CASE STUDY

Developing Direct Buy Model and Achieving Savings of $21 Million for a Heavy Equipment Company by Improving the Strategic Sourcing Process

Aug 14, 2019

Heavy Equipment Industry Overview

As of 2019, there are several challenges facing the heavy equipment industry. Sustainable building practices and stringent standards have become top concerns for companies. They need to search for ways to accommodate customer demands for unique products while remaining competitive in the current economic environment. Also, they need to improve the strategic sourcing process to minimize costs, consolidate supply base, and identify the best cost countries by category while enhancing operational efficiency.

Business Challenges Faced

Our client, a heavy equipment company was the product of 10+ mergers and acquisitions over the past 15 years. As a result, the client had a highly fragmented supply base across North America and Europe with no formal supply agreements or sourcing strategy. The lack of defined process to go to the market and inconsistent and volatile pricing by location was adding on to the woes of the client. Also, stringent government safety regulations were challenging the client to transition their business to alternative means of supply.

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Our Research Approach

To help the client identify the highest level of savings and potential categories, the experts at SpendEdge developed a potent strategic sourcing strategy. The strategy helped the client to target seven key categories. The experts then identified the best cost countries by category and determined the technical and governmental requirements for each manufacturing and service location.

SpendEdge’s proprietary direct buy model coupled with the strategy to improve the strategic sourcing process helped the client to establish OEM, improve mill level relationships, and transition supply away from incompetent distributors. Also, the insights provided empowered the client to identify opportunities to align with “Global” suppliers and obtain significant operational benefits and lower cost.

Engagement Outcome

The improved strategic sourcing process helped the client to achieve significant operational and service improvements and realize over $21 million in cost savings. The increased engineering and technical support, and a formal cost reduction model with suppliers helped the client to establish global supply agreements for seven categories and minimize price volatility across all regions.

Improving strategic sourcing process is crucial for companies to minimize price volatility across different regions. Subscribe now to access accurate category insights and improve strategic sourcing supply chain management.

Steps to Improve the Strategic Sourcing Process  

  • Collate the demand and usage information to understand the category.
  • Identify existing and potential global and local suppliers and the risks associated with them.
  • Develop a robust strategy to negotiate with suppliers who can meet the relevant criteria.
  • Benchmark the current status, monitor the results and ensure that the full value is being achieved.

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