Optimizing sourcing initiatives improves supply chain efficiency of US auto maker in Asia
A leading automotive manufacturer sought to identify and implement supply chain cost reductions globally. The company needed an experienced third-party consultancy to conduct a thorough analysis of the purchasing transactions database.
ARC Consulting was assigned to support the project in Asia and Africa by identifying areas of significant potential savings and by implementing these opportunities through new supplier market testing and price negotiations.
The automotive industry is becoming increasingly competitive. The client seeks to gain an advantage over its competitors and stay ahead in the industry with a leaner supply chain. Therefore, the client turns to consultants to review its supply chain and identify potential saving opportunities every few years.
Savings opportunities are generated primarily by high volume purchasing spend categories, a cost reduction of only 5% can be quite significant when taking the high annual purchasing spend into consideration. For example, buying directly from suppliers rather than through intermediaries, utilizing lower cost vendors, or implementing better solutions to reduce packaging costs.
ARC Consulting has acquired significant experience in the automotive sector and related industries, which puts us in a prime position to support this project. We utilized a clearly defined three-step approach:
- Diagnostics: Conduct an analysis of the overall transaction data to refine the scope and targets. Gain approval from the client’s internal stakeholders.
- Identify opportunities: Select projects, build business cases, and engage stakeholders for review and alignment.
- Implementation: Engage suppliers/affiliates, conduct competitive tenders, analyze results, and complete the negotiation and sourcing process.
ARC Consulting performed an in-depth analysis of the purchasing spend and built various business cases to support the decision making for each opportunity identified in the analysis. We reviewed and refined the business cases with the client team to improve the confidence and accuracy of the analysis. Based on these results, we proposed that senior management launch a series of initiatives to systemically reduce purchasing costs:
- Streamline the purchasing process, eliminate secondary handling, expendable bulk packaging, and freight by having the manufacturers perform the final packaging or by sourcing to a third party packaging provider, depending on the results of the total delivered cost analysis.
- Sourcing directly to the Tier 2 vendors and eliminating the markups and pass through costs of the Tier 1 suppliers.
- Renegotiating with current suppliers based on detailed cost analysis and benchmarking data.
ARC Consulting led and expedited the resolution of the opportunities through regular follow ups with the suppliers, and by facilitating the negotiations between the client and the suppliers.
- Approximately 1.5M USD of cost savings were identified in the first 6 months.
- 10% reduction of purchasing cost in 1 year
- Improvement in overall supply chain efficiency and purchasing performance in Asia and Africa
- Senior management of the client was able to make informed decisions on cost saving activities and understood the benefits, costs, and risks of each project.