breaking the ceiling through effective procurement transformation 19 oct13
DESCRIPTION
The presentation I made at the CPO Forum Conference on 19th Oct 2013 at Delhi.TRANSCRIPT
Breaking the Ceiling through
Effective Procurement
Transformation
CPO Forum, Delhi, 19Oct13
2
Do you face these situations?
Constant pressure from Management to reduce material costs
My team doesn’t have full visibility of spend across the supply chain
We initiate many cost reduction initiatives but they linger on for long
before implementation
We have lot of ideas but our daily routine activities keep us from
focusing on them
3
Contents
How Companies respond to today’s reality
How can we make Procurement transformation
programs effective?
Case : Delivering Procurement transformation
program at leading EPC company
4
Many Internal & External factors affect the industry dynamics and increase
pressure on company’s margins
My
Organization
Strategic and Bottleneck
Suppliers Have more buying power
Limited supply base
Significant P&L impact
Unique specifications
Leverage and Routine
Suppliers Have higher COGS, low
profitability
Quality inconsistencies
Weak Management Controls
Poor working capital conditions
5
Many Internal & External factors affect the industry dynamics and increase
pressure on company’s margins
My
Organization
Competition Merger and acquisitions
consolidating industry
Increase in global supply bases
Rapid innovation pace
Intense fight for Market Share
Blurring product segments
Customer Has More choices
Wants More convenience
Rising costs of customer
acquisition
Wants more value for money
Higher disposal income
Strategic and Bottleneck
Suppliers Have more buying power
Limited supply base
Significant P&L impact
Unique specifications
Leverage and Routine
Suppliers Have higher COGS, low
profitability
Quality inconsistencies
Weak Management Controls
Poor working capital conditions
6
Companies take host of measures to maintain and improve the bottom-line…
Specialist
Team
Suppliers
Procurement
R&D
Manufacturing
LogisticsQuality
Sales
Standard
Polymers
For new
products
Not for new products
Standard Polymers
Non standardised
Polymers only used locally
What Companies typically do?
Take Annual Targets for
cost reduction
Consolidate initiatives
product wise, category
wise or BU wise
Form Cross Functional
Teams
Engage with suppliers
for cost reduction
initiatives
Plan for implementation
Monitor and report
results
Realisation
plan
7
Companies take host of measures to maintain and improve the bottom-line…
Specialist
Team
Suppliers
Procurement
R&D
Manufacturing
LogisticsQuality
Sales
Standard
Polymers
For new
products
Not for new products
Standard Polymers
Non standardised
Polymers only used locally
What Companies typically do?
Take Annual Targets for
cost reduction
Consolidate initiatives
product wise, category
wise or BU wise
Form Cross Functional
Teams
Engage with suppliers
for cost reduction
initiatives
Plan for implementation
Monitor and report
results
Realisation
plan
But what eventually happens…
“Our product mix
changed by the
time of
implementation” “Procurement
department claims
cost reduction but it
doesn’t show in the
balance sheet”
“Many of our
initiatives are stuck
in approval stages.
What is the result of
so much effort?” “We realized that the
cost reduction initiative
created more complexity
and cost leakages in
other areas”
The results are not as effective….
“We implemented
the savings but it
looks like we are
back on the original
condition now”
8
Contents
How Companies respond to today’s reality
How can we make Procurement transformation
programs effective?
