Multiple Procurement Cost Reduction Strategies Drove Fast Savings Across Diverse Spend For Ground Moving Equipment Manufacturer
Jan Malasek • February 24, 2021
A PE-owned mid-market ground moving equipment manufacturer needed to quickly drive procurement savings ahead of impending major transactions. With disaggregated spend and vendor concentration across direct and indirect categories, they were looking for an expert who could quickly identify opportunities and help them execute varied strategies to maximize savings in the shortest period of time. They turned to OnDemand and selected a member of our Professional Network Kenton Phillips.
CHALLENGE
The mid-market position and spend levels of the company required lean, rapidly executed initiatives to maximize the project ROI, but the diverse range of products and services in scope necessitated a range of category-specific approaches to achieve the maximum savings.
- Multiple categories with a wide range of volumes – the category characteristics and varying spend levels required multiple different sourcing strategies to be planned and executed in a short timeframe.
- Product specification rationalization – the rationalization of specifications required by some categories drove the review of hundreds of engineering documents and substantial engagement with engineering personnel across two company locations.
- Sole-source products and limited switching capability – other categories had limited alternative vendors or were limited in the client’s ability to switch leading to the need for sole-source, limited-source and time-phased sourcing strategies.
Client-tailored and category-specific approaches were designed to rapidly capture the greatest amount of savings within the limited timeframe.
- Assessment and quick hits – during the assessment, categories were grouped by sourcing technique and other characteristics to accelerate the capture of quick-hit opportunities and enable the most efficient and effective strategic sourcing execution. Some of the quickest savings results were achieved by leveraging group purchasing and volume concentration with incumbents.
- Rapid sourcing and make vs. buy assessment – in the more traditional sourcing approaches, global vendor lists were assembled, and RFPs distributed. Upon analyzing vendor responses, multiple implementation options were identified based on:
- Quickest implementation favoring incumbent suppliers
- Maximum savings favoring best price vendors
- Combination of the two that offered best of both worlds
- Detailed make vs. buy analysis were also performed for relevant products, and the recommended change more than doubled the savings that would have been achieved by strategic sourcing alone.
- Product specification rationalization – engineering drawings of hundreds of products were collected to extract, assemble, and compare key attributes. Multi-factor analysis was conducted incorporating average and standard deviation of attribute values, cost, and ease of transition – from this, an initial rationalization perspective was developed. Refinements to the rationalization plan were applied after additional reviews with engineering and consideration of subjective factors.
- Sole-source negotiations strategy – a high-spend category that was effectively sole-sourced with limited leverage required a particularly keen negotiation strategy. After conducting a detailed assessment of the vendor’s pricing mechanics, market dynamics and forecast, and client requirements, several points of leverage and areas of concern were developed from both the vendor and client perspectives. These points formed the backbone of the negotiations strategy which was outlined in a detailed package and provided to the client to execute independently.
RESULTS
- Rapid sourcing savings – 6-27%
- Make vs. buy business case savings – 25%
- Product specification rationalization leading to greater savings
- Negotiation strategy with up to 10% savings potential despite limited leverage
MEET KENTON PHILLIPS
OnDemand Professional Network Member Since 2006.
Kenton has driven immense value for clients through improved operations and via interim leadership roles for over 20 years. With background from AT Kearney, Accenture, McDonnell Douglas and the US Airforce, and extensive experience in strategy, operations, supply chain, and S&OP, Kenton has worked across several industries including TMT, food and beverage, CPG, industrial products, and oil and gas, among others. As a strategist and operations visionary with experience in software engineering, Kenton is also proficient at bridging the gap between business objectives and technology implementations. Kenton earned an MBA in Operations from Ohio State University and a BS in Management & Engineering from the U.S. Air Force Academy.
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Structured approach, cross-functional leadership and rigorous analytics are key to procurement success. I asked a member of our OnDemand Professional Network Priya Kumar to share her approach. Here is her example. SITUATION OVERVIEW Biotechnology company wanted to establish a procurement function for their $120 MM global external operations. Priya was brought in as a Procurement leader to work with the organization to develop a strategic procurement function to drive savings and improve efficiency. APPROACH She worked closely with engineering teams, product development, manufacturing operations and global planning to understand current processes and business priorities. Additionally, she conducted a supplier activity and spend assessment to analyze the current landscape. A thorough analysis of current challenges and gaps in processes revealed the following: Supplier relationships with significant spend were highly transactional Risk and relationship oversight was complex and arduous Frequent planning and forecasting changes led to additional costs, cancellation fees and high risk exposure Supplier contracts were often one-sided, with limited benefits for the client EXECUTION & BENEFITS Priya successfully crafted a robust category strategy to effectively manage and optimize the $120 million expenditure with suppliers . This strategy encompassed thorough market analysis, supplier evaluations, and strategic sourcing initiatives aimed at maximizing value and minimizing risks. Her next step was to streamline processes across the organization, while building a truly strategic procurement function. She built the foundation for strategic sourcing, supplier relationship management and contract lifecycle management. This fostered harmonization in supplier engagement, elevating the value extracted from deepened supplier relationships. By aligning procurement activities with organizational goals and industry best practices, she also fortified the supply chain operations to withstand dynamic market conditions and unforeseen challenges. In partnership with other stakeholder groups, she implemented robust visibility mechanisms within procurement , leveraging advanced analytics and reporting tools to enhance spend transparency and facilitate informed decision-making. This heightened visibility empowered stakeholders to proactively address potential bottlenecks, mitigate risks, and optimize resource allocation. Priya’s greatest achievement was the immediate identification of several contract re-negotiation opportunities that served as quick wins to show procurement value early. Priya developed the negotiation strategy and conducted negotiations with many key suppliers, ensuring alignment with the category strategy and business objectives. In an ever-changing landscape, Priya showed excellent insight and maturity in making agile decisions that would mitigate loss and risk throughout the lifecycle of the contract. She achieved >$15MM of cost savings for Year 1 & 2 through execution of the newly developed category strategy. By leveraging strengthened supplier relationships and employing rigorous negotiation tactics, she secured favorable contract terms and pricing arrangements, driving tangible bottom-line results while maintaining quality standards and service levels. Meet PRIYA KUMAR - OnDemand Professional Network Member Since 2018
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