The presentation I made at the CPO Forum Conference on 19th Oct 2013 at Delhi.

1. CPO Forum, Delhi, 19Oct13
Breaking the Ceiling through
Effective Procurement
Transformation

2. Do you face these situations?
Constant pressure from Management to reduce material costs
My team doesn’t have full visibility of spend across the supply chain
We initiate many cost reduction initiatives but they linger on for long
before implementation
We have lot of ideas but our daily routine activities keep us from
focusing on them
2

3. Contents
How Companies respond to today’s reality
How can we make Procurement transformation
programs effective?
Case : Delivering Procurement transformation
program at leading EPC company
3

4. Many Internal & External factors affect the industry dynamics and increase
pressure on company’s margins
Leverage and Routine
Suppliers




Have higher COGS, low
profitability
Quality inconsistencies
Weak Management Controls
Poor working capital conditions
My
Organization
Strategic and Bottleneck
Suppliers




Have more buying power
Limited supply base
Significant P&L impact
Unique specifications
4

5. Many Internal & External factors affect the industry dynamics and increase
pressure on company’s margins
Customer
Leverage and Routine
Suppliers







Have higher COGS, low
profitability
Quality inconsistencies
Weak Management Controls
Poor working capital conditions


Has More choices
Wants More convenience
Rising costs of customer
acquisition
Wants more value for money
Higher disposal income
My
Organization
Strategic and Bottleneck
Suppliers
Competition









Have more buying power
Limited supply base
Significant P&L impact
Unique specifications
5
Merger and acquisitions
consolidating industry
Increase in global supply bases
Rapid innovation pace
Intense fight for Market Share
Blurring product segments

6. Companies take host of measures to maintain and improve the bottom-line…
What Companies typically do?


Take Annual Targets for
cost reduction
Non standardised
Standard Polymers
Standard
Polymers
Consolidate initiatives
product wise, category
wise or BU wise
For new
products
Not for new products
Polymers only used locally

Procurement
Form Cross Functional
Teams

Engage with suppliers
for cost reduction
initiatives
Manufacturing
Specialist
Team
Suppliers
Quality
Sales
R&D
Logistics

Plan for implementation

Monitor and report
results
Realisation
plan
6

7. Companies take host of measures to maintain and improve the bottom-line…
But what eventually happens…
What Companies typically do?


Take Annual Targets for
cost reduction
Standard Polymers
Standard
Polymers
Consolidate initiatives
product wise, category
wise or BU wise
For new
products
Not for new products
Form Cross Functional
Teams

Engage with suppliers
for cost reduction
initiatives
Manufacturing
Suppliers
Quality
Sales
R&D
Logistics

Plan for implementation

“Procurement
department claims
cost reduction but it
doesn’t show in the
balance sheet”
Polymers only used locally

Procurement
Specialist
Team
“Our product mix
changed by the
time of
implementation”
Non standardised
“Many of our
initiatives are stuck
in approval stages.
What is the result of
so much effort?”
Monitor and report
results
Realisation
plan
“We implemented
the savings but it
looks like we are
back on the original
condition now”
“We realized that the
cost reduction initiative
created more complexity
and cost leakages in
other areas”
The results are not as effective….
7

8. Contents
How Companies respond to today’s reality
How can we make Procurement transformation
programs effective?
Case : Delivering Procurement transformation
program at leading EPC company
8

9. Procurement leaders strive for achieving excellence in procurement and not
only cost reduction
Process Performance
Strategy





Tailored Category Sourcing
Strategy
Supplier Relationships and
Alliances
Supply Risk Management
Make v/s Buy Decisions




Process checks and
balances
Timelines adherence for
initiatives
Adequate IT systems
Supplier payment process
Supplier development
PROCUREMENT
EXCELLENCE
People and Skills




Innovation
Organization Structure
KPIs, Rewards and
Recognition
Skill set for Procurement
Professionals
Cross Functional Teams
Effectiveness





9
Simplifying/Optimizing
supply chains
Backward integration
Joint R&D with suppliers
Product Innovation
Use of alternate materials

10. Procurement Excellence can be achieved by undertaking initiatives
systematically & in a phased manner
PROCUREMENT
LEADER
BEST PERFORMANCE
WITH CURRENT
PRACTICES
10
CURRENT
PERFORMANCE