Case : Delivering Procurement transformation
program at leading EPC company
9
Procurement leaders strive for achieving excellence in procurement and not
only cost reduction
People and Skills Organization Structure
KPIs, Rewards and
Recognition
Skill set for Procurement
Professionals
Cross Functional Teams
Effectiveness
Strategy Tailored Category Sourcing
Strategy
Supplier Relationships and
Alliances
Supply Risk Management
Make v/s Buy Decisions
Process Performance Process checks and
balances
Timelines adherence for
initiatives
Adequate IT systems
Supplier payment process
Supplier development
Innovation Simplifying/Optimizing
supply chains
Backward integration
Joint R&D with suppliers
Product Innovation
Use of alternate materials
PROCUREMENT
EXCELLENCE
10
Procurement Excellence can be achieved by undertaking initiatives
systematically & in a phased manner
BEST PERFORMANCE
WITH CURRENT
PRACTICES
CURRENT
PERFORMANCE PROCUREMENT
LEADER
11
Procurement Excellence can be achieved by undertaking initiatives
systematically & in a phased manner
BEST PERFORMANCE
WITH CURRENT
PRACTICES
CURRENT
PERFORMANCE
• Design, Plan and execute
procurement cost reduction
programs
• Stress on strategic sourcing
initiatives
• Restructure procurement team
• Implement robust management
controls to achieve yearly targets
• Closer integration with R&D and
supplier development teams…
• Invest in upgrading skills and train
procurement team
• Invest in upgrading IT systems across
supply chain
• Integrate procurement strategy as part
of business strategy
• Mapping supply chain risks
• Enter into strategic alliances with key
suppliers
• Invest into product innovation and
Joint R&D with suppliers…
PROCUREMENT
LEADER
12
An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN PLANNING EXECUTION
13
An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN
Establishing Strategic Goals
Mission & Vision
3- Year, 5-YearPlans
Annual Targets
Key Identifications
Current Challenges
Mindset issues
Organization restructuring
Core Team to drive change
Knowing the as-is current
procurement performance
Create the ‘bigger picture’ of
change
PLANNING EXECUTION
14
An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN
Establishing Strategic Goals
Mission & Vision
3- Year, 5-YearPlans
Annual Targets
Key Identifications
Current Challenges
Mindset issues
Organization restructuring
Core Team to drive change
Knowing the as-is current
procurement performance
Create the ‘bigger picture’ of
change
Conducting detailed diagnostic
study and identify opportunities
Detailed level target and
expectation setting
Documenting knowledge and
establishing SOPs
Identification of priority areas
Department level KPI setting and
program governance structure
Rolling out weekly, monthly
and half yearly plans
Setting up MIS to track
progress and achievement
Team formations and
communication platforms
Identifying right tools &
approach for initiatives
PLANNING EXECUTION
15
An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN
Motivate and re-enforce key
ideas and thoughts in team
members
Set-up reviews for progress
check
Train procurement professionals
on relevant tools & techniques
Handling Change Management
Course corrections and scope
expansion
Set-up audit mechanisms for
review
Sharing information and best
practices
Setting responsibility for
continuity
PLANNING EXECUTION
Each phase of the program is critical to the success of the program
Establishing Strategic Goals
Mission & Vision
3- Year, 5-YearPlans
Annual Targets
Key Identifications
Current Challenges
Mindset issues
Organization restructuring
Core Team to drive change
Knowing the as-is current
procurement performance
Create the ‘bigger picture’ of
change
Conducting detailed diagnostic
study and identify opportunities
Detailed level target and
expectation setting
Documenting knowledge and
establishing SOPs
Identification of priority areas
Department level KPI setting and
program governance structure
Rolling out weekly, monthly
and half yearly plans
Setting up MIS to track
progress and achievement
Team formations and
communication platforms
Identifying right tools &
approach for initiatives
16
DESIGN phase : Establish expectations and articulate the scope and
deliverables of the program
The management team identifies
and articulates its strategic goals
in procurement
What is our business
strategy for 3-Year, 5-Year
Horizon and how will it affect
procurement?
What are our key annual
targets and performance
measures?
What goals we are trying to
achieve through the
procurement transformation
program?
The CEO Agenda
What current challenges will
keep us from achieving our goals?
What are the team’s mindset
issues?
Do I need to restructure my
team?
Do I have the right skills and
adequate resources to carry out
the transformation?
Who will constitute the core team
to drive the change?
What is our as-is procurement
performance?
How do I drive the change?
The CPO Agenda
Identified
Areas for intervention
Broad level targets and
timelines
Core team to drive program
Setting performance
measures for the department
Challenges that will affect
the program and mitigation
measures
Agreement on additional
resources required
The Transformation Program
What we want to do? How do we execute?
17
PLANNING phase : Establish current performance and plan for implementing
the identified opportunities
Detailed level assessment of the
current procurement performance
Review and definition of
categories
Expenditure mapping
Current supply chain
processes review
Current Supply Chain
Metrics
Key Stakeholders taking part in
transformation program
Defining roles and
responsibilities
Target setting and identification
of priority areas
Setting Baselines
Identification of key opportunities
and improvement areas
Estimation of savings potential
on all important categories
Estimate ease of realization
Consider setup to enable
savings (e.g. organization, IT
support, KPIs/KRAs)
Identifying ‘quick-wins’ to create
excitement
Identify necessary functional
intervention from teams such as
R&D and Quality
Opportunity identification
Established
Weekly, Monthly, Half Yearly
Plans
Teams for implementation
‘Benefit Tracker’ with
timelines
Priority Areas
Process formats, SOPs
Department performance
metrics, KPIs/KRAs
Governance structures
Plan for Roll-Out
Where are we at present? What are the opportunities?
