Latest / The Buyer's Side with Fexingo: Procurement, Sourcing, and B2B Purchasing Decisions / How One Buyer Cut Costs with Supplier Collaboration
Transcript
- Lucas: So last month I was talking to a procurement director at a mid-sized manufacturer — let's call them Meridian Components — and they told me they cut their direct materials spend by twelve percent over eighteen months. Not by squeezing suppliers, not by switching to cheaper sources. By collaborating with them. Luna: That's a big number. But 'collaboration' can mean a lot of things. What did they actually do differently? Lucas: Good question. The key was shifting from annual bidding wars to multi-year partnerships with a small set of top-tier suppliers. They picked their top ten by spend, invited them to a summit, and basically said: 'We want to work with you on cost reduction, not against you.' Luna: And the suppliers just went along with that? I'd be suspicious if a buyer suddenly wanted to hold hands. Lucas: Right, that's the natural reaction. But they came with something concrete: a commitment to share twelve-month volume forecasts, which let suppliers plan production better and buy their own raw materials at better prices. And they offered to co-invest in tooling and process improvements, sharing the savings fifty-fifty. Luna: Sharing forecasts is a big trust leap. Most buyers guard that data like a state secret. Lucas: Exactly. And that was the first hurdle. Their own sales team resisted sharing forecast data, worried it would leak to competitors. But the procurement director made a case: the upside in cost savings outweighed the risk, and they only shared rolling three-month firm orders plus an indicative twelve-month outlook. Not the full pipeline. Luna: So they started with a limited data share. What happened next? Lucas: Once suppliers saw the forecast was reliable — and they did deliver on it — the suppliers started offering ideas. One of them suggested a different grade of steel that was cheaper but met all the specs. Another proposed a redesign of a machined part that reduced scrap by eight percent. These were ideas they would never have offered under the old bidding model. Luna: Why not? Because they'd have been giving away margin? Lucas: Exactly. In a bidding war, every cost cut is just a margin cut for the supplier. But in a partnership where they get a share of the savings, they're motivated to find real efficiencies. Meridian set up a simple gain-sharing formula: any documented cost reduction — validated by both sides — gets split fifty-fifty for the first year. Luna: That's a powerful incentive. Did it actually work in practice? Lucas: It did, but not without hiccups. The first quarter, only two suppliers brought ideas, and those were small. The procurement team realized they needed to invest in joint workshops — kaizen events, value engineering sessions — where engineers from both sides sat together and tore down a product's cost structure line by line. Luna: So they had to do the heavy lifting to get the ball rolling. Lucas: Right. They funded the first few workshops themselves, showed they were serious. And then the ideas started flowing. One supplier proposed a different packaging design that cut freight volume by fifteen percent. Another suggested a shared inventory hub for common raw materials, which reduced lead times and emergency shipping costs. Luna: Those don't sound like the typical supplier suggestions you'd get in a request for proposal. Lucas: No, because they required a level of trust and long-term thinking. The RFP process is inherently transactional. You're asking for a price on a fixed specification. Collaboration opens the door to challenging the specification itself. For example, they found that one component had an unnecessarily tight tolerance that was driving up machining time. The end customer didn't need it. Relaxing it saved eleven percent on that part. Luna: That's the kind of thing only a supplier who knows their process could spot. Lucas: Exactly. And the cumulative effect was big. Over eighteen months, they logged forty-seven distinct cost reduction ideas. Not all were implemented, but the ones that were covered everything from material substitution to logistics optimization. The twelve percent figure came from a combination of price reductions, process improvements, and lower total cost of ownership. Luna: What about the suppliers who didn't want to play ball? Did they lose business? Lucas: Interesting question. They didn't cut anyone immediately. But they focused more volume on the collaborative ones. Within a year, those suppliers got roughly twenty percent more business, while the non-collaborative ones stayed flat. It was a natural incentive, not a threat. And actually, two of the initial skeptics came around once they saw the others getting more orders. Luna: So it was a carrot, not a stick. But I'm wondering — how did they measure the savings so