11. Procurement Excellence can be achieved by undertaking initiatives
systematically & in a phased manner
•
•
•
•
•
•
Invest in upgrading skills and train
procurement team
Invest in upgrading IT systems across •
supply chain
Integrate procurement strategy as part
of business strategy
•
Mapping supply chain risks
Enter into strategic alliances with key •
suppliers
•
Invest into product innovation and
Joint R&D with suppliers…
•
PROCUREMENT
LEADER
Design, Plan and execute
procurement cost reduction
programs
Stress on strategic sourcing
initiatives
Restructure procurement team
Implement robust management
controls to achieve yearly targets
Closer integration with R&D and
supplier development teams…
BEST PERFORMANCE
WITH CURRENT
PRACTICES
11
CURRENT
PERFORMANCE

12. An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN
PLANNING
12
EXECUTION

13. An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN

Establishing Strategic Goals

Mission & Vision

3- Year, 5-YearPlans


PLANNING
Annual Targets
Key Identifications

Current Challenges

Mindset issues

Organization restructuring

Core Team to drive change

Knowing the as-is current
procurement performance

Create the ‘bigger picture’ of
change
13
EXECUTION

14. An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN

Establishing Strategic Goals



3- Year, 5-YearPlans
Annual Targets

Conducting detailed diagnostic
study and identify opportunities

Detailed level target and
expectation setting

Documenting knowledge and
establishing SOPs
Mission & Vision

PLANNING
Key Identifications

Identification of priority areas
Mindset issues


Organization restructuring
Department level KPI setting and
program governance structure





Current Challenges
Core Team to drive change

Knowing the as-is current
procurement performance
Rolling out weekly, monthly
and half yearly plans

Create the ‘bigger picture’ of
change
Setting up MIS to track
progress and achievement

Team formations and
communication platforms

Identifying right tools &
approach for initiatives
14
EXECUTION

15. An Effective Procurement Transformation Program must be holistic to deliver
the targeted benefits
DESIGN

Establishing Strategic Goals



3- Year, 5-YearPlans
Annual Targets
Key Identifications
Detailed level target and
expectation setting
Motivate and re-enforce key
ideas and thoughts in team
members

Documenting knowledge and
establishing SOPs
Set-up reviews for progress
check

Train procurement professionals
on relevant tools & techniques

Handling Change Management

Rolling out weekly, monthly
and half yearly plans
Course corrections and scope
expansion

Setting up MIS to track
progress and achievement
Set-up audit mechanisms for
review

Team formations and
communication platforms
Sharing information and best
practices

Setting responsibility for
continuity
Conducting detailed diagnostic
study and identify opportunities



Identification of priority areas
Mindset issues


Organization restructuring
Department level KPI setting and
program governance structure





Current Challenges
Core Team to drive change
Knowing the as-is current
procurement performance
Create the ‘bigger picture’ of
change




EXECUTION


Mission & Vision

PLANNING
Identifying right tools &
approach for initiatives
Each phase of the program is critical to the success of the program
15

16. DESIGN phase : Establish expectations and articulate the scope and
deliverables of the program
The CEO Agenda

The management team identifies
and articulates its strategic goals
in procurement



The CPO Agenda
What is our business
strategy for 3-Year, 5-Year
Horizon and how will it affect
procurement?

What current challenges will
keep us from achieving our goals?

What are the team’s mindset
issues?
What are our key annual
targets and performance
measures?

What goals we are trying to
achieve through the
procurement transformation
program?


Do I need to restructure my
team?

How do I drive the change?
How do we execute?
16
Core team to drive program

Setting performance
measures for the department


Broad level targets and
timelines

What is our as-is procurement
performance?
Areas for intervention

Who will constitute the core team
to drive the change?

Identified

Do I have the right skills and
adequate resources to carry out
the transformation?

What we want to do?
The Transformation Program
Challenges that will affect
the program and mitigation
measures
Agreement on additional
resources required

17. PLANNING phase : Establish current performance and plan for implementing
the identified opportunities
Setting Baselines

Detailed level assessment of the
current procurement performance


Review and definition of
categories
Expenditure mapping





Current supply chain
processes review
Current Supply Chain
Metrics
Opportunity identification

Identification of key opportunities
and improvement areas

Estimation of savings potential
on all important categories
Plan for Roll-Out

Established
Defining roles and
responsibilities
Target setting and identification
of priority areas
Where are we at present?
Estimate ease of realization


Consider setup to enable
savings (e.g. organization, IT
support, KPIs/KRAs)
Weekly, Monthly, Half Yearly
Plans

