This story is for CEOs and PE firms who:
- Are losing money due to a lack of centralized, strategic controls over procurement
- Worry that the benefits of change are not sustainable with their current organization
- Lack visibility into procurement data and practices
The Challenge
Multiple acquisitions by the PE firm had created a company with nine essentially independent business units across the United States for manufacturing parts for the aerospace industry. Each business unit had its own way of handling procurement and its own category strategy, where a strategy even existed.
Nine completely different ERP systems and inconsistent data made any type of company-wide sourcing and spend analysis difficult. Recent hires in the procurement organization had led to a lack of centralized knowledge about suppliers and a hesitancy to assert common goals, systems, and KPIs.
The PE firm asked SGS Maine Pointe to bring some strategic procurement capability to this fragmented organization and effect changes that would be sustainable long after the SGS Maine Pointe team left.
Bringing cohesive strategic sourcing and cost controls to a siloed, tactical buying organization
SGS Maine Pointe:
- Established spend analysis and controls, including a spend cube that included a four-level standard category classification
- Enabled data and analytics to be leveraged as a strategic asset for sourcing and procurement decision making
- Consolidated and rationalized suppliers and implemented supplier relationship management to reduce the cost of goods sold (COGS)
- Transitioned from siloed, individual, by-part quoting to company-wide volume purchasing
- Drove sustainability by building cross-functional category teams and providing hands-on training in procurement management operating system (PMOS) and the six-step strategic sourcing process
- Streamlined and coordinated sourcing and procurement management, especially in MRO and logistics
- Provided for future savings; for example, by strengthening supplier relationships and setting up longer-term supplier agreements
- Conducted an organization structure and capability analysis that would permit stronger, center-led oversight with greater control over spend and compliance
Lessons learned for other executives
- Fragmented data, policies, processes, and tools prevents any oversight or control of procurement spend
- A tactical, rather than strategic, procurement organization is costly
The Results
- 11% savings against total addressable spend, including raw materials, outside services, tooling, logistics, and maintenance, repair, and overhaul (MRO)
- Exceeded category savings target for logistics by 30%; MRO by 25%; tooling by 18%; and metals by 16%
- Created consistent data—one source of truth—across the enterprise for sourcing, pricing, reporting, and supplier management
- Established cost models and index-based pricing so that buyers can negotiate on cost factors rather than final price
- Accelerated move from basic level of individual, tactical purchasing to a center-led strategic organization
- Created spend cube, spend dashboard, and unified spend classifications across tens of thousands of items
- Built standard sourcing processes, templates, pricing calculators, and compliance and reporting tools
- Developed new contract templates and streamlined suppliers
Driving Growth with an Integrated Procurement Approach (CS309)
