting firm moderate the first few sessions. Luna: So it's a trust-building exercise, not a one-time event. Lucas: Exactly. And over time, the dynamic shifted. Suppliers started approaching Summit with cost-saving ideas without waiting for a formal session. One supplier suggested a packaging redesign that cut freight costs by 7 percent. Another proposed a consolidated shipping schedule that reduced Summit's receiving costs. Luna: That's the holy grail — suppliers becoming proactive partners. But what about the suppliers that didn't want to participate? Did any drop out? Lucas: Two of the top ten initially declined. One said they didn't have the bandwidth, another was skeptical. Summit didn't push them. They just focused on the eight who joined, and by the end of year one, six of those eight had achieved cost reductions of over 20 percent. The two holdouts saw the results and asked to join in year two. Luna: So the program became self-reinforcing. That's a great case study. I'm curious — what tools did they use to manage all this? Spreadsheets? A procurement platform? Lucas: They used a combination. For the cost breakdowns, they built shared Excel workbooks with protected cells — nothing fancy. For tracking the savings sharing, they used a simple dashboard in Power BI. Delaney said the key wasn't the tool, it was the governance: they had a monthly review where each supplier's savings were recalculated and payments issued within 15 days. Luna: Quick settlement reinforces trust. If you make suppliers wait 90 days to get their share, the program loses credibility. Lucas: Exactly. And I think that's one of the lessons that scales to any size company. You don't need a $500,000 software suite. You need a clear process, a willingness to share risk, and a commitment to follow through. Luna: Alright, before we wrap, I want to talk about something this whole approach reminds me of — it's a concept from lean manufacturing called 'co-creation of value.' But let's put a pin in that for a second. Lucas, I know you've been thinking about how to sustain these conversations without ads. And honestly, this is stuff that has genuinely helped people in their jobs. Lucas: Yeah, it's a good point. These episodes take real work — research, interviews, scripting. And they stay ad-free because of listeners who chip in a few dollars a month. If these conversations have moved your work forward in some small way, buy me a coffee dot com slash fexingo. That's it — no perks, no pressure. Just helps keep it going. Luna: Totally. A couple of bucks genuinely makes a difference. And we really appreciate it. Lucas: So back to that lean manufacturing concept — co-creation of value. It's not just a buzzword. In Summit's case, it was a concrete process that saved millions. And I think the reason it worked is that Delaney treated supplier collaboration as a capability to build, not a project to complete. Luna: Right — it's like a muscle. You have to exercise it repeatedly. And Summit is now rolling out a version of this program to their next tier of suppliers — the ones below the top ten. Lucas: Exactly. And they're targeting another 15 percent reduction from that group. But the interesting thing is that Delaney told me the biggest savings aren't from the cost-cutting ideas themselves — they're from the fact that suppliers now proactively flag issues before they become problems. One supplier recently warned Summit about a potential raw material shortage three months in advance, giving them time to source an alternative. Luna: That alone is probably worth more than the 24 percent cost reduction in terms of risk avoidance. Lucas: Absolutely. And it's an example of how procurement — when done right — can be a strategic advantage, not just a cost center. Luna: So for our listeners who are thinking, 'I want to try something like this but my suppliers won't trust me,' what's the first step? Lucas: Pick one supplier you have a decent relationship with. Invite them to lunch. No agenda, no cost data. Just talk about what's working and what's not. Then propose a pilot — maybe a single product line. Start small, prove the math, and let the results speak. Luna: And be prepared to share risk. That's the part most buyers aren't willing to do. Lucas: Right. You have to give something to get something. But as Summit showed, the return can be remarkable.