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Sourcing and Procurement

Is your company’s sourcing and procurement program robust enough today, to meet global competition, in both cost and delivery?

Customer’s Challenge

A client, located in the northeast, manufactured printers for the banking, financial and retail industries. They had experienced significant growth, nearly doubling in size in two years. The client had two divisions operating independently of each other. One of the client’s facilities manufactured a specific component used by the other division in their final products.

Neither company had a strategic sourcing group. Instead, each of their purchasing departments supported their own division. They issued purchase orders for their raw materials and components on a day-to-day basis. Most suppliers were in a local or a ‘tri-state’ area.

Upon reaching new levels in revenue, the company began facing significant ‘sales price’ pressure from their competition, larger OEMs, that operated in the same market.

The Solution

An analysis of their procurement operations revealed opportunities. It would involve creation of a sourcing group in addition to separating functions in procurement. Next, it was necessary to align the strategy in sourcing and procurement with company objectives. Here is an outline of the process followed.

  1. A ‘participative’ plan was developed to introduce a strategic sourcing group to procurement
  2. Responsibilities were established with accountabilities for the sourcing group and the tactical purchasing function
  3. Senior management support was solicited and obtained for the organizational changes
  4. A strategic sourcing group was created, as a part of procurement, and talent was located
  5. Training was conducted to ensure personnel understood their roles, processes, and the reasons behind the changes
  6. A ‘long term’ strategic sourcing plan was developed that was aligned with the company’s business plan and objectives
  7. A new sourcing initiative was launched, for printed circuit board assemblies (PCBAs), that showcased the new sourcing and procurement algorithm, as well as ‘cost savings,’ building excitement for the changes in the department
  8. A pilot program was run, checking integration and coordination, before turning it over to the customer for complete implementation

The Bottom Line

After reorganizing the sourcing and procurement operations, the development of a strategic sourcing plan helped identify a key commodity for ‘targeted’ cost reductions, i.e., the customer’s purchase and use of printed circuit board assemblies (PCBAs).

With the company’s business objectives in mind, it was necessary to look globally to find the best ‘total cost’ when purchasing PCBAs. It is important to note that any solution under review mandated the quality of the product be equal to or better than that already established.

In the end, the client’s sourcing and procurement solution for PCBAs was dual sourcing, i.e., a US and Pacific Rim sources. This enabled the client to mitigate risk, obtain high quality and ‘on-time’ delivery, yet significantly reduce purchase costs.

The sourcing and procurement strategies resulted in a savings of $3.4 million, or 16.3{2bf209ca88e06deac55c1059e09d0cd2131e4e9f2199a59c5512cbe0c4dd3869}, for their PCBAs in the first year. When extrapolated and aggregated, it would save the company more than $17 million over five (5) years.

Related Topics

Transforming Procurement Operations. Today, procurement is expected to bring value to the entire business enterprise. Some organizations have difficulty migrating their legacy processes to more advanced procurement models. For more on this topic, please follow this link.

Process Management. It is important to have effective business processes in place. Otherwise it is very difficult to reach high performance levels. For more on this topic, please follow this link.

Organizational Structure and Performance. Top performing organizations require structure, culture and resources to produce high performance. Departments designed around four areas achieve much higher performance levels. For more on this topic, please follow this link.

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