Polyethylene

Cost Reduction in PE Bag Sourcing Through Strategic Supplier Selection and Negotiation

Executive Summary:

This case study outlines the successful sourcing operation for polyethylene (PE) bags, which included fruit bags and trash bags. The operation involved identifying the right supplier, negotiating a 30% price reduction, and managing shipping costs. Despite a 7% increase in shipping costs, the buyer was still able to reduce their overall purchase price, resulting in significant savings and improved profitability.

Background:

The buyer, a leading retailer of household products, was in search of a reliable and cost-effective supplier for PE bags to support their growing business. The company's goal was to reduce costs without compromising on quality, in order to maintain customer satisfaction and gain a competitive edge in the market.

The Sourcing Operation:

The sourcing operation began with extensive market research to identify potential suppliers. The process involved evaluating the suppliers based on various criteria such as quality of products, production capacity, delivery time, and price. After a thorough analysis, a shortlist of suppliers was created for further evaluation.

Site visits were conducted to assess the manufacturing facilities, quality control processes, and overall production capabilities of the shortlisted suppliers. Following these visits, a final supplier was selected based on their ability to meet the desired quality standards and their competitive pricing.

Negotiation and Price Reduction:

Upon selecting the preferred supplier, negotiations commenced with the aim of reducing the cost of PE bags by at least 30%. The buyer leveraged their purchasing power, market knowledge, and the supplier's desire to establish a long-term relationship to successfully negotiate a 30% price reduction.

Shipping Costs:

While the buyer successfully achieved a significant price reduction, shipping costs rose by 7% due to fluctuations in the global shipping market. However, the overall savings from the negotiated price reduction still resulted in a net decrease in the buyer's purchase price.

Outcome:

Despite the increase in shipping costs, the sourcing operation proved to be a success. The buyer was able to reduce their overall purchase price, which led to increased profitability and a competitive advantage in the market. The buyer was also able to maintain the desired quality standards, ensuring customer satisfaction and strengthening their brand reputation.

The supplier, on the other hand, benefited from securing a long-term partnership with a reputable buyer, which led to increased production volume and a stable revenue stream.

Conclusion:

This case study demonstrates the importance of strategic supplier selection and effective negotiation in achieving significant cost savings in sourcing operations. By diligently researching potential suppliers, evaluating their capabilities, and leveraging purchasing power during negotiations, buyers can achieve substantial reductions in their overall purchase price, even when faced with rising shipping costs. The successful outcome of this sourcing operation highlights the value of a well-executed procurement strategy and its potential to drive both cost savings and business growth.