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Strategic Sourcing Cost Reduction

 

Case Study 1 – Post-Acquisition Synergy Value Capture

Situation:

  • Total unmanaged spend was $900 million in key categories
  • Lack of integrated or leveraged spend
  • Lack of standardization of commodities
  • Each business unit bought separately
  • Lack of product specification
  • Consumption numbers were inaccurate and difficult to get
  • Purchasing was done by individuals at different levels, by district or local offices, and by corporate
  • Proliferation of vendors
  • Lack of disciplined process, price control and strategy
  • Management needed to capture synergy value from purchasing spend

What was Done:

  • Consolidated corporate and all business unit spend
  • Performed data extraction and spend analysis to develop a clearer overall consumption pattern
  • Codified and classified all commodities, goods, materials and services
  • Created a sourcing strategy to leverage the parent company, its subsidiaries, and international locations volume purchasing
  • Decreased cost of ownership via consolidation of number of commodity items, and rationalization of vendors and suppliers
  • Identified global and regional diversity qualified vendors
  • Developed bid packages and conducted strategic sourcing
  • Developed a disciplined procurement process for all business units
  • Implemented performance and compliance management tools

Results:

  • Will realize approximately 15% in savings annually over next three years
  • Implemented best practices
  • Trained procurement organization as category managers
  • Established spend visibility at all levels of the organization.

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Case Study 2 – Procurement of IT Contractor Services

Situation:

  • IT contractor services is an out-of-control spend for this global client
  • Spend was $105 million
  • Contractor services included – systems programming, applications development, field services, operating support, project management, help desk and document management
  • Contractor services provided a strategic resource augmentation opportunity
  • Purchasing of contractor services was fragmented across nearly 2000 suppliers and was done by individuals at different levels, by district or local offices, and by corporate
  • Poor services level agreements with no end dates for contracted services
  • Limited visibility to spend and suppliers
  • Lack of control and accountability

What was Done:

  • Defined what constituted contractor services and aligned supplier/company skills definitions and classifications
  • Aggregated all contractor services spend by business unit, services type, geography and skills
  • Developed economic models of services costs by skills level and geography
  • Profiled suppliers and rationalized supply base to 10 primary and 20 secondary suppliers
  • Redefined pricing structure based on consistent, transparent value-added supplier mark-ups and market basket value index
  • Implemented a disciplined purchasing and compliance process
  • Implemented performance management system to evaluate supplier performance against agree to service and skills level and deliverables

Results:

  • Delivered 25% in rate reduction
  • Improved skills matching/needs fulfillment process
  • Implemented a disciplined process to ensure right skills at the right time for the right job at the right price


Case Study 3 –Information Technology

Situation

  • Out-of-control spend on IT – software packages, software development, consulting, data management, hardware, maintenence
  • Annual IT spend was in excess of $285 million in multiple locations with no management visibility to aggregated spend
  • 90% of IT projects had no statement of work, lacked scope definition, lacked clear deliverables and accountability
  • Lack of business-based requirements and ROI
  • Many vendors providing similar services and products to multiple business units at different costs and service levels
  • 85% of IT projects were over budget, suffered scope creep and suffered delayed completion times

What was Done:

  • Aggregated and developed a comprehensive IT spend database by project type, business issue, business unit and geography
  • Developed a decision model to rationalize projects based on customer value, business requirements and economic value
  • Established a best practices approach for business-driven IT project definition and management oversight
  • Profiled and pre-qualified IT services and product providers on a global basis
  • Developed templates for Statement of Work and business requirement definition, functional requirements and specifications, and value-indexed evaluation approach
  • Strategically sourced all existing IT budgeted projects to renegotiate fees and materials using iServiceX’s ROSI Application solution
  • Established a cross-functional Center-led Program office for coordinating IT project workflow and project management and deliverables tracking
  • Reorganized the IT group to make it more business related and more accountable for IT project deliverables and cost effectiveness

Results:

  • Achieved $54 million in savings, 19% annualized savings
  • Created a Business-driven and performance-based IT organization


Case Study 4 – Procurement of Contracted Maintenance Services

Situation:

