Still Squeezing the Suppliers?


    Marketplace: Supplier gets dwindling sums for its parts

    This story has been in the blog backlog, but it's always an important topic, the idea of not just squeezing your suppliers on price. It's not a good idea to just demand lower prices, without partnering up on shared improvements. Why are so many auto suppliers bankrupt? The lack of partnership in the industry has to be at least a part of it.

    We see the same dynamic in healthcare, where “reducing costs” often means “squeezing the suppliers” (the doctors or the hospitals). Forcing a “price reduction” is not the same as true cost reduction. That's not sustainable, continually forcing the price down because you have market power. Maybe that's one reason more healthcare organizations are looking at Lean. With the pricing pressure, one to keep their profits up is to reduce cost (and a lot of that has to do with improving quality).

    Many doctors are backing out of the Medicare and Medicaid system and more are dropping insurance plans that squeeze them too much (via the Kevin M.D. blog).

    “We were spending inordinate amounts of time and resources on things that have nothing to do with the quality of patient care,” said gynecologist Felice Gersh, medical director of the four-doctor practice. “I would be more than happy to be a member of all the health plans if they paid me reasonably and quickly.”

    Sounds like a lot of waste and Non Value Added activity? I know my dentist's office complains that my dental insurer purposely delays payment or loses submissions, another form of “squeezing.”

    Back to the Marketplace piece, a long-time supplier complains:

    Myers says over the years, GM has pressured him to keep prices so low that his last price increase was in 1984.

    AL Myers: The methods that they're using now border on cruelty to animals. They're so relentless and so overbearing with their requests for price reductions that they really don't care whether you go out of business or not.

    A GM spokeswoman says the company goes to extreme lengths to keep suppliers profitable. Because when suppliers go out of business, she says it's disruptive and costly to find new ones. But in 2005, GM said it would slash purchasing costs by 30 percent.

    So is GM helping take 30 percent of the cost out of the supply chain, or are they just squeezing and paying less?

    I think, for both the manufacturing sector and for the sake of healthcare, that we need to find more ways to be Lean, to find true cost reductions (again, quality improvement and partnership are a good start), instead of just slashing what we spend.

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    Mark Graban
    Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.


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