Increasing Value and Savings

As companies struggle to increase customer value by improving performance, many companies are turning their attention to purchasing and supply management. Consider, for example, CSX, the company featured at the beginning of this chapter. Almost 45 percent of the total sales of CSX is expended with suppliers for the purchase of materials and services. It does not take a financial genius to realize the impact that suppliers can have on a firm’s total cost. Furthermore, many features that make their way into final products originate with suppliers. The supply base is an important part of the supply chain. Supplier capabilities can help differentiate a producer’s final good or service, increasing their value to the final customer.

In the manufacturing sector, the percentage of purchases to sales averages 55 percent. This means that for every dollar of revenue collected on goods and services sales, more than half goes back to suppliers. It is not difficult to see why purchasing is clearly a major area for cost savings. Cost savings also encompasses avoiding costs through early involvement with design and proactively responding to supplier requests for price increases.