New sourcing plan lowers costs

The Situation

DialCo* wanted to cut costs by dramatically upgrading its procurement processes.

The senior management of DialCo was under pressure from Wall Street to reduce operations costs by as much as 10%.

DialCo had already taken steps to improve procurement processes and capabilities through existing initiatives such as:

• Reorganizing around commodity teams
• Consolidating warehouses
• Reducing excess inventory

Management felt more work was needed, and asked Bain to help achieve two objectives:

• Realize significant cost savings in the short term
• Build world-class sourcing capabilities, integrating the procurement group and other business units

Our Approach

To realize opportunities across the company's spend base, Bain worked with DialCo to establish an initiative management process and governance structure.

Program Management:

• Identified, launched and tracked initiatives
• Benchmarked DialCo's capabilities
• Developed a list of prioritized savings opportunities by reconstructing the company's spending
• Built a capability development roadmap
• Diagnosed current capabilities through benchmarks developed versus other Bain clients
• Approved initiatives for cost savings or capability building

Complex Spend Categories:

• Conducted detailed analysis and implementation of initiatives in complex spend categories
• Worked on initiatives such as equipment, installation contracting and large multi-category suppliers

Commodity Spend Categories:

• Responsible for initiatives in materials management
• Worked on initiatives including integrated circuit boards and inbound transportation

Our Recommendations

Each strategic sourcing recommendation used one or more of the following levers to increase buying power and lower costs.

The Results

DialCo set up the organizational and procedural structure to support its new approach to purchasing.

Organizational initiatives:

• Launched 10-12 subteams focused on categories needing a breakthrough sourcing approach
• Developed a strategic procurement model and strategy development process to clarify the critical activities of a world-class organizatoin
• Defined a governance structure, decision-making process and team member responsibilities to identify, launch and track initiatives
• Codified a full list of savings tactics, procurement analytic tools and a measurement scorecard

Cost Reduction Achievements:

• Identified $150M in unit cost reductions
• In certain categories, the Bain/DialCo team achieved $26M of ongoing and $10M of one-time savings during the first year -- well over 100x the consulting fees for the project