Teams for implementation

‘Benefit Tracker’ with
timelines

Priority Areas

Process formats, SOPs

Department performance
metrics, KPIs/KRAs

Key Stakeholders taking part in
transformation program

Governance structures

Identifying ‘quick-wins’ to create
excitement

Identify necessary functional
intervention from teams such as
R&D and Quality
What are the opportunities?
17

18. EXECUTION phase : Track and support to deliver sustainable benefits
Tracking Actions and Progress

Tracking actions for
implementation at project levels

Tracking of benefits accrual

Regular progress reviews at
management level




Risk mitigation measures in
projects
Roadblocks removal by senior
management
Establishing visual management
systems and stakeholder
management processes
Enabling course corrections and
scope expansions
Supporting Execution

Handling change management

Managing individual and group
communication

Creating motivation in teams by
reinforcing key ideas




Where are we headed?
Closure and Continuity

Bringing projects to closure

Managing non-performance of
members/teams
Setting responsibilities and
ownership for continuity

Setting the right and adequate
Rewards and Recognition
Information and best practices
documentation

Skill building of team on a need
basis
Ensure established processes
adherence

Ensure discipline in reporting and
adherence to process standards
Establish platforms for generation
of future initiatives

Establish audit mechanisms to
avoid slippages
What are the support
mechanisms?
18

19. CHALLENGES : Anticipate your challenges and plan to mitigate - than be hit
by them
DESIGN

No visibility of
company agenda

Pressures for focusing
on cost, cost and cost



Risk of ‘individual
agenda’ being driven
by top-management
members
Inappropriate/
inadequate long term
vision
…
PLANNING


Non-availability of data/
information
Non-committal people/
functions to targets and
objectives
EXECUTION

Delays in management
approvals for resources/
investments

X-functional coordination
failures

Road-blocking by
‘stalwarts’

Too many priorities

Everyone plans

Changing product mix

Sub-optimal plans –
generated based on
available skills/ resources

Discovery of ‘holy cows’

Vendor non-cooperation

Delivery disruptions

Lack of awareness of
methodologies/ tools


…
Data/ information nonavailability

Inadequate skill levels

…
19

20. TIPPING POINTS : Certain factors, if ignored, have the potential to derail the
entire program
DESIGN




KPIs/KRAs should be
designed carefully
People skills and
resource allocation
should be accounted
for
Look out for
management
commitment issue
PLANNING

Risks that might affect
project outcome should
be mapped and measures
should be taken
Sustenance measures
should be agreed at start
of projects

Look out of risk of active
or passive sabotage
possibility

Finance should be onboard with benefit
calculations

…
20

Robust Change
Management

Look out of drop in
motivation levels during
the course of project

Negative Communication
should be carefully
delivered

Friction between teams
must be eliminated
quickly

Prevent people from
falling back on old
practices


…
EXECUTION
…

21. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Change
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
21

22. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Change
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
22

23. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Change
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
23

24. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Change
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
24

25. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Change
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
25

26. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Change
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
26

27. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Change
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
27

28. Successful Transformation takes place only when all elements of change are
addressed in the journey
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Successful
Transformation
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Confusion
Vision
Robust
methodology
Structure &
Resources
Skills
Motivation
Action-plan
Incremental
Benefits
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Frustration
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Anxiety
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
Slow progress
Vision
Robust
Methodology
Structure &
Resources
Skills
Motivation
Action-plan
False start
28

29. 29

30. 30

31. Contents
How Companies respond to today’s reality
How can we make Procurement transformation
programs effective?
Case : Delivering Procurement transformation
program at leading EPC company
31

32. BUSINESS NEED
Client aimed to develop India sourcing center to support turnover growth by
1.5 times and increase profitability by 5% within 5 years

Client strategy in India was to increase turnover 1.5 times over the next 5 years

Competitive offering to customers was a pre-requisite for the winning the
volumes game

At the same time target was to increase EBIT rate by 5% over the current base
rate

Turnkey projects in combination with O&M contracts could deliver the desired hike
in turnover. The challenge was to win these orders and at the same time
increase profitability

Client’s supply chain had to more competitive than equivalent competitor’s China
based supply chain for gaining volumes in the market

Many global companies had started to develop alternative supply chain capacity
outside China. Client had a strong presence in India and was in a good position to
develop a world class sourcing centre in India