18
EXECUTION phase : Track and support to deliver sustainable benefits
Tracking actions for
implementation at project levels
Tracking of benefits accrual
Regular progress reviews at
management level
Risk mitigation measures in
projects
Roadblocks removal by senior
management
Establishing visual management
systems and stakeholder
management processes
Enabling course corrections and
scope expansions
Tracking Actions and Progress
Handling change management
Managing individual and group
communication
Creating motivation in teams by
reinforcing key ideas
Managing non-performance of
members/teams
Setting the right and adequate
Rewards and Recognition
Skill building of team on a need
basis
Ensure discipline in reporting and
adherence to process standards
Supporting Execution
Bringing projects to closure
Setting responsibilities and
ownership for continuity
Information and best practices
documentation
Ensure established processes
adherence
Establish platforms for generation
of future initiatives
Establish audit mechanisms to
avoid slippages
Closure and Continuity
Where are we headed? What are the support
mechanisms?
19
CHALLENGES : Anticipate your challenges and plan to mitigate - than be hit
by them
No visibility of
company agenda
Pressures for focusing
on cost, cost and cost
Risk of ‘individual
agenda’ being driven
by top-management
members
Inappropriate/
inadequate long term
vision
…
Non-availability of data/
information
Non-committal people/
functions to targets and
objectives
Too many priorities
Everyone plans
Changing product mix
Sub-optimal plans –
generated based on
available skills/ resources
Lack of awareness of
methodologies/ tools
…
Delays in management
approvals for resources/
investments
X-functional coordination
failures
Road-blocking by
‘stalwarts’
Discovery of ‘holy cows’
Vendor non-cooperation
Delivery disruptions
Data/ information non-
availability
Inadequate skill levels
…
DESIGN PLANNING EXECUTION
20
TIPPING POINTS : Certain factors, if ignored, have the potential to derail the
entire program
KPIs/KRAs should be
designed carefully
People skills and
resource allocation
should be accounted
for
Look out for
management
commitment issue
…
Risks that might affect
project outcome should
be mapped and measures
should be taken
Sustenance measures
should be agreed at start
of projects
Look out of risk of active
or passive sabotage
possibility
Finance should be on-
board with benefit
calculations
…
Robust Change
Management
Look out of drop in
motivation levels during
the course of project
Negative Communication
should be carefully
delivered
Friction between teams
must be eliminated
quickly
Prevent people from
falling back on old
practices
…
DESIGN PLANNING EXECUTION
21
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Change
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
22
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Change
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
23
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Change
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
24
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Change
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
25
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Change
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
26
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Change
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
27
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Change
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
28
Successful Transformation takes place only when all elements of change are
addressed in the journey
Successful Transformation
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Confusion
Incremental Benefits
Frustration
Anxiety
Slow progress
False start
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
Vision Robust
Methodology Structure & Resources
Skills Motivation Action-plan
29
30
31
Contents
How Companies respond to today’s reality
How can we make Procurement transformation
programs effective?