  • Contracted services for Pipeline maintenance spend in excess of $50 million a year
  • Proliferation of contracts and contract service providers
  • Lack of service level agreement
  • Lack of contract service specification
  • Poor project management
  • Purchasing was done at different levels, by multiple individuals, by district or local offices, and by corporate
  • Inadequate contract management process and experience
  • Lack of disciplined cost control and strategy
  • Poor data quality

What was Done:

  • Consolidated all maintenance and equipment contract spend and identified savings opportunity
  • Performed data extraction and spend analysis to develop a clearer overall contract services pattern
  • Developed contract services capability profile
  • Developed contract services management process and service level models
  • Modeled contract cost structure and benchmarked to market
  • Developed contract services bid packages and developed sourcing strategy
  • Conducted strategic negotiations with best-in-class service contract provider
  • Developed contract rates and SLAs
  • Implemented performance and quality of service metrics

Results:

  • Realized approximately 22% in savings annually over next three years
  • Build a database of best-value contract service providers


Case Study 5 – Cellular Phones

Situation:

  • Cellular spend in excess of $11 million a year
  • Scope included both internal and customer spend on cellular services
  • Due to increase in usage of mobile communications, cellular spend experienced an 20% growth in concurrent years
  • Cellular spend was highly fragmented across multiple suppliers and user groups
  • Advent of new PCS technology and number portability opening market to competition
  • Purchasing was done at different levels, by multiple individuals, by district or local offices, and by corporate
  • Multiple contracts with same and different suppliers in same and different business units, functional areas and geographies

What was Done:

  • Consolidated corporate, business unit, geographies and supply chain cellular spend
  • Established user needs and business requirements
  • Established cellular functionalities and capabilities to meet business needs across the USA
  • Established corporate standards in hardware and service requisitioning policy and practices
  • Established service provider network
  • Leveraged buying power through a national consolidator and direct-service providers
  • Converted cellular phone users to the lowest published corporate rates
  • Leveraged Total Value Concept with selected suppliers
  • Established cellular spend management as a purchasing group’s responsibility–single point of contact

Results:

  • Reduced cellular costs including administrative processing costs by 18%
  • Improved tools to manage compliance and spend patterns
  • Established corporate standard hardware and service policy


Case Study 6 – Corrugated & Packaging Materials

Situation:

  • Needed to get a handle on over 1,000 Corrugated & Packaging items
  • There were no internal specifications or standardization of items
  • True spend was not visible and purchasing was done on a regional level without leveraging $40 million company wide consumption
  • Many of the vendors had multiple agreements and pricing for same goods for different regions
  • Previous sourcing attempts of Corrugated & Packaging items consumed over a year with minimal product standardization, vendor compliance, and savings realization
  • Inventory management problems with damaged or missing items
  • Lacked supplier market intelligence

What was Done:

  • Performed spend analysis to extract true spend, buying pattern, and geographic preference
  • Performed a major data cleaning/updating event to develop internal spec and standardization through the company
  • Performed Internal Data Request (IDR) to get a better insight into organization purchasing behavior (including minority/women supplier spend) and procurement process preference.
  • Research supply/demand market intelligence, including supplier economic models to trends
  • Profiled Suppliers by tiers and by region, including Minority and Women-Owned Suppliers
  • Created inventory management best practices
  • Profiled Supplier economics and capabilities as well as identify opportunity for cost control/reduction
  • Developed configurable Bid Packages, including templates, market baskets, RFP, RFQ, and negotiation strategies
  • Performed detailed bid analysis to maximize cost saving

Results:

  • Achieved 12% savings on overall spend
  • Reduced and standardized corrugated and packaging specifications


Case Study 7 – Workstation

Situation:

  • At $80 million, Workstations represented a significant spend area for client with scientific/engineering intensive applications
  • 80% of work station purchases were concentrated with two suppliers
  • Market conditions afforded the opportunity to take greater advantage of client’s purchasing power and knowledge of supply market dynamics
  • Availability of substitute workstations which delivered equal if not better performance and cost emerged in the marketplace
  • The objective was to reduce costs of purchased workstations and improve price/performance value for user requirement levels
  • Rapid technology evolution in the workstation market

What was Done:

