Developing and implementing sustainable procurement practices across acquisitions in the US and Europe (CS232)

This story is for CEOs who:

1. Have begun a supply chain transformation journey and are ready to take the next step
2. Want to install a strategic sourcing process across portfolio companies and develop the in-house skills to sustain them
3. Want to challenge incumbent suppliers to deliver better value and become better partners

The Challenge

The CEO of this PE-owned specialty chemicals and materials company was facing a new set of challenges as a result of acquiring plants in the US and Europe. Building on the strong relationship the company had established with SGS Maine Pointe during a previous engagement, he brought us in as a tried and trusted supply chain transformation partner.

While our previous engagement with this client had focused specifically on incumbent suppliers, this new project had a broader scope. This time, as well as changing procurement practices and delivering significant savings at the new plants, we were asked to motivate incumbent suppliers to be more competitive in a challenging global market. In addition, leadership wanted us to focus on knowledge transfer and sustainability to ensure long-lasting benefits.

Strengthening supplier partnerships

In our first engagement with this client, we had focused on integrating the procurement process across the organization and formalizing relationships with existing suppliers. This time, with a much larger addressable spend and a more complex mix of materials, we challenged incumbent suppliers in a way they had not previously experienced.

SGS Maine Pointe:

• Worked with the client’s plant managers to create aggressive sourcing strategies and charters leveraging the entire spend
• Deployed the SGS Maine Pointe six-step strategic sourcing process and guided cross-functional teams responsible for driving implementation
• Challenged and replaced incumbent suppliers with qualified new suppliers in some materials Led incumbent suppliers to negotiate lower prices through extensive supplier conditioning, including hosting two supplier forums, one in the US and the other in Germany, and engaged new suppliers to create a competitive environment
• Launched over two dozen strategic sourcing events and targeted face-to-face negotiations Introduced an experienced chemical industry SME to build strong relationships at all levels within the client organization and earn the respect of the senior executives and suppliers
• Prepared, observed, and coached the client’s negotiating teams during the many strategic negotiations

With SGS Maine Pointe’s guidance, the joint working team quickly developed a competitive advantage and is equipped with the knowledge and skills to maintain it. In addition, as a result of the two supplier forums, new and existing suppliers have a more complete knowledge of our client’s business and understand how to be better partners going forward.

Lessons learned for other executives

• No matter what the size of a portfolio company there is still significant value to be attained from a TVO approach to the supply chain; you can take an organization to a higher level without adding procurement overhead
• PE firms that want to rapidly increase the value of portfolio companies can do so even if they do not already have a strategic sourcing process in place
• The SGS Maine Pointe six-step strategic sourcing process is effective long-term without concern for diminishing returns

The Results

• Delivered average annualized benefits of 7.5%, with individual chemicals and metals reaching up to 20%
• Sourced new suppliers for 44% of chemicals and 25% of metals
• Conducted intensive knowledge transfer via SGS Maine Pointe’s six-step strategic sourcing process
• Implemented a comprehensive procurement management operating system (PMOS) to ensure the ongoing sustainability of engagement benefits
• Moved the procurement function up the TVO Maturity Pyramid™
• Achieved a 3:1 ROI, resulting in a 33% EBITDA improvement
• Achieved a 60:1 ROI for the PE sponsors upon exit

We now better understand the risks and opportunities within our supply chain, which creates a competitive advantage for us." - Client President and CEO