This story is for CEOs who:
- Want to quickly increase the value and performance of a company
- Need to fix organizational problems that prevent the company from reaching goals
- Have little visibility into spend, especially indirect spend
The Challenge
A pharmaceutical company had fallen short of savings targets for several years in a row while preparing for sale. Now the new PE owners wanted to accelerate cost savings, reduce inventory, and improve financial health. And they wanted to be sure the cost savings from their accelerated value creation program would also be sustainable long-term.
The company had issues with procurement, integrated business supply planning (IBP), and logistics. These included supply disruptions, noncompetitive costs, and margin erosion on third-party partnerships. For example, they were paying suppliers about 24% more than their competitors, creating a large competition and market gap.
Driving savings with TVO strategies, supplier partnerships, and make vs. buy decisions
SGS Maine Pointe:
- Analyzed $1B+ of both direct and indirect spend areas to identify competition gaps and market opportunities, which resulted in significant EBITDA impact and strong optionality
- Examined and negotiated unique third-party agreements
- Drove savings in logistics through both strategic sourcing and mode/route management; and identified 3PL partners who could deliver improved service levels at reduced rates
- Streamlined the integrated business planning (IBP) process to address excess inventory and planning gaps and to better coordinate exception reporting
- Created a professional procurement team, including helping to hire the new head of procurement, upgrading skills, and right-sizing the procurement organization
Lessons learned for other executives
- Capitalizing on potential savings requires a total value optimization approach
- Your procurement organization must use market intelligence and competitive analysis in supplier negotiations
The Results
- $50M of cost take out in year one, exceeding original $25M - $41M estimate
- Delivered $17M in savings on direct spend from incumbent suppliers based on market competition gaps and fact-based negotiations
- Identified and built qualification plans for $16M of additional savings from new suppliers, which provided optionality and derisked the supply chain
- Identified $30M - $50M of potential savings from make vs. buy decisions at several manufacturing sites
- Achieved 10% EBITDA improvement
- Built strategic procurement roadmap for additional $60M+ of potential savings over the next 18 months
- Reorganized procurement to a global, center-led model
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Boosting performance and ROI quickly for a PE firm’s newly acquired company (CS299)
