However, many manufactures are locked in a destructive cycle that makes it difficult for them to cut costs. They are unsure of their suppliers’ ability to meet their needs, so they carry extra inventory to cover potential shortages. Suppliers don’t have a clear picture of manufacturer’s demand, so they increase their inventory levels so they can be responsive.

While manufacturers and their suppliers adding “just-in-case” inventory might make sense individually, it is disastrous for the entire supply chain. Each supplier must increase their prices to cover the cost of extra inventory. These higher costs are passed on to the manufacturer – which adds its own extra costs – and ultimately to the end customer.

The root cause of these higher costs is an information gap that exists between manufacturers and their suppliers. Since manufacturers are unsure of what’s going on in their supply chain, they substitute inventory for information.

The only way to bridge this information gap is through technology. Most manufacturers, however, are not eager to investment in new technology. They are still waiting to see the returns they were promised with their MRP, ERP or supply chain planning investments.

The problem doesn’t lie with the technology, but rather where it was deployed. If you look at where your major supply chain costs are – and where you made your technology investments – you’ll see why these projects didn’t deliver as promised. ERP and other solutions helped you improve internal operations and reduce some costs, but they did little for your suppliers. As a manufacturer, 50 to 80 percent of your cost of goods sold isn’t inside your company, it’s with all of your suppliers.

If you’re looking to achieve a major breakthrough in reducing costs, you need to focus on your suppliers and provide them with solutions to overcome the information chasm that exists. Any cost savings you can make here will have a tremendous and lasting benefit to your bottom line.

VendorSite can help you reduce your supply chain costs if you answer yes to the following questions:

• Do you carry extra inventory of critical parts just to be safe?
• Do you have to expedite supply orders frequently to meet customer demand?
• Do you communicate with most of your suppliers manually (paper, phone and fax)?
• Do your suppliers miss delivery dates due to data errors or omissions?
• Do you manually process purchase orders and supplier invoices?

Click here to find out how VendorSite can help you reduce supply chain costs.