Cost Scenario in Unstable Economy and Fluctuating volume

Economy in every country of the globe is trying to recuperate from the meltdown of 2008~09 and is still to find its firm footing back onto the path of growth. As a buyer it becomes very difficult to close any contract as with unstable economy, volumes are also fluctuating.

In the era of growth and increasing volume, there are abundance opportunities available at buyer end to push vendors for cost by showing the supposedly rosy picture ahead. The volume card also attract more vendors and thus more competition, all in all a perfect picture for buyer. But how to perform in challenging economy:

1. Consolidation: The best medicine of the problem. Consolidate the spend towards bigger and more stable vendors. Increasing their pie in reducing economy and volume helps in achieving the cost advantage and also it’s the strategy to derisk you in economy where small players might be facing financial issues.

2. Changing the strategy: The strategy in increasing volume is showing the rosy picture of business increase but in reducing volume, the strategy is to show a picture of “continuation of business”. The strategy helps in negating the effects of reducing volume as you can project a picture of continual engagement and thus showing supplier that they are part of the core group and they can reap rewards of the current engagement in future.

3. Revisiting basic cost drivers: This is the most basic concept and is the most effective one in all circumstances. Understanding all the cost drivers and try to reduce cost by using techniques like value engineering, value analysis, localizations of tier 2 parts, yield Improvement etc.