Case Study: Optimizing Category Sourcing for Savings and Supply Base Consolidation


Customer
A Fortune 200 paper and packaging ­firm, with operations in North America, Europe, Latin America, Russia, Asia, and North Africa

 

Challenge
A number of major acquisitions and divestitures led to a fragmented supply base for rental equipment, highlighting the need for a strategic look at supplier relationships. GEP was assigned to identify and source categories, with the dual goals of increasing the amount of annual spend under corporate contract and generating savings.

 

Approach
A corporate contract was in place, but GEP spend analysis indicated that less than half the total rental equipment spend was covered under the contract. Since most purchasing decisions were made locally, GEP conducted an internal survey of the top-20 facilities to understand the client’s needs and requirements. Internal spend data on past rental details proved to be limited. GEP led a data collection effort from both suppliers and client locations. The team identified five sub-categories under rental equipment category and developed an RFP to address them, evaluating both niche suppliers and “one-stop-shop” suppliers.

 

Results
After the RFP, face-to-face negotiations were held, with total savings of $2.9MM (30 per cent of total spend) identified through the process. Savings included $1MM of Total Cost of Ownership (TCO) savings. GEP uses TCO as a means to align client/supplier incentives. For the rental equipment category, TCO areas included the more efficient use of off-renting equipment and optimizing equipment rented.

 

Recommendations
Consolidation of fragmented spend, increasing pricing conformity, and leveraging the total volume are absolute musts for the rental equipment category. However, even in a falling rate environment, other levers, such as demand management and process improvements, can have a significant effect on the TCO.

 

GEP

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