Client had already developed a global supply chain strategy. The challenge was
now to design the local supply chain setup for India that supports the global
strategy and at the same time delivers the elements that the global supply chain
cannot deliver
32

33. SCOPE AND PURPOSE
Program objective was to reduce procurement cost in India and increase
group spend sourced from India
India spend – driven by
India supported by Group
Development of India supply chain
 Reduced cost of equipment, e.g. reduced cost of
BOM items/tonnes plant output
 Increased procurement productivity
(procurement spend/employee)
 Improve supplier performance e.g. ontime
delivery
 Optimize/implement process for systematic
category sourcing, supplier development and
operational procurement
Develop current
practice
Local Categories
Group categories
Group spend – driven by Group
supported by India
Increase group spend through India sourcing
 Lower Cost for group globally
 Develop Indian Suppliers to support further
group spend sourcing from India (for example
improved quality, higher supplier capacity and
aligned QA setup)
 Improve supplier performance for example
ontime delivery
 Increase operational purchasing off-shored to
India
Group spend India sourced
Group spend
33

34. SCOPE AND PURPOSE
The objectives were further broken down into high-level actions to realize the
targets
5-step sourcing efforts
Reduce BOM Cost
Costing analysis to benchmark & drive
down costs
Identify & develop new vendors
Supplier development – help suppliers
lower costs
Expand sourcing categories
Increase sourced
volume out of India
Identify & develop new vendors
Improve vendor competitiveness in
terms of quality and price
Integrate cement & minerals
procurement
Improve procurement
productivity
Create lean processes in procurement
Improve call off process
Improve supplier
quality & delivery
reliability
Supplier development – help suppliers
improve operations & quality (lean
suppliers)
34

35. Supply chain optimization was carried out taking a comprehensive
approach covering all relevant areas of procurement
APPROACH
Programme
Management
Aimed at making
procurement:
2. Organisation
integration and
building
8. Building Perf.
Management &
regular KPI
follow-up
3. Process devp.,
standardisation
BETTER
4. Supplier
development
1. Sourcing
Waves
5. Develop global
procurement
setup
7. Spend
management and
analysis
FASTER
CHEAPER
6. Master data
building and
maintenance
35

36. APPROACH
The project involved use of 6 ‘sourcing levers’ in varying degrees to create
value
Leverage Buying Power
Create Value
Volume Concentration
 Coordinate volumes across the organization
 Allocate volumes with selected suppliers
 Explore if providing volume commitments could improve
pricing from suppliers
 Assess risks involved
Product / Service
Specification
Improvement
Volume
Concentration
Best Price Evaluation
 Compare prices and terms across
divisions and leverage best prices and
terms
 Assess price break-down from suppliers
to the extent possible to enable
transparency
Best Price
Evaluation
Product /Service Specification Improvement
 Identify cost drivers and use the info to standardise/
simplify specifications
 Develop long-term relationship with vendors to
improve specifications for future
 Integrate inputs from Procurement, Projects & site
team
Sourcing Strategy
Import
Substitution /
Global Sourcing
Process
Improvement
Process Improvement
 Process improvement across Source to contrac
& Procure to Pay lifecycle
 Improve productivity, costs & timelines
Relationship
Restructuring
Relationship Restructuring
 Consider splitting orders in the value chain
 Consider making one supplier accountable for a
“basket” and reduce transactions
 Consider entering into agreements with selected
suppliers
Import Substitution / Global Sourcing
 Investigate use of local suppliers instead
of imports
 Supplier development activities
36

37. Several business benefits accrued from the procurement
transformation program
Cost Competitiveness
Enabled Annual Savings of INR 800+ Mn
Improved supplier payment terms and compliance.
New tools like “e-auction” introduced to accelerate savings
Significant reduction in Vendor Documentation errors-speeding
up invoicing.
Supplier development
Supplier rationalisation carried out and 148 new vendors
approved;
20000 T of capacity added in fabrication category.
More than 350 improvement actions implemented at key
vendors.
5 critical vendors being run through a dedicated development
programme to improve their process and performance
System improvement and transparency
Uniform procurement process across divisions.
Planning and reporting systems strengthened.
Systematic sign off and tracking of savings
Data categorization to improve quality of spend analysis.
More streamlined and transparent interaction with estimation
BENEFITS
Delivery Performance
Supply chain war rooms commenced for new projects for
monitoring projects even more closer.
On-time ordering is under focus by clubbing items of different
projects and negotiating rates during estimation phase itself.
A cross functional Lean initiative on speeding up Drawing
Approvals has enabled tackling challenges in reduction of
delivery times for bought out items.
Control
Structured category management focus.
Weekly internal project reviews for Delivery & Quality
Objective measurements(25 metrics established and being
tracked periodically)
Cultural/Competence
Way of working is changing – more cross-divisional, more
cross-functional and more fact-based
There has been an increased confidence in leadership and
the new way of working(Based on internal survey carried out)
Competency development programme under implementation
for key procurement staff based on assessment by Third party
agency.
37

