Reissco: Contending with Supplier Price Increases

Reissco, a Tier 2 automotive supplier of chassis and safety technologies, is being squeezed by retail customers like Auto Zone who demand low prices and high service levels. In this environment, companies like Reissco must be as efficient as possible to survive. So, Reissco decided to outsource its production, closing its last remaining internal production plant.

Unfortunately, diminishment of expertise often follows losing internal production, and in the case there is strong evidence that this has happened at Reissco. The company does not seem to understand the real cost drivers and is, therefore, vulnerable to opportunistic price changes by its suppliers. Additionally, Reissco is unable to capture upside benefits when supplier costs go down.

• Describe potential positive and negative outcomes when a manufacturer like Reissco chooses to outsource product production instead of producing it in-house.
• Identify both legitimate and opportunistic reasons why a supplier might request a price increase.
• Develop strategies a buyer could use in responding to a supplier’s request for price increases, along with pros and cons of each strategy.
• Formulate cost modeling strategies a buyer could utilize to assure fair pricing from its suppliers.