Case : Delivering Procurement transformation
program at leading EPC company
32
Client aimed to develop India sourcing center to support turnover growth by
1.5 times and increase profitability by 5% within 5 years
BUSINESS NEED
Client strategy in India was to increase turnover 1.5 times over the next 5 years
Competitive offering to customers was a pre-requisite for the winning the
volumes game
At the same time target was to increase EBIT rate by 5% over the current base
rate
Turnkey projects in combination with O&M contracts could deliver the desired hike
in turnover. The challenge was to win these orders and at the same time
increase profitability
Client’s supply chain had to more competitive than equivalent competitor’s China
based supply chain for gaining volumes in the market
Many global companies had started to develop alternative supply chain capacity
outside China. Client had a strong presence in India and was in a good position to
develop a world class sourcing centre in India
Client had already developed a global supply chain strategy. The challenge was
now to design the local supply chain setup for India that supports the global
strategy and at the same time delivers the elements that the global supply chain
cannot deliver
33
Program objective was to reduce procurement cost in India and increase
group spend sourced from India
SCOPE AND PURPOSE
India spend – driven by India supported by Group
Local Categories Group categories
Group spend – driven by Group supported by India
Group spend India sourced Group spend
Development of India supply chain
Reduced cost of equipment, e.g. reduced cost of
BOM items/tonnes plant output
Increased procurement productivity
(procurement spend/employee)
Improve supplier performance e.g. ontime
delivery
Optimize/implement process for systematic
category sourcing, supplier development and
operational procurement
Develop current
practice
Increase group spend through India sourcing
Lower Cost for group globally
Develop Indian Suppliers to support further
group spend sourcing from India (for example
improved quality, higher supplier capacity and
aligned QA setup)
Improve supplier performance for example
ontime delivery
Increase operational purchasing off-shored to
India
34
The objectives were further broken down into high-level actions to realize the
targets
Increase sourced
volume out of India
Expand sourcing categories
Identify & develop new vendors
Improve vendor competitiveness in
terms of quality and price
Reduce BOM Cost
5-step sourcing efforts
Identify & develop new vendors
Supplier development – help suppliers
lower costs
Costing analysis to benchmark & drive
down costs
Improve procurement
productivity
Integrate cement & minerals
procurement
Create lean processes in procurement
Improve supplier
quality & delivery
reliability
Supplier development – help suppliers
improve operations & quality (lean
suppliers)
Improve call off process
SCOPE AND PURPOSE
35 35
Supply chain optimization was carried out taking a comprehensive
approach covering all relevant areas of procurement
Programme
Management
1. Sourcing Waves
2. Organisation integration and
building
3. Process devp., standardisation
8. Building Perf. Management &
regular KPI follow-up
7. Spend management and
analysis
4. Supplier development
5. Develop global procurement
setup
6. Master data building and maintenance
APPROACH
Aimed at making
procurement:
BETTER
FASTER
CHEAPER
36
Volume Concentration
Coordinate volumes across the organization
Allocate volumes with selected suppliers
Explore if providing volume commitments could improve
pricing from suppliers
Assess risks involved
Import Substitution / Global Sourcing
Investigate use of local suppliers instead
of imports
Supplier development activities
Best Price Evaluation
Compare prices and terms across
divisions and leverage best prices and
terms
Assess price break-down from suppliers
to the extent possible to enable
transparency
Product /Service Specification Improvement
Identify cost drivers and use the info to standardise/
simplify specifications
Develop long-term relationship with vendors to
improve specifications for future
Integrate inputs from Procurement, Projects & site
team
Process Improvement
Process improvement across Source to contract
& Procure to Pay lifecycle
Improve productivity, costs & timelines
Relationship Restructuring
Consider splitting orders in the value chain
Consider making one supplier accountable for a
“basket” and reduce transactions
Consider entering into agreements with selected
suppliers
Product / Service
Specification
Improvement
Volume
Concentration
Best Price
Evaluation
Relationship
Restructuring
Import
Substitution /
Global Sourcing
Process
Improvement Sourcing Strategy
The project involved use of 6 ‘sourcing levers’ in varying degrees to create
value
Leverage Buying Power Create Value
APPROACH
37
Several business benefits accrued from the procurement
transformation program
37
BENEFITS
Cost Competitiveness - Enabled Annual Savings of INR 800+ Mn - Improved supplier payment terms and compliance. - New tools like “e-auction” introduced to accelerate savings - Significant reduction in Vendor Documentation errors-speeding
up invoicing.
Delivery Performance - Supply chain war rooms commenced for new projects for
monitoring projects even more closer. - On-time ordering is under focus by clubbing items of different
projects and negotiating rates during estimation phase itself. - A cross functional Lean initiative on speeding up Drawing
Approvals has enabled tackling challenges in reduction of delivery times for bought out items.