  • Centralized buying that reduced marketing costs
  • Concentrated volume and commitments that reduced demand fluctuations
  • Established fit-function specs/standards for work types and user requirements
  • Standardized platforms that simplified order fulfillment
  • Profiled current suppliers and emerging and capable technology vendors
  • Established total cost of ownership and lifecycle costs for technology management
  • Implemented disciplined purchasing process and practices
  • Established a purchasing team involving IT and business users to ensure alignment of objectives

Results:

  • Achieved 9% savings in workstation spend
  • Established standards and specs to align price with performance and true business needs


Case Study 8 –Promotional Products

Situation:

  • Promotional Products spend in excess of $12 million a year
  • 350 promotional items – without codification and classification
  • Logo differences on promotional designs – confusion and brand erosion
  • Lack of product specification
  • Consumption numbers were inaccurate and difficult to get
  • Purchasing was done at different levels, by individuals, by district or local offices, and by corporate
  • Proliferation of vendors
  • Of the total spend: $6 million was spent with non-approved vendors mostly by district or local offices
  • Lack of disciplined price control and strategy

What was Done:

  • Consolidated corporate, marketing, retail, and awards promotional products
  • Performed data extraction and spend analysis to develop a clearer overall consumption pattern
  • Codified and classified promotional products into Apparel, Sports & Leisure, Business Products, Collectibles, and Gift Certificates categories
  • Created a sourcing strategy to leverage the parent company, its subsidiaries, and international locations volume purchasing
  • Decreased cost of ownership via consolidation of number of promotional items, increase of electronic catalog usage, and integration of electronic promotions
  • Identified global vendors and regional diversity qualified vendors
  • Incorporated customer-as-a-vendor (revenue from vendor) as part of the evaluation/decision process

Results:

  • Will realize approximately 19% in savings annually over next three years
  • Branding and logo usage will be better managed, thereby adding to brand value


Case Study 9 – MRO & Spare Parts

Situation:

  • Needed to get a handle on over 20,000 MRO & Spare Parts items
  • Proliferation of vendors has resulted in over 400 vendors
  • Lack of categorization over time has resulted in hundreds of duplicate items and difficulty in finding items to order in the electronic purchasing system
  • Ordered parts via the electronic purchasing system was often late or delivered with wrong products
  • Data updates were always behind compared to quarterly price increases on many items leading to mismatch in planned budget vs. actual
  • Inventory management problems
  • Sweetheart deals
  • Lacked supplier market intelligence

What was Done:

  • Performed a major data cleaning/updating event to combine and eliminate thousands of duplicate and obsolete line items
  • Performed Internal Data Request (IDR) to get a better insight into organization purchasing behavior (including minority/women supplier spend) and procurement process preference.
  • Created category classifications for MRO & Spare Parts, including electrical items, mechanical items, engineered items, wheels and casters items, lamps and ballasts items, and other miscellaneous items
  • Research supplier market demand/supply dynamics on a “total costs” basis
  • Created inventory management best practices
  • Profiled Supplier economics and capabilities as well as identify opportunity for cost control/reduction
  • Developed configurable templates, market baskets, RFP, RFQ, and negotiation strategies
  • Leveraged mega-distributors and OEMs and outsourced MRO management

Results:

  • Achieved 15% savings on overall spend on MRO and inventory
  • Set up reporting and performance management system


Case Study 10 –Office Products

Situation:

  • The client needed to consolidate and source all office products purchased globally by the parent company and its subsidiaries
  • Annual office products spend was in excess of $33 million
  • Proliferation of vendors was uncontrolled. The incumbent preferred vendor, only captured $12 million of spend
  • Contract negotiation was poor, resulting in steady rise in price of purchased items; still, there was a misconceived notion that price of items were already competitive due to the client company’s sheer size and purchasing power
  • Lack of data management has resulted in duplicate items and decreased volume purchasing
  • Vendor reliance on consumption and payment

What was Done:

  • Consolidated office products purchased with corporate and its subsidiaries
  • Cleaned and analyzed data to develop a source-able market basket of office products by category
  • Laid out sourcing strategy to leverage global volume purchasing and restructure supplier relationships
  • Decreased cost of ownership via increase of electronic purchasing and supply market economic modeling
  • Identified global office products vendors and regional diversity qualified vendors – tiered and layered
  • Created RFP documents, quoting templates and evaluation criteria for proposal analysis using proprietary value-indexing system
  • Performed bid analysis, including 15,000 line items plus substitution analysis against bids and historical consumption data using value-index tools

