The second part of a TVO supply chain transformation journey for a leading alternative energy company.
This story is for CEOs who:
- Are innovators who need to remain relevant and competitive in a rapidly changing market
- Want to work better with incumbent suppliers to create a win-win relationship
- Need to regain leverage following a spin off
The Challenge
This leading designer, manufacturer, and installer of solar panels for commercial and residential purposes had been slow to adapt to a dynamic shift in the market and this was impacting profitability.
The company had split into two separate entities; Design & Manufacture and Installation. This bifurcation exposed significant gaps in people’s capabilities, processes in the new stand-alone organizations and the cost structure. Poor integration of another acquisition made by the installation business only amplified these challenges. Leadership brought in Maine Pointe to help plug these gaps across the supply chain.
In the first step in the client’s Total Value Optimization (TVO)™ supply chain transformation journey, Maine Pointe focused on re-engineering the logistics network. Having successfully completed this phase, we shifted our attention to address a significant opportunity to optimize cost structure and drive value in procurement.
Realigning supplier relationships
Procurement was perceived as a strategic advantage, with many of the people having 10+ years of experience. However, our analysis found the client team lacked the necessary level of strategic procurement rigor and process to quickly adapt to changes in the marketplace. Suppliers were not being challenged to be competitive, often because procurement data was insufficient. With no SKU management and limited vendor management and continuous improvement, relationships with incumbent suppliers had been allowed to stagnate. At the same time, suppliers didn’t have a clear understanding of what ‘good’ should look like, or what they needed to do to remain competitive. To help meet this challenge, Maine Pointe worked with both our client and its suppliers, encouraging a deeper level of collaboration to create a win-win situation.
To achieve this, Maine Pointe:
- Launched a procurement initiative implementing a new thought process on supplier relationships
- Defined targeted areas to drive saving benefits, many of which were initially thought to be of little value
- Sought out vendors in locations which are not impacted by tariffs. Maine Pointe’s China-based resources leveraged this information to strengthen our client’s position with incumbents
- Shared intelligence with suppliers to help them understand how competitors are offsetting tariffs and use this information to become more competitive
- Addressed critical suppliers and leveraged their expertise for production and additional products
- Conducted market comparisons which showed the client’s bespoke products were over-engineered and behind the market. This process exposed the cost efficiency of simplification
- Helped the client redesign and reengineer its products to reduce costs
- Designed and implemented dashboards and scorecards enabling visibility in the performance of temporary labor providers and with KPIs relevant to leaders and managers
- Coached category managers to more effectively negotiate with suppliers and drive labor savings (leveraging the presence of a consultant)
- Worked with general contractors rather than many sub-contractors because the client often had more than one supplier for the same item
- Bundled annual services volume for general contract review and pricing to showcase the client’s annualized spend and project volume
In a company known for quality and innovation, a major part of the process was helping the transition from tech-focused to being more cost conscious. Having procurement at the table helps leadership make better decisions with cost as part of the formula while maintaining quality and technology.
The next stage in the step-by-step supply chain transformation was to help company get visibility beyond procurement, looking holistically at the organization to continue to drive optimal cost structure that will complete the company’s transition from industry lagging to industry leading.
The Results
As part of the client’s broader TVO supply chain transformation journey, Maine Pointe’s procurement experts helped deliver the following benefits:
- Delivered savings of 7.2% of the total addressable spend in procurement comprised:
- Temporary labor 52%
- Aluminum 25%
- Mechanical/electrical 15%
- Improved EBITDA by 13.5%
- Leveraged spend by reducing the number of suppliers
- Improved purchasing power with incumbent suppliers while reducing cost
- Disrupted the contingent labor model by signing with five new vendors at lower rates and under a stronger
- master services agreement
- Streamlined vendor management
- Improved client’s negotiating skills
- Provided a roadmap on how to negotiate effectively for a win-win solution
- Secured and developed industry facts and data to support business model enhancements to achieve success
- Delivered a project ROI of 4:1
Lessons learned for other executives
- Companies talk about innovation and evolution in terms of products and services but often fail to apply the same approach to supply chain and operations
- Maine Pointe’s experienced consultants know how to challenge the status quo, and make a financial impact even after other consultancies have worked with your group in years past
- Businesses in an evolving market need to take a big picture approach. It isn’t enough to make small changes if you don’t have an end in mind