The Business Challenge
The company is one of the major suppliers of power generation services in the United States. Being a global energy major, the company felt the need to identify the right negotiation levers to drive cost reduction in direct spend by conducting a detailed analysis of various drivers of part cost. They decided to collaborate with SpendEdge and leverage their supplier management solutions to reduce purchasing costs and increase the efficiency of their supplier management process. The key challenges they were looking to address through supplier management solutions were:
- Increase in purchasing prices: The company’s parts & repair business started witnessing an increase in purchasing prices of its parts due to poor supplier management process. This started eroding the contributing margins of the company and started creating challenges for the business.
- Traditional methods: The client accepted “low-cost bids” in finalizing part costs and lacked the efficiency to defend the price requests from suppliers due to poor negotiation levers and supplier management system.
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The detailed analysis conducted by experts at SpendEdge provided the client with vital insights to identify suppliers that had significant cost rise in the last financial year. They monitored the financial health of existing suppliers and shortlisted suppliers with low financial risk to foresee any potential risks and develop appropriate supplier management strategy.
SpendEdge delivered supplier management solutions that helped the client to initiate should cost analysis and set up a toll – gating procedure. This identified the potential parts for should cost analysis based on planned orders, purchase orders and forecasts of parts on a monthly basis. The supplier management system further ensured that stakeholders were involved in the toll-gating process and the parts were prioritized in line with client’s negotiation schedules.
Key Findings
Implemented Should Cost Model
In a span of 10-weeks, the deployment of “Should Cost Model” enabled the client to obtain details on the material specification, material costs, form & feeds, estimated annual usage, source, and destination. This improved their manufacturing process and testing procedures and resulted in a 13% reduction in part costs.
Improved Operational Performance
Supplier management solutions ensured better collaboration with the client’s supply chain partners and provided visibility into various drivers of part cost. Additionally, they identified negotiation levers and helped the client to better negotiate with suppliers and drive deflation.
Why Supplier Management Solutions are Required?
Since leading companies in the industry are ensuring on-going improvement levels in quality, price and delivery performance by negotiating supply contracts, it becomes imperative for businesses to leverage supplier management solutions and improve their competitiveness. Moreover, supplier management solutions allow collaboration with suppliers on cost improvement, innovation, and agility. The systemized approach unlocks opportunities and increases demand transparency, design and specification optimization and bottom-up costing for companies significantly.
