Creating a Competitive Advantage (CS226)
Moving from tactical to strategic procurement to drive competitive advantage for a medical equipment provider and make its goal of becoming the market leader achievable.
This story is for CEOs who:
- Need help to enable a new, or weak procurement organization to stand on its own
- Want to improve their organization’s competitive position and drive top-line growth
- Are happy with their current suppliers but need to get better value from them
A leading global provider of orthopedic solutions was trying to stabilize growth and improve its position from a lagging second to become number one in its market.
The organization was experiencing persistent supplier quality and delivery issues which, despite long-term efforts, it had been unable to resolve. Purchasing practices were tactical in nature and dictated by engineering or quality. There was no procurement team within the organization and the supplier selection process was led by R&D.
Maine Pointe was referred to the client by the CEO of the firm’s private equity owners based on our successful supply chain transformation work with a sister organization. Our challenge was to help develop a cross-functional, strategic approach to procurement and establish a procurement function which was capable of standing on its own.
Establishing a cross-functional strategic sourcing processOur analysis team confirmed that the organization did not have any kind of strategic sourcing process. Spend was fragmented among multiple suppliers for a single category and supplier relationship management was very immature. Although, initially, margins were good and cash sales buoyant, this situation was changing as competitors adopted more efficient, effective strategies.
Maine Pointe's solution included:
- Aligning with cross-functional teams to identify current “risk suppliers” related to quality, and/or delivery issues and to understand service levels, forecast requirements and timeframe
- Leveraging Maine Pointe's accelerated six-step strategic sourcing approach
- Identifying alternative sources and opportunities
- Developing a consolidation strategy to reduce the fragmented spend among all suppliers
- Establishing a consolidated market package and aligning with strategic partners who have optimum quality, service and pricing
- Taking a lot of discretionary spend out to bid for the first time
- Working with personnel in the US and Mexico (in English and Spanish) to deliver category management training and coaching
Maine Pointe helped the client exceed its savings target, identify savings in every category, and transform procurement from a static function into a strategic advantage. Once these processes are fully implemented, the client organization will continue its TVO supply chain transformation, focusing next on operations and inventory control.
The ResultsWorking closely with the client’s team, Maine Pointe’s Total Value Optimization (TVO)TM approach to supply chain transformation exceeded the client’s savings targets, delivering the following benefits:
- Identified savings in every category
- Improved EBITDA by 37%
- Improved overall spending by 11%
- Reduced the number of suppliers by 30% in the categories impacted
- Increased gross profit on marginally competitive products, allowing more large tender bids
- Introduced Maine Pointe’s six-step strategic sourcing process and institutionalized competitive sourcing and subsequent item qualification techniques
- Developed and provided procurement training in the US and Mexico, in English and Spanish
- Delivered a project ROI of 5:1
Lessons learned for other executives
- Just because margins are good one day, doesn’t mean they will continue to be good the next day. You need to prepare for change
- You may be happy with your suppliers but that doesn’t mean you are necessarily getting the best value from them
- It is possible to create a competitive market and enhance your position while maintaining strong partnerships with existing suppliers