Procurement organization restructuring and MRO cost reduction for one of the leading sponge iron manufacturers in India
Title: Restructured procurement organization, established best practice procure to pay and inventory processes, sourcing norms, rationalized supplier base and achieved 15% savings on MRO cost
Background :
- The client is an integrated sponge iron, steel and power producer in central India with turnover over 1000 Cr
- In MRO procurement, client’s decentralized procurement organization and misaligned resources was resulting in higher cost of purchase and suboptimal vendor allocation, thereby impacting overall profitability
- Absence of best practice procure to pay processes and inventory norms were also leading to maverick buying
Existing Procurement Process Assessment :
Pricing gaps:
- Absence of internal benchmark for price comparison
- Non-uniform pricing of a material across vendors within the same month
- Sub-optimal sourcing for material groups and commodities
- No long term contracts with vendors despite having sizeable volume to leverage
- Non-standard material classification system
Process Gaps:
- Absence of long term strategic and planning processes
- Absence of proper procure to pay process
- Improper implementation of control measures and subsequent cost issues
- Reactive way of working was driving higher material consumption
- Service classification and service purchase best practice absent
Our Solution:
- Centralized procurement process, moving away from plant specific purchase to commodity specific purchase, aligned resources to commodities according to their capabilities, established sourcing KPIs
- Defined and established best practice procure to pay processes with defined and measurable input and output
- Established supplier development and performance evaluation process for better control
- Identification of new suppliers comprising formal supplier selection process, templates to prepare RFx, etc.
- Classified and implemented best practice service procurement and classification process. Standardized service requirements across plant and moved to centralized service purchase process. Implemented standard service catalogue for purchasing regularly used service
Benefits:
- Achieved 15% average (range: 10-23%) reduction in material cost for A class materials
- Achieved better visibility and accountability of purchase and stores with clearly defined and monitored KPIs
- Established e-sourcing for faster and transparent purchasing
- Procurement aligned to commodities capable of developing and managing long term procurement strategy
- Rationalization of inventory leading to saving from inventory holding cost (approx 20%)