38. CASE
Efforts to consolidate volume yielded phenomenal savings to the
procurement organization
Spend Break-up across vendors
Product: Steel in various forms
BEFORE
Fragmented Vendor Base
Challenges: Purchase requests were generated by
different departments, at different points of time.
Vendor
1
 Orders were placed on both traders &
manufacturers, based on the best spot price
55
AFTER
Consolidated Vendor Base
Vendor
1
45
65
34
 Organization lost on consolidation opportunities
36
10
Approach: Processes were installed to consolidate
various purchase requests.
40
8
7
 Agreements were made with steel manufacturers
for annual discounts based on turnover, and bulk
discounts based on volume.
6
30
4
3
3
 Spend was moved from high-cost traders to lowcost manufacturers; traders were used only in
emergency
3
35
2
2
Benefits: The organization reduced the steel
procurement cost by 5%.
2
20
2
2
2
Vendor
20
38
1
1
Vendor
6
10

39. CASE
By setting up best-in-class procurement processes, the company gained
immensely on cost and delivery
Product: Key equipment for bulk material handling
Process Mapping on Cost & Lead Time
Challenges: The equipment that constituted 40% of
the category spend, was procured by two divisions in
two different ways.
Before Process Improvement
High
Cost
 One division fully designed the equipment in-house,
and also split the component orders on suppliers.
 The other division relied on supplier design, and
consolidated component orders on one supplier
Approach: The two different processes were
separately analyzed for cost & delivery
Low
High
 We considered cost of material, cost of logistics,
cost of co-ordination & cost of design
Low
Process Lead Time
After Process Improvements
 We found that the cost of procurement could be
cheaper, and delivery time faster by deploying the
latter method.
High
Cost
 The best process was implemented.
Benefits: Cost of procurement reduced by 40%, and
lead time improved by 20% , for both divisions
Low
High
Low
Process Lead Time
39

40. CASE
The engagement was not limited to procurement department – it extended to
engineering and other departments to improve process and product designs
Product: Bearing liners for an equipment
BEFORE
Sand Casting
process
High cost of
procurement
Procurement cost
reduced by 50%
High Lead time
for delivery
Lead time reduced
by 20%
No reliable
suppliers in India
 No reliable suppliers for centrifugal casting in India,
hence company was forced to import
AFTER
Centrifugal casting
process
Challenges: As per original design, bearing liners were
specified to be manufactured through centrifugal
casting process. This posed following challenges
Reliable suppliers
developed locally
 High cost of procurement
 Delivery delays
Approach: By co-ordinating with engineering & quality
teams, it was found out that sand casting could be
used in place of centrifugal casting.
 Hypothesis was validated by cross-functional team
 Sand casting suppliers were identified & qualified
 Jointly with the client, prototype was made & tested
okay. Specification was hence changed.
Benefits: Cost reduced by 50%, delivery improved by
20%
40

41. CASE
Purchase cost of a material handling equipment was reduced significantly by
substituting imports at a system level
Product: Hydraulic system for material handling
Indian manufacturers of equivalent Hydraulic
system bring down the Import cost significantly
Challenge: The market share of the company in an
equipment used in material handling was not
improving, in spite of a growing market

BEFORE
AFTER
New players were entering the market and posed
significant threat
Approach: A complete BOM assessment to figure out
high cost items

The Hydraulic system constituted 30% of the total
equipment cost

Carried out a local supplier landscape assessment

Invited local suppliers for Product knowledge
sessions and encouraged them to respond to RFQ
Benefits:

The cost of the Import Substituted Hydraulic system
was 40% lesser than the Imported cost

It also brought down the service costs, since the
local supplier had service centers across project
sites
Total
Procurement
Cost
41
Cost of
imported
Hydraulic
system
Total
procurement
after sourcing
Hydraulics
from India
Cost of
Indigenized
Hydraulic
system