Driving value at an advanced equipment manufacturing business
The merger of two leading companies in an advanced equipment manufacturing industry presented significant procurement opportunities – and challenges. Efficio designed and implemented a solution that gave the merged business a new platform to achieve its ambitious growth plans.
The merged company’s $120 million global supply chain was made up of a number of small suppliers across multiple locations. Localized supplier management meant the focus was on short-term ‘fire-fighting’, with little time to consider more strategic opportunities. It also limited the ability of the business to fully leverage supplier capabilities.
Efficio consolidated the existing network of suppliers into a two-partner framework for both of its main geographies, with each partner meeting specific needs. The new framework delivered impressive savings of almost one-third of addressable spend. In the process, it transformed a fragmented, non-strategic supply base into a source of real and ongoing competitive advantage.
Following the merger, the client had a complex high-mix, low-volume portfolio of products. These were manufactured at more than 20 locations across North America and Europe. A history of growth by acquisition at both companies had created a network of small suppliers, typically managed at site level with little global co-ordination.
The lack of a broader strategic direction, along with limited supplier capabilities and embedded supplier practices, created significant issues for the business. For example, challenges such as new legal and compliance regulations or component obsolescence were managed as emergencies, rather than being proactively planned for. The solutions (for example rapid redesign to protect lost revenue) drove additional cost and only addressed symptoms, not underlying causes.
This micro-management of the supply chain took up considerable management time and effort, which diverted attention from opportunities to reduce costs and introduce best-practice principles such as leveraging of global volumes or design for manufacture. It also prevented the development of mature manufacturing processes and hampered innovation within the wider business. For example, turnkey manufacturing was limited to just a few ‘flagship’ products and sites, and took place largely in isolation.
Efficio delivered significant cost savings and efficiencies, but they went much further than that. The real value of their contribution was in helping us establish true, collaborative partnerships with suppliers who understand and share our goals for the future - and who will work alongside us to help us achieve them.
With a remit to identify opportunities for improvement in all areas, Efficio began with an intensive data gathering exercise. Printed circuit boards were identified as a primary focus, as they made up a large portion of total expenditure. They also offered the best opportunities for innovation, as electronic manufacturing service providers are typically more mature in terms of capabilities for added value, such as design for manufacture and turnkey manufacturing.
Thirty suppliers across a broad range of geographies were invited to take part in a multi-round pricing exercise involving 200 PCB assemblies. To assess the potential for both cost savings and long-term value, Efficio conducted a rigorous evaluation process including questionnaires, industry references, tests such as a sample design for manufacture, detailed transition plans and manufacturing site visits. As part of the process, a well-briefed team answered over 300 supplier questions to ensure suppliers had a clear understanding of the client’s needs and strategic vision.
Suppliers were progressively shortlisted between each round. The final round was a portfolio bid with complete transparency on scenarios the client was willing to consider. The suppliers with the best cultural fit, relevant industry experience and ability to deliver future value were selected as regional champions for both North America and Europe. Each region had a specialist high-volume and low-volume partner.
In parallel with the evaluation process, the team spent considerable time communicating with senior stakeholders and local site representatives to ensure they were fully engaged with the new direction, and provided support for the initial challenges. During the process, transition plans and immediate initiatives were developed jointly between the client and their new supply partners – which meant they could begin as soon as the new partners were confirmed.
The process identified a massive 30% cost saving on addressable spend – 23% in unit costs and a further 7% in other short-term initiatives.
Perhaps even more importantly, it transformed the approach to procurement within the business. Supply partners were incentivized to invest in value-add activities and explore new options such as fully outsourced manufacturing to allow the business to focus on its core competency - designing and selling market-leading products. Previously fragmented, costly, short term and non-strategic, the new framework established a platform for ongoing value and innovation, based on a true partnership between the client and its supply chain.
For example, even before the end of Efficio’s engagement ended, 50% of the short-term initiatives identified had been realized. In addition, within the first months of moving to the new framework, suppliers had prioritized significant redesign work and started a transition-to-turnkey project.
The project also established a new governance structure, supported by a global category lead, to ensure suppliers remain aligned with the goals of the business and continue to deliver improvements and innovations into the future.