Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Used Supplier-Led Capacity Sharing to Avoid Stockouts
Transcript
- Lucas: You're the procurement lead for a mid-sized manufacturer, and your sole-source supplier just told you they can't keep up with demand. Your first instinct might be to find a second source — or pay through the nose for expedited shipping. Luna: Right, and both of those options cost time and money. But there's another route — one that actually brought costs down. What's the move? Lucas: It's called capacity sharing, and it's what Sarah Chen did at MedCore Devices. MedCore makes specialized medical devices — think surgical tools — and one of their critical components was a custom-molded plastic part. Single source, long lead times, and suddenly demand jumps thirty percent year-over-year. Luna: So the supplier is basically saying, 'We're at max capacity, you're out of luck.' How did Sarah respond? Lucas: She didn't just accept it. She asked to see their production schedule and cost breakdown. And that's where the insight came: the supplier had older machines sitting idle because they weren't efficient enough for their regular runs. But for MedCore's specific part, those machines could work if retooled. Luna: So she proposes something like, 'Let me fund the retooling, and you give me guaranteed output at a lower price?' Lucas: Exactly. MedCore agreed to pay for the retooling — roughly one hundred and fifty thousand dollars — and then the supplier dedicated that line exclusively to MedCore's component. In exchange, MedCore got a seven percent price reduction on the per-unit cost and guaranteed weekly delivery quantities. No more expediting fees, no more scrambling. Luna: And the supplier benefits because they get a funded line improvement without risk, plus a committed offtake. Sounds like a win-win. But I imagine the legal team had some concerns. Lucas: They did. The contract had to cover what happens if demand drops — MedCore didn't want to be stuck paying for unused capacity. So they negotiated a minimum purchase commitment of eighty percent of the line's output for three years. If demand fell below that, MedCore could sublease the line to other buyers. That flexibility was key. Luna: And what happened in practice? Did it actually avoid stockouts? Lucas: Over the next six months, MedCore had zero stockouts on that component. Their on-time delivery rate went from eighty-two percent to ninety-nine percent. And the total cost of ownership — factoring in the retooling investment, the lower unit price, and zero expediting — dropped twelve percent year-over-year. Luna: That's a strong outcome. But I'm curious — how does this differ from just vertically integrating and buying the supplier? Or from classic multi-sourcing? Lucas: Good question. Vertical integration means you own the asset, manage the labor, take on all the operational risk. Here, MedCore doesn't own the line — they just funded it. The supplier still operates it, handles maintenance, deals with labor. So MedCore avoids the headache of running a factory while still getting priority access. Luna: And versus multi-sourcing? I mean, you could qualify a second supplier, but that takes time and volume split. Lucas: Right. Multi-sourcing spreads risk, but it also splits volumes, so you lose economies of scale. With capacity sharing, you keep single-source volumes, which typically give you better pricing, and you secure the supply. Of course, it only works if you have a high level of trust and cost transparency with that supplier. Luna: And that trust has to go both ways. The supplier has to share their cost data, their capacity constraints. Not every supplier will do that willingly. Lucas: That's the real barrier. Sarah told me that the breakthrough came when she showed the supplier MedCore's own demand forecasts for the next three years — including a worst-case scenario that was lower than current production. That honesty convinced the supplier that MedCore wasn't just trying to squeeze them, but actually wanted a sustainable partnership. Luna: So it's almost like a strategic alliance, but limited to a specific line. That feels different from the typical buyer-supplier relationship where the buyer keeps the supplier at arm's length. Lucas: Exactly. And this kind of arrangement isn't new — it's been common in automotive and electronics for decades. But it's underused in mid-market manufacturing where buyers often default to either accepting stockouts or paying for expedited freight. Sarah's case shows that a little creativity and transparency can unlock a better deal. Luna: Speaking of unlocking better deals — you know, conversations like this one, where we dig into real procurement tactics, they take time to research and produce. A couple of dollars a month from listeners is genuinely what keeps these episodes ad-free and accessible. If you've gotten something out of this, consider buying us a coffee at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small way to support the work — and it really does make a difference. We appreciate everyone who chips in. Now, back to capacity sharing — one detail I want to highlight is how MedCore measured success beyond just stockout avoidance. Luna: What were the metrics? Lucas: They tracked the 'cost per good unit received' — which includes the retooling amortized over three years, the unit price, and any expediting fees. Before the deal, that number was about forty-two dollars per unit. After, it dropped to thirty-seven dollars. That's a twelve percent improvement. Luna: And that's without accounting for the revenue they saved by not having stockouts. If a stockout had stopped production for a week, the lost sales would have dwarfed the retooling cost. Lucas: Absolutely. Sarah estimated that even one stockout event would have cost them over two million dollars in lost revenue. So the one hundred fifty thousand investment was a no-brainer in hindsight. But it took her willingness to look beyond the purchase order and think like a partner. Luna: So what's the takeaway for a procurement professional listening right now? If you're facing a capacity constraint, what should you do first? Lucas: First, ask your supplier for a transparent view of their capacity and cost structure. If they're hesitant, offer to share your own forecasts as a sign of good faith. Then look for underutilized assets — a machine, a shift, a warehouse — that you could help activate. The investment doesn't have to be huge; it just has to solve a specific bottleneck. Luna: And if the supplier says no? Then you're back to multi-sourcing or vertical integration. But at least you tried the lower-risk option first. Lucas: Exactly. Capacity sharing isn't a silver bullet, but in the right context — high trust, single source, growth demand — it can turn a crisis into a strategic advantage. And that's a skill every buyer should have in their toolkit.