Industry: Private Equity Location: UK
Improving operational efficiency by driving a “speed to savings” program
Our client was a U.S. based “mid cap” investment firm which focuses on acquiring businesses that manufacture a diverse array of products across a broad number of industries. The firm has grown significantly since its incorporation over twenty years ago and originally started as purely focused in the US. However, in recent years they have expanded their investment portfolio on a global basis.
They had recently acquired a UK based manufacturing company which operates globally in the heavy manufacturing sector with a customer base in over twenty countries. The company’s manufacturers and services complex manufactured products that service sectors such as power generation, oil and gas, metals transportation and mining product. Their manufacturing locations are world-wide with associated service and local configuration centres.
Odesma were engaged to work in one of their key manufacturing locations in the UK to improve operational efficiency by driving a “speed to savings” program for all of the operational and indirect spend that supports the factory and the UK service centres, and obtaining control over previously maverick expenditure with third party suppliers. The existing supply base had previously not been managed by the existing team due to the focus on direct materials and so Odesma were also required to “break new ground” in setting up new contracts and supply arrangements with either existing or new suppliers over a 6-month timeframe.
In addition to driving short term but sustainable savings over a six-month period as per the P.E. firm’s directive, we were also required to set up new polices and procedures for these previously untouched indirect categories in order to ensure that there was adoption and compliance to the new arrangements.
The program focussed on three key areas:
- Establishing the spend baseline and supplier segmentation for the whole indirect spend
- Deliver savings over as much of the indirect spend as possible over a six-month period to contribute to the P.E. firms EBITDA targets
- Establish new ways of working and governance for spend management going forward to establish control as required by the new P.E. owners
We had a small team of category experts working with our data team to identify baselines for each sub-category of indirect spend and then converted this into a pipeline of 22 projects which would be delivered over the six months. Stakeholders and Finance were involved in establishing baselines and agreeing the strategy and negotiation plan for each of the projects – this ensured early “buy-in” to the program at Executive level and by the P.E. Operational Partners.
Once savings were delivered for each of the individual projects new policies and procedures were established to ensure that the new arrangements were sustainable.
- Over 22% cost reduction across 80%+ of the existing addressable spend for all of Operational and Indirect materials third party expenditure within 6 months, contributing to in year EBITDA targets laid down by the P.E. owners
- A significant reduction in suppliers and SKU’s provided to establish an ongoing leverage position for ongoing cost reduction opportunities
- A complete “supplier and spend cube” now available to the business, refreshed on a monthly basis to provide further opportunities to the BAU team
- New policies, procedures and governance for previously unmanaged spend