Case Study #2

ON-SITE OUTSOURCING SERVICE PROVIDER: $120 Million in Sales Revenues and $40 Million in Total Purchasing Spend

Situation

As the Company is preparing to launch a significant organic growth initiative in a very competitive marketplace, the President decides to review overall company strategy including supply chain management strategy while the CFO is questioning the existing purchasing team’s productivity. OPTIMBUY is hired to review company supply chain organization, analyze suppliers’ contracts and implement actions to generate savings’ opportunities.

Action

OPTIMBUY diagnosed the situation based on interviews with key executives and end-users and identified the major opportunities. Interestingly insiders knew best where they were not receiving value for their dollars! OPTIMBUY recommended additional options for the company. 

OPTIMBUY was approved to implement a fresh strategy and organization. New job descriptions and accountabilities are defined. Existing staff is trained and coached on new methodologies, tools and processes, hands on as actions to generate savings are implemented. 

Suppliers’ contracts are analyzed and the current pricing benchmarked with full participation of existing company purchasing team. 

An evaluation of the potential savings is performed based on product rationalization, supplier network consolidation and the target of improvement of compliance to specs. 

Specific goals are established to improve performance over a 3 year plan, with much of the savings starting in Year 1 of the plan. 

Focus is set on Top 30 major suppliers to review options and renegotiate contracts. Several RFP processes are conducted as well as 3 internet reverse auctions for commodities. Negotiations with vendors were conducted over a 4 month period. Price, terms and conditions were finalized and savings and results initiated to complete satisfaction of client and end-users.

Control and monitoring systems, recommended by OPTIMBUY, are defined and implemented with a high projected ROI.

Results

The existing Purchasing team’s credibility and performance improved via coaching and training on new systems and processes. ROI to add an additional employee was accepted by President & CFO.

The company has a much better visibility and accurate data to budget and forecast its financials, especially the “cost of goods” lines. 

Appropriate communication to internal customers enabled better discipline and compliance to negotiated programs. 

The management team has new found cash flow to fund organic growth.

New business closing ratio moved from 42% to 65% in the first 6 months of implementation of OPTIMBUY process thanks to improved competitive position in the marketplace.

OPTIMBUY impact: Total savings from Top 30 suppliers representing $33 Million in spend: $2.4 Million translating into 7.3% of Top suppliers spend or 6% of Total Purchasing spend.

---