Case studies
Global Procurement White Paper
SECTOR
Life Sciences
SPECIALISM
Procurement
FOCUS
Global Cost Reduction Opportunity Assessment
OVERVIEW
This global organisation had grown substantially both organically and through M&A activity but had no formalised Procurement function in its Commercial division and minimal cross-company collaboration with Manufacturing operations.
Responsibility within the Commercial business for suppliers and external expenditures was primarily at department level, which resulted in supplier performance and cost-effectiveness not being centrally coordinated, aggregated, or negotiated.
The company was also unaware of the current level of adoption of best practice ways of working, the wider benefits of suitable technologies for purchasing and transactions management, the level of financial governance being achieved, the scale of current process inefficiencies, and their effect on operating costs.
Our core objectives included performing a broad Procurement diagnostic for the Commercial organisation, to evaluate financial opportunities, and to provide recommendations. This remit was extended to include global Manufacturing and Logistics, and to assess the opportunity for additional synergies. The regional President added his clear expectations including “show us what good looks like” and “I want to see compelling proposals”.
VISIBILTY
Working closely with Finance and Business Information teams we arranged for comprehensive data extracts from 17 Finance systems and instances including Purchase Orders, Accounts Payable records, and contracts databases which were aligned into a consistent spend categorisation structure for profiling and analysis.
The resulting evaluation model spanned 3 financial years, >330K lines of invoice data, >$450M annual external spend, >7,000 suppliers, >20 markets, 12 Divisions, and >500 Cost Centres.
VALUE
Key observations and recommendations were presented to regional executive management, the global CFO and the global COO which included a $16M annual cost reduction opportunity across $245M annual in-scope spend, and an ROI of 3-9X.
Approval for the recommended Procurement improvement programme led to the launch of several proof-of-concept Sourcing projects across a range of Indirects Procurement Categories, which delivered £500K annual savings and an ROI of 5:1.
Due to substantial and unplanned budget cuts, with little warning, the client chose to postpone the full implementation of the recommended Procurement improvements, and instead prioritised immediate reductions to business operations activities as a means of closing the spend-budget gap.
$245M
In-scope annual spend
$16M
Cost reduction opportunity
3-9X
Return on Investment
EFFECTIVENESS
Combining our detailed analyses, inputs from key stakeholders in the various business units, and experience gained in prior programmes, we created and set out a detailed Procurement White Paper and recommendations comprising Future Operating Model, strategy, programme, budget, the likely annual savings range, and the anticipated Return On Investment.
Key insights included a wide range of red flags and opportunities for improvement including extensive spend fragmentation, a significant proportion of inactive suppliers, widespread us of retrospectively created Purchase Orders, inconsistent payment terms and their effect on cash flow, the processing of a very high volume of low value invoices, elevated operating costs for Accounts Payable globally, and business-critical goods and services being purchased ‘off contract’.