A global leader in the automotive tier 1 industry had an ambitious goal for its global sourcing organization: deliver significant savings to the company’s bottom line within three years. Achieving the goal meant mobilizing 120 sourcing employees in more than 13 countries worldwide to do their jobs in new ways. With our help, the company built the organizational structure and capabilities it needed to reap annualized savings of between $75 – $100 million.

The Situation

In some industries, procurement spend can account for as much as 75% of total costs, with global sourcing sometimes accounting for 40% of that total. Client-X* found itself close to this threshold, devoting the majority of the firm’s costs each year to sourcing and procurement. But it wasn’t getting full value for its money. Each operating company handled its own purchasing independently with little regard for the synergies that might exist across units and geographies and the global purchasing group lacked any real mandate and authority.

This siloed approach came with a number of costs, the most tangible of which was missed opportunities to consolidate volumes and negotiate discounts with key suppliers. Without effective global oversight, local procurement groups also lacked visibility into best practices or total ownership costs, adding another challenge to assessing the waste associated with the spend.

While many parts of sourcing and procurement were murky, one thing was clear: re-building the sourcing and procurement organization with a more collaborative structure, clear mandate and global mindset was the only way to create sustainable savings.

Elements of a successful sourcing and procurement organization transformation

Our Approach

The journey to a more collaborative and strategic sourcing and procurement organization started with a fact-based approach to determine the right level of management—global, regional or local—for selected categories. Leaving emotions and internal politics aside, MPKi helped the company pinpoint common purchases across business units and geographies that could be pooled or bundled to generate savings. We then assisted with external research on supplier market structures to clarify the feasibility of such synergies in light of the supplier structure: local, regional or global.

The next move was to create a very focused definition of responsibilities across the purchasing organization and the necessary functions involved. MPKi used our own internal framework and methodology to assign accountability for the key elements of the decision-making process.

Finally, we developed a systematic approach to skill-building that trained and strengthened the sourcing and procurement staff. With the help of external experts, the existing sourcing and procurement talent pool was assessed with well-defined criteria, including standardized tests, and then individual and group programs were devised to bring the organization’s skills to the required level.

A combination of internal and external analyses laid the groundwork for determining whether different categories should be managed locally, regionally or globally, resulting in a carefully constructed “Best Cost Country Sourcing Solutions”.

Our Recommendations

• Defining full potential savings to make the case for change: In our experience, high initial savings followed by ongoing, sustainable results are the best way to sell a sourcing and procurement transformation. We held workshops with key employees in each country to estimate full potential savings, develop roadmaps and outline which changes would enable them. Ultimately, the stakeholders agreed to a goal backed by 900 specific SKUs.
• Joint planning involving corporate and business units: We interviewed executives from a representative sample of regions and business units to develop a blueprint for viable change. This became the basis of workshops with additional executives to further refine the plan. Within six weeks, this process established buy-in across global operations for a major transformation plan.
• Execution that spotlights change management: Plans and promises are important, but most transformation efforts are doomed to fail without a solid plan for change management at the regional and local levels. We used our proven approach to make implementation risks measurable, manageable and predictable. With our approach, local and global teams are encouraged to communicate regularly about risks and issues in order to develop plans to mitigate them.

The Results

• Developed a multi-year blueprint within four months, delivered visible results in the first six months of implementation
• Mobilized >150  stakeholders across 12 pilot countries in EMEA, APAC and Americas during implementation to work together in completely new ways; laid the foundation for successful roll-out in more than 20 countries
• Enabled significant capability-building by launching development assessments and skills-building programs
• Developed a repeatable model for driving global change across multiple other categories that the client can draw upon for transformation efforts of other functions
• Built the organization, processes and capabilities to deliver full potential savings of more than $120 million sustainably across the world in the initial projects chosen sourcing categories.

* MPKi take our clients’ confidentiality seriously. While many of our clients do allow MPKi to publish their names, the majority of them do not allow us for understandable reasons. While we’ve changed the client name in this case study, the published results are real.