Case Study: Category Sourcing - Sourcing Cost Reduction Through Integrated Planning


Customer
The client was a Fortune 500 consumer product goods manufacturer.

 

Challenge
Packaging materials was identified as a critical category because of increasing costs and disruption in supplies. The high costs and supply risks impacted finished goods production and overall margins. The client was seeking a review of strategies to reduce the overall packaging costs and enhance supplier reliability.

 

Approach
Category sourcing and management expertise is one of GEP's key propositions. With strategic planning, demand management, market analysis and benchmarking of global suppliers across categories, GEP has helped several clients garner sustainable savings. This includes tracking vendor performance for continual process improvements. Proven strategies are executed with the help of cutting-edge, cloud-based tech-agnostic sourcing tools.

As part of the project, the team first identified the critical suppliers of primary packaging material. A set of 'diamond' suppliers was identified from this list, based on the tenure of the relationship with the client, past performance on cost, delivery performance, quality and the strategic importance of the client's business to the supplier. Working along with these 'diamond' suppliers, a comprehensive joint process improvement team was put in place, comprising manufacturing personnel, procurement personnel and the supplier's production team.

GEP recommended integration of ERP systems to ensure timely updates of production plans on both sides, and advised stakeholders to start a rationalization drive of packing material specifications across facilities to reduce complexity. Besides, joint sourcing of raw materials with suppliers was recommended.

 

Results
The optimization drive identified cost-saving opportunities of over 15 per cent for packaging materials. On-time delivery metrics for the selected suppliers increased from 55 per cent to more than 75 per cent within six months of implementation. This is expected to further increase to 95 per cent by the end of the year.

 

GEP

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