Increased purchasing costs hindered competitive ability. A sourcing strategy was developed, purchasing focused to fewer suppliers, and contracts were renegotiated leading to greatly reduced prices.
Background
The company, part of a multinational group, employs approximately 10,000 people and has a turnover of EUR 3 billion. An initial analysis carried out by Mantec in one of three business areas indicated that significant savings were possible in purchasing because:
- long-term contracts and relationships with very low activity and unclear ownership led to price increases over time;
- the company had not exercised its purchasing power and instead used many suppliers of the same product or service, often at high prices;
- the company carried out no overview or scrutiny of the providers with which it had agreements, and this led to there being a large number of suppliers on the books;
- unclear roles and responsibilities meant that nobody was responsible for monitoring crucial factors such as price developments, how purchases were distributed, utility costs, supplier performance; and
- more focus was placed on getting the job done than on getting a good price.
Implementation
The project, conducted jointly by Mantec and the client, took place over eight months and comprised three main steps.
Firstly, a systematic review of all purchases was carried out to determine the pattern of purchases (spend analysis) and other data such as volumes, prices, and detail of current contracts.
Secondly, based on the analysis of spend, purchasing teams conducted in-depth analyses and drew up specific action plans relating to savings in both strategic purchases (creating value) and operational purchases (realised value).
Thirdly, contracts were renegotiated and implemented to finally realise procurement savings.
Results
The main benefits of the project to the client have been:
- greatly reduced prices;
- long-term contracts with preferred suppliers and transparent estimates;
- clear sourcing strategies; and
- fewer suppliers for larger volumes.
Overall, the project exceeded its objectives and resulted in an ROI of 500%.