precisely? Collaboration often gets fuzzy on the numbers. Lucas: They set up a joint cost model for each major category. Both sides agreed on the baseline cost — material, labor, overhead, profit — and then any change to that baseline was tracked. They had quarterly review meetings where they went through each idea, the actual savings, and the split. It was rigorous, but it built credibility. Luna: And who validated the baseline? I can imagine disputes over what 'true cost' is. Lucas: They used a third-party cost estimator for the initial baselines. It cost money upfront, but it avoided a lot of arguments later. Once the baseline was set, any improvement was clear. And they also shared the gains in a way that felt fair — not just a one-time price cut, but a percentage of the actual savings for a defined period. Luna: That sounds like a genuine partnership. But is this replicable for smaller buyers who don't have the leverage of a large manufacturer? Lucas: Actually, the interesting thing is that Meridian isn't huge — about four hundred million in revenue. They were a significant customer for their suppliers, but not irreplaceable. What made it work wasn't leverage; it was transparency and a fair gain-sharing mechanism. Even a smaller buyer can start with one or two key suppliers and one category. Luna: So the first step is picking a partner, not a vendor. Lucas: Right. And it helps to start with a commodity where there's room for innovation — like packaging, or a custom component, not something like standard bolts where cost is already optimized. You want a supplier who has engineering capability and a willingness to think beyond the purchase order. Luna: What about the internal culture? You mentioned the sales team was resistant. Were there other internal barriers? Lucas: Oh, plenty. The finance team was skeptical about sharing gains — they saw it as giving away money. But the procurement director framed it as an investment. And the legal team had to rewrite NDAs and add a collaboration clause to contracts. There was also a mindset shift needed from 'supplier management' to 'supplier relationship management' — sounds like a buzzword, but it changes how you run meetings. Luna: That's a big cultural shift. How did they get buy-in from their own people? Lucas: They ran a pilot with two suppliers, tracked every metric, and then presented the results to the board. Once the numbers showed a four percent cost reduction in the first six months — without any quality issues — the skeptics started to come around. Success sells. Luna: It's funny, we talk a lot on this show about tools and tactics, but this one is really about trust and a long-term mindset. Lucas: Absolutely. And it's something we believe in here at Fexingo too. You know, we keep this show free and without ads, and that's a deliberate choice. We think the value of these conversations is in the ideas, not in selling you something. If that resonates with you, and you want to support what we do, there's a link on our site — buy me a coffee dot com slash fexingo. No pressure, but it allows us to keep doing this. Luna: Yeah, and honestly, Lucas, we've had listeners tell us that a single tip from an episode like this has saved them thousands. If that's you, consider buying us a coffee. But back to the topic — I want to know if Meridian's experience is an outlier or a trend. Lucas: I think it's becoming more common, especially as supply chains get more complex. After the disruptions of recent years — the pandemic, the shipping crises — a lot of companies realized that transactional relationships are fragile. When you need a supplier to prioritize you in a crunch, it helps to have built some goodwill. Luna: So collaboration is also a risk mitigation strategy, not just a cost cutter. Lucas: Exactly. Meridian found that during a raw material shortage last year, their collaborative suppliers gave them better allocation than other customers. That wasn't in any contract, but it came from the relationship. And that's something you can't buy with an RFP. Luna: So the biggest takeaway for a procurement professional listening right now would be... what? Lucas: Start small, but start. Pick one supplier you trust, share a little more information than you're comfortable with, and propose a gain-sharing arrangement. The worst that happens is they say no, and you've lost a few hours. The best case is a twelve percent reduction in spend and a supplier who's invested in your success. Luna: That's a compelling pitch. And it's a nice change from the usual 'squeeze the supplier' advice. Lucas: It is. And I think as procurement evolves, the winners will be the ones who figure out how to collaborate effectively, not just negotiate harder. The data is clear: when you treat suppliers as partners, they act like partners. Luna: Well, on that note, I think we've given our listeners something to think about. Thanks for sharing that case, Lucas.