Results:

  • Achieved $11 million in savings, 33% annualized savings
  • All transition cost, including product updates and data management support was negotiated to be inclusive


Case Study 11 –R&D laboratory chemicals and consumables

Situation:

  • Materials ordered to inventory and maintained in stores facility
  • 6,000 purchase orders annually
  • Low-order value
  • High degree of chemical obsolescence
  • High disposal costs
  • Long purchasing lead time – three days to two weeks
  • High acquisition costs
  • $35 million in spend
  • Multiple laboratory locations

What was Done:

  • Product specifications to meet laboratory needs
  • Alignment of demand with the supplier to minimize obsolescence
  • Volume concentration across previously decentralized purchasing organizations
  • Aggressive price negotiation
  • Conducted environmental and safety risk assessment
  • Introduced inventory management best practices
  • Rationalization suppliers from 250 to 2
  • On-line purchasing and reporting system was linked to inventory management system
  • Established JIT delivery from local distribution centers
  • Established national service level agreement with 2 major suppliers
  • Established product lifecycle management and assigned disposal accountability to suppliers

Results:

  • Achieved 21% annualized savings
  • Purchasing lead time reduced to 4 to 12 hours
  • Established total product lifecycle visibility


Case Study 12 –Telecommunications Equipment & Services

Situation:

  • Proliferation of telecommunications equipments and contract services in multi-locations worldwide
  • Annual Telecommunications spend was in excess of $42 million
  • Lack of equipment and services standardization – over 250 different equipment sets and 380 contract terms
  • Lack of global leverage of spend – out of control situation
  • Spend data in multi-locations and in multi-sources and formats
  • High costs of assessorial and contract term violations

What was Done:

  • Conducted “User Need” assessment to identify common needs and unique circumstances
  • Segmented Users into Two core segments based on business value and functional requirements
  • Captured and codified equipment and services contract data utilizing specialized and proprietary data extraction tools
  • Profiled all major original equipment manufacturers and services providers to understand capabilities and fundamental economics
  • Identified global equipment and services providers and regional diversity qualified vendors – tiered and layered
  • Rationalized and standardized equipment and contracts based on User needs and business requirements and geographical constraints
  • Created RFP documents, quoting templates and evaluation criteria for proposal analysis using proprietary value-indexing system
  • Performed Bid analysis, developed contract terms, SLA and awarded contract to best value providers on a global and regional bases

Results:

  • Achieved $7.6 million in savings, 18% annualized savings
  • Implemented best practice processes and measurement tools to enable the organization to replicate the project


Case Study 13 –Marketing & Advertising Services

Situation:

  • 195 Marketing research and advertising suppliers – each business unit had its own “preferred” supplier
  • Marketing services spend was $105 million
  • Marketing cost as a % of revenues was above industry benchmarked average
  • Return on marketing investment below industry average
  • Lack of standards on retaining marketing service providers
  • Lack of agreement among top leaders on how much was spent in marketing services
  • Marketing was a “sacred cow”
  • Procurement was not allowed to participate in the purchase of Marketing services

What was Done:

  • Developed a concise marketing cost structure – identifying all cost drivers and their impact and leverage on overall marketing expense
  • Decomposed marketing costs by vendor and marketing category to understand utility and total cost of service
  • Conducted spend analysis and benchmarks to identify opportunities for cost reduction and service improvements by marketing category
  • Profiled and pre-qualified Marketing services and product providers on a global basis
  • Developed strategic sourcing strategies for each of the marketing categories – market research, advertising, promotions, consulting services, etc.
  • Created RFP documents, quoting templates and evaluation criteria for proposal analysis using proprietary value-indexing system
  • Performed Bid analysis, developed contract terms, SLA and awarded contract to best value providers on a global, regional and local bases
  • Implemented a team-based procurement approach including marketing, product development and procurement professional

Results:

  • Achieved $11.6 million in savings, 11% annualized savings
  • Implemented a balanced scorecard for measuring and tracking return on marketing investment and other leading indicators


 
 
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