Case Study #2

Client spent $18,980,000 annually on raw material chemicals used to manufacture finished lubricants and heat-treating products. One hundred seventy (170) chemicals were purchased from a total of 96 suppliers and were shipped to 5 production plants.

Client had recently discontinued a cost reduction initiative for raw material chemicals with another consulting firm prior to hiring Source One. Client supplier's expressed concern with previous attempt and lacked enthusiasm to re-start initiative.

The Process

Based on conversations with client, client contacts, suppliers and client customers, we reduced the scope of work to 45 materials since 125 were found to be either priced competitively or did not have customer approval to identify alternate suppliers.

Source One's SPEND ANALYSIS produced benchmark information to include technical data, approved manufacturers and distributors, package type and size, delivery costs, delivery destination and current pricing. We then assigned distinctions to raw materials including base characteristic, base stock cost drivers and energy required to make raw materials, to determine impact of commodity market trends on raw material pricing.

An Internet based RFP was designed to electronically deliver and receive proposals. The RFP program numerically scored each supplier's response to questions concerning company profile, service levels, billing compliance, liability, delivery/packaging procedure and pricing competitiveness.

Suppliers were researched and qualified candidates were approached with combined spend from all 5 locations. Source One determined preferred suppliers for each material, considering ability to deliver multiple raw materials to multiple locations, service capabilities and price competitiveness.

The Result

The results of this COST REDUCTION INITIATIVE awarded business to 56 suppliers, provided client with annual savings of $1,120,000 on a total spend of $10,026,000 and reduced the supplier base for the 45 materials by 30%. A second phase initiative requesting pricing relief due to market pricing downturns for base stocks, such as natural gas and petroleum, will result in an additional annual savings of $213,000.