Ever since the first global financial crisis, realizing procurement savings and cost-efficiencies has been the top priority for businesses across all industries. Most companies have taken drastic steps to strip out costs, but the reality is that most procurement functions have failed to address supply chain efficiency. This is either because of poor market intelligence or stakeholder alignment.
However, companies of today are increasingly looking to procurement, regardless of the industry to negotiate strong supply deals for a company’s variable costs. This case study covers how different financial strategies offered by the experts at SpendEdge have helped an energy component manufacturing company to increase the efficiency of sourcing teams. In addition, it has also taken companies to the next level of profitability.
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THE BUSINESS PROBLEM
A global energy component manufacturer wanted to step-up their game by revamping its global procurement strategy. Their earlier efforts trimmed the procurement spending of the company by over 10% but did not alter their financial performance. The complexity of the situation increased when a private equity firm acquired the company and aggressively pursued additional purchasing savings in preparation for a sale.
The company’s senior management team needed to identify avenues for cost reduction and the percentage of savings that would be directed toward net income in the fiscal year. Like most companies, the company focused on achieving additional savings to restore their lagging profits and formulate a global purchasing strategy to achieve long-term savings.
SOLUTIONS OFFERED AND CLIENT JOURNEY
IMPROVING NET INCOME USING SOURCING-LED PROCUREMENT SAVINGS
The experts at SpendEdge realized that the company needed to extract savings from departmental budgets and reallocate them to corporate net income. For instance, if procurement offers $1 million in savings, the corresponding budget needs to shrink by the same amount. However, the company had no clear idea of which budget to reduce and how to ensure smooth functioning of different departments.
SpendEdge’s analyst team implemented strategies to help the client adapt zero-based warranty budgeting initiative and gain full visibility to the budgets.
CONTINUING CROSS-FUNCTION COLLABORATION REDUCING BUDGET
SpendEdge worked on providing opportunities to departments within the organization so that they could view the budget reduction process as disincentive – because if they worked with the procurement team to reduce costs, their budgets went down. On the contrary, if a particular department works independently to reduce costs, it can retain and utilize savings for other projects. This disincentive was overcome by a new approach that communicated the cause and effect of the program clearly to the organization. The percentage of the budget reduced by each department was posted on the intranet and specially recognized.
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We provide highly customized sourcing and procurement solutions to more than 250 global MNCs, including 55+ Fortune 500 companies. Our procurement and supply market intelligence reports with a vast repository of over 800 sub-categories are aimed to deliver specialized insights to category managers and procurement teams to ensure 100% customer satisfaction. SpendEdge is a global supply chain management company that is driven towards offering smart procurement intelligence to enterprises to help them stay at the top of the game with the help of our expertise in supply market intelligence, category management, and supply chain risk assessment.