Question 4: Continuous cost reduction is a big challenge all procurement manager

Question

Question 4: Continuous cost reduction is a big challenge all procurement managers need to face. Top executives always expect the purchasing cost can reduce every year. This is also many companies require their suppliers to achieve year after year. For example, both Walmart and Toyota have annual cost reduction goal for their suppliers. The question is: do you think this requirement is reasonable? Is it possible to cut cost year after year without sacrificing other perspectives of the business? Explain your answer.

Explanation / Answer

The business pitch for reduction of cost year after year because it strife to achieve economy of scale and cost optimization gradually.In this sense they aim to reduce cost so that margin can be increased and benefit may be passed to the end customer. By doing this the business try to achieve more market share and penetrate more in the market and beat the competition by using price differentiation.Due to this it is reasonable to cut cost. It is not possible to cut cost year after year.In any particular year there might be increase in price of raw material or due to any contingency situation like war, natural disaster etc, input price may be get increased.

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