Supplier development - Supplier rationalisation carried out and 148 new vendors
approved; - 20000 T of capacity added in fabrication category. - More than 350 improvement actions implemented at key
vendors. - 5 critical vendors being run through a dedicated development
programme to improve their process and performance
Control - Structured category management focus. - Weekly internal project reviews for Delivery & Quality - Objective measurements(25 metrics established and being
tracked periodically)
System improvement and transparency - Uniform procurement process across divisions. - Planning and reporting systems strengthened. - Systematic sign off and tracking of savings - Data categorization to improve quality of spend analysis. - More streamlined and transparent interaction with estimation
Cultural/Competence - Way of working is changing – more cross-divisional, more
cross-functional and more fact-based - There has been an increased confidence in leadership and
the new way of working(Based on internal survey carried out) - Competency development programme under implementation
for key procurement staff based on assessment by Third party agency.
38
Efforts to consolidate volume yielded phenomenal savings to the
procurement organization
Product: Steel in various forms
Challenges: Purchase requests were generated by
different departments, at different points of time.
Orders were placed on both traders &
manufacturers, based on the best spot price
Organization lost on consolidation opportunities
Approach: Processes were installed to consolidate
various purchase requests.
Agreements were made with steel manufacturers
for annual discounts based on turnover, and bulk
discounts based on volume.
Spend was moved from high-cost traders to low-
cost manufacturers; traders were used only in
emergency
Benefits: The organization reduced the steel
procurement cost by 5%.
AFTER
Consolidated Vendor Base
55
45
34
36
10
8
7
6
4
3
3
3
2
2
2
2
2
2
1
1
BEFORE
Fragmented Vendor Base
65
40
30
35
20
10
Vendor
1
Vendor
1
Vendor
6
Vendor
20
Spend Break-up across vendors
CASE
39
By setting up best-in-class procurement processes, the company gained
immensely on cost and delivery
Product: Key equipment for bulk material handling
Challenges: The equipment that constituted 40% of
the category spend, was procured by two divisions in
two different ways.
One division fully designed the equipment in-house,
and also split the component orders on suppliers.
The other division relied on supplier design, and
consolidated component orders on one supplier
Approach: The two different processes were
separately analyzed for cost & delivery
We considered cost of material, cost of logistics,
cost of co-ordination & cost of design
We found that the cost of procurement could be
cheaper, and delivery time faster by deploying the
latter method.
The best process was implemented.
Benefits: Cost of procurement reduced by 40%, and
lead time improved by 20% , for both divisions
High
Low
High Low
Co
st
Process Lead Time
High
Low
High Low C
ost
Process Lead Time
Before Process Improvement
After Process Improvements
Process Mapping on Cost & Lead Time
CASE
40
The engagement was not limited to procurement department – it extended to
engineering and other departments to improve process and product designs
Product: Bearing liners for an equipment
Challenges: As per original design, bearing liners were
specified to be manufactured through centrifugal
casting process. This posed following challenges
No reliable suppliers for centrifugal casting in India,
hence company was forced to import
High cost of procurement
Delivery delays
Approach: By co-ordinating with engineering & quality
teams, it was found out that sand casting could be
used in place of centrifugal casting.
Hypothesis was validated by cross-functional team
Sand casting suppliers were identified & qualified
Jointly with the client, prototype was made & tested
okay. Specification was hence changed.
Benefits: Cost reduced by 50%, delivery improved by
20%
BEFORE AFTER
High cost of
procurement
Procurement cost
reduced by 50%
High Lead time
for delivery
Lead time reduced
by 20%
No reliable
suppliers in India
Reliable suppliers
developed locally
Centrifugal casting
process
Sand Casting
process
CASE
41
Purchase cost of a material handling equipment was reduced significantly by
substituting imports at a system level
Product: Hydraulic system for material handling
Challenge: The market share of the company in an
equipment used in material handling was not
improving, in spite of a growing market
New players were entering the market and posed
significant threat
Approach: A complete BOM assessment to figure out
high cost items
The Hydraulic system constituted 30% of the total
equipment cost
Carried out a local supplier landscape assessment
Invited local suppliers for Product knowledge
sessions and encouraged them to respond to RFQ
Benefits:
The cost of the Import Substituted Hydraulic system
was 40% lesser than the Imported cost
It also brought down the service costs, since the
local supplier had service centers across project
sites
Indian manufacturers of equivalent Hydraulic
system bring down the Import cost significantly
Total
Procurement
Cost
Cost of
imported
Hydraulic
system
Total
procurement
after sourcing
Hydraulics
from India
Cost of
Indigenized
Hydraulic
system
BEFORE AFTER
CASE