Implementing Visibility Model Post-Merger to Save Costs and Gain Savings (CS280)

Written by Maine Pointe | Mar 16, 2023 6:25:16 PM

This story is for CEOs who

Want to gain more control over the availability and cost of raw materials
Depend on sole sources who resist pricing transparency and negotiation
Need to standardize procurement procedures after a merger

The Challenges

Two complementary companies that fabricate custom steel equipment for large distribution centers, including mezzanines, chutes, and platforms, were deep into a post-merger integration of several North American facilities. The newly merged company decided they should look at how they could buy steel—the major contributor to their cost of goods sold (COGS)—more strategically.

Establishing strategic and standardized procurement best processes to drive savings and reduce risk

SGS Maine Pointe:

Diversified the supplier base with new suppliers and de-risked their supply chain: no supplier was allowed to capture more than 20% of their business
Gave the company visibility into the total cost of steel, including logistics, scrap, and any manufacturing add-on
Established a standard contract for all steel suppliers and a firm-wide procurement management operating system (PMOS)
Enhanced supplier relationships while facilitating benchmarking and pricing transparency
Set up index based pricing, which enabled the company to lock in pricing for both steel and add-ons

Lessons learned for other executives

Savings opportunities are available even in adverse economic conditions
Sole sourcing increases and optionality decreases supply chain risks
Procurement is a strategic, not tactical, function

The Results

$15M annualized savings
6.7% EBITDA improvement in year 1
40% spend awarded to new suppliers
4:1 ROI
Set up index-based pricing and decoupled commodity pricing
Reduced risks with supplier optionality, benchmarking, and firm-wide procurement management operating system (PMOS)

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