Success Story - "Raw Materials"
$150 Million Chemical Processing Division
Company Situation and Problem
Unique but high cost product; declining sales; high and unstable material prices; high costs of production; excess inventory; several suppliers for some commodities; volume not consolidated; purchasing organization understaffed; contracts not always used or poorly written; users specified supplier to be used; RFQs rarely issued; raw material generally purchased on a spot market basis; e-procurement techniques not used.
Paladin Actions & Recommendations
Completed detailed analysis of all raw materials, categorized by commodity, supplier, and location. Reviewed contracts, analyzed unit costs, mapped procurement processes, applied best practices, identified and prioritized cost reduction opportunities. Recommended consolidated Sourcing Organization, hire and train professionals, consolidate volume across divisions, utilize e-RFI, e-RFP, e-RFQ, and e-Auction tools to maximize price reductions quickly, negotiate long term fixed price contracts, complete detailed purchase contracts.
- Changed from spot buys to long term fixed price contracts
- Reduced materials costs by an average of 6%
- Improved contract documentation and and terms
- Procurement Operation was subsequently reorganized, upgraded, properly staffed and trained.