Rapid Sourcing Delivered Savings of 6-27% In Under 4 MonthsSourcing & Procurement
- Strategic Sourcing
- Product Specification Rationalization
- Make vs. Buy Assessment
- Limited Leverage Negotiation Strategy
A mid-market ground support equipment manufacturer needed to quickly drive procurement savings ahead of impending major transitions.
The company sought to quickly reduce procurement costs including direct and indirect products and services. Over 20 categories were initially assessed with tailored sourcing and cost reduction initiatives applied to more than half of the candidate categories.
The cost reduction approaches were applied on a category-by-category basis and included traditional strategic sourcing levers such as volume consolidation and specification rationalization as well as make vs. buy assessments and sole-source negotiations. Category savings ranging from 6% to 27% were captured in under 4 months with some captured in as little as 60 days.
The mid-market position and volume of spend by this portfolio 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.
- Improve the forecasting process:
Multiple categories with a wide range of spend volumes:
The category characteristics and varying spend levels required multiple different sourcing strategies to be planned and executed in a short time-frame.
- Product specification rationalization:
The rationalization of specifications required by some categories necessitated 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 presented limitations in alternative vendors or 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.
- Assessment and quick hits:
During the assessment, the 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:
(a) quickest implementation favoring incumbent vendors,
(b) maximum savings favoring best price vendors, and
(c) combinations of the two that offered the best of both worlds.
Detailed make versus buy analyses were also performed for relevant products with the recommended change more than doubling the savings that would be achieved by strategic sourcing alone.
- Product specification rationalization:
Engineering drawings for 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 negotiation 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 perspective. These points formed the backbone of the negotiation strategy which was outlined in a detailed package and provided to the client to execute independently.
By the numbers:
- Rapid sourcing savings of 6-27%
- Make vs. buy business case savings of 25%
- Product specification rationalization leading to greater savings
- Negotiation strategy with up to 10% savings potential despite limited leverage