Food and household products makers are rethinking the way they work with suppliers to trim costs and get a first crack at new products, as they try to increase sales in mature industries.
Too many companies use the old approach of cutting spending during a downturn rather than thinking more strategically about relationships with suppliers, said Carlos Niezen, head of Bain & Co's purchasing practice. Smarter companies are taking a risk management approach to their supply base, he said.
Several manufacturers have trimmed the number of suppliers with which they do business, largely to cut down on costs but also to eliminate some risks. Executives said how they work with suppliers is evolving.
It's really not a price thing; it's really a total value in the relationship we're looking for, said James Foster, Clorox Co's chief product supply officer.
Hormel Foods Corp, meanwhile, has become more systematic in its purchasing after making acquisitions in the early and middle part of the decade.
Hormel used to have about 100 flavorings suppliers and now has less than 20, a consolidation that took about two years, Chairman and Chief Executive Jeffrey Ettinger said. Part of the reason for cutting back on suppliers is to save money, but it also stems from concerns about food safety, Ettinger said. Having fewer suppliers makes it easier for Hormel to keep track of their safety.
Kleenex tissue maker Kimberly-Clark Corp made a major push this year to reduce costs and manage spending with a greater global perspective, said Peter Heaver, director of North Atlantic sourcing and supply management.
It's not all about: 'We've got to squeeze supplier margins so we can be profitable', Heaver said. We need suppliers to be profitable and healthy long term, so we can be healthy long term; that's the delicate balance.
CONCERNS IN DOWNTURN
After the recession set in, some companies walked away from suppliers with financial risks. Overall, they said they have not had major concerns.
There's still time for the smaller suppliers to struggle, but for the most part most of our suppliers have weathered the storm fairly well, Clorox's Foster said.
Kimberly-Clark said it cut back to two suppliers from three on a particular commodity, since one supplier was in financial trouble. That supplier, which Heaver declined to name, then filed for Chapter 11 bankruptcy protection.
Still, Heaver said that in some areas his company is actually inviting new suppliers to bid for business, a move that creates healthy competitive tension.
The number of supplier bankruptcies has not been large, but we do think that there's still going to be a good amount of bankruptcies, Bain's Niezen said.
NEW APPROACH FOR CURRENT TIMES
Under an old model, which has been used by consumer products makers for decades, General Mills Inc used to put its business out for bid using particular specifications and then give the business to the lowest-priced bidder.
Now, the food maker figures out what elements of a product consumers consider difference makers and what they could do without, said John Church, General Mills' senior vice president of supply chain.
General Mills also has quarterly executive committee meetings with Cargill Inc, one of its largest ingredient suppliers, in which they discuss the company's requirements and what Cargill has to offer.
That relationship allowed General Mills to switch all of its cereals to whole grains because Cargill could give it a whole grain prod@