A recipe for success: Enabling accelerated growth at MEC3
MEC3 had ambitious plans to grow its presence in the specialty ingredients market through new acquisitions. To achieve their goals as quickly as possible they needed to free up cash from the business, and procurement was seen as a key opportunity. Efficio delivered immediate savings to support MEC3’s growth strategy – while transforming their entire approach to procurement.
MEC3 is a leading global manufacturer of ingredients for the artisanal gelato and pastry industries. The business was supported by a small procurement team focused on tactical negotiations with a small number of incumbent suppliers. Their relationship with the business was also on a transactional level, further limiting the ability of the procurement function to add value.
Efficio were engaged to help transform procurement’s contribution to a more strategic level, and deliver rapid savings in the process. They introduced a structured, fact-based approach with immediate results. The new ways of working with both the business and suppliers delivered $2.8 million in annualized savings to enable MEC3s growth plans, while significantly reducing existing supply risks.
Headquartered in Italy, MEC3 supplies over 830 different products to more than 27,000 artisanal gelato shops around the world. They had been acquired by a Private Equity owner who saw opportunities to expand their market presence through additional acquisitions.
The new owners had previously engaged Efficio to work with other companies in their portfolio. As a result, they understood the potential of procurement to deliver significant cost savings – and Efficio’s ability to ensure they reached the bottom line.
To finance the strategy of growth through acquisition, cost savings needed to be found within the business – and the sooner they could be delivered, the faster the strategy could be implemented. Efficio’s track record saw them engaged to help.
Lack of understanding of the role of procurement within the business, and lack of capability, were major challenges. Because the existing team was small (just two people) MEC3 had never conducted thorough market research to identify alternative potential suppliers or undertaken competitive tender processes. There was also little in the way of detailed feedback to suppliers, which meant they had little incentive to improve their offering. This situation also created a significant risk to MEC3 should an incumbent supplier be unable to meet its obligations.
Efficio’s brief was to transform the procurement function to address these challenges, and deliver tangible savings as a result.
Collaborating with Efficio elevated the Procurement function, making the sourcing process more structured and analytical, leveraging above all the collaboration with other Functions to achieve the ambitious company-wide cost reduction objectives.
Efficio began with an opportunity assessment to identify potential savings in the key raw materials, packaging and utilities categories. There were two critical areas of focus:
- Elevating the role of the procurement function from tactical to strategic, through nourishing improved relationships with the business
- Sending a clear message to incumbent suppliers and the market by rolling out a series of strategic sourcing initiatives among all in-scope categories
Given MEC3’s lack of alternative supplier knowledge, the process included a lengthy market research phase. Once options had been identified, MEC3 issued RFIs to vet potential new suppliers, and conducted structured tender processes with multi-round negotiations.
Lastly, a long product testing phase was undertaken. In the food sector, testing is always a complex and challenging process, to ensure the final product retains its perceived quality in the eyes of the consumer while still achieving the required quality certifications and technical specifications. The success of this phase was testament to the commitment of MEC3’s R&D and Quality departments to the process – and Efficio’s success in engaging with the business.
Efficio also transformed relationships with suppliers, based on a new level of transparency between the business and their supply partners. For example, by understanding their underlying cost base Efficio was able to use its extensive knowledge and expertise to help them address inefficiencies, giving them more room to adjust their final bid. This elevated the negotiations beyond a simple price war, adding value to both MEC3 and suppliers.
MEC3’s objectives for the program were met and exceeded.
The team delivered $2.8 million of annualized savings (with a net bottom line P&L impact of $4.5 million when factoring in positive market conditions). This included:
- 12% savings in raw materials through a structured tender process backed up by internal commitment to potential supplier switches
- 9% savings in packaging through a structured tender process with incumbents who had not been challenged previously
- 5% savings in Commodities through structured negotiations with suppliers and working with them to resolve inefficiencies in their cost structure
The savings achieved were at the top of the range identified in the opportunity assessment, and enabled MEC3 to progress their growth strategy faster than would otherwise have been possible. Identifying new supplier options also helped mitigate MEC3’s supply chain risks.
The program also transformed the role of procurement within MEC3. Relationships with both the business and suppliers moved from a purely transactional level to a real partnership. This was a major shift and delivered benefits the business did not believe could be achieved at the beginning of the program.
As MEC3’s growth strategy has been rolled out, Efficio has also been engaged to help identify opportunities within new acquisitions - another marker of the success of the program.