When soaring costs threaten future investments
A premium European automotive OEM needed to free up cash to reinvest in the development of future vehicles. It had launched several new models in quick succession, but its material costs were not competitive because of longstanding supplier contracts that included high-risk premiums. With product complexity growing rapidly, the OEM’s purchasing managers were struggling both to source the unique parts required for new models and address the unfavorable existing contracts. This OEM wanted to uncover savings—fast—so it could invest in the growth the market demanded. Management turned to AlixPartners for help.
Sharper supplier insights and implementation experience uncover hidden savings
The first step was to perform a 360-degree analysis to assess the specifications, variants and prices of major parts. By understanding how and where each part was made, creating cost models, benchmarking against peers, and assessing each supplier’s degree of “supplier power” against the OEM, we were able to build detailed savings roadmaps. Steps ranged from redesigning logistics flows and improving scrap reclamation to boosting plant labor productivity, bringing some outsourced processes back in-house, and many more. For instance, with one electronics supplier, we found that greater than planned fitment rates meant that the OEM was overpaying for certain parts by several million dollars per year; they were also paying an excessively high handling charge on directed parts.
Our key successes in realizing the savings was built around a very pragmatic and senior-led process, but tailored for each supplier. We ran OEM/supplier workshops to gain alignment and encourage the supplier to reduce costs to meet the expected targets. The key was understanding the right leverage points to optimize the OEM strategy for negotiating with its suppliers.
We also saw that the company’s IT systems for program, cost, and supplier management weren’t linked. As a result, managers had only limited visibility into supplier spend history and couldn’t easily compare parts and material costs. To fix this problem we mapped the company’s internal systems, established the data links required and created live dashboards that senior managers could use to readily see—in real time—what was being spent where and how costs compared between parts and suppliers.
When it really matters
Combining supplier spending analysis with strategic supplier negotiations has already delivered some impressive results for this OEM. After many negotiations were completed and the new agreements implemented, the company realized several hundred million dollars in savings. And throughout the company, AlixPartners has a strong reputation for helping to achieve remarkable savings.