The manager of large mining and minerals processing corporation were searching for ways to preserve profit margins in changing economic conditions and rising supply costs. The company’s base of operations spanned 48 locations across 26 states and in North America. While the company did have a central reporting system, individual plants independently made many of the purchasing decisions. The company was unable to control their entire spending or coordinate consolidated contracts due to decentralized procurement.
Based on Initial cost analysis, an executive management committee decided to target the company’s spending on maintenance, repairs, and operations. The company did not have the resources to properly analyze the massive purchasing information that had been collected from the inconsistent data/records of entries from the various plant locations. Addressing this problem and to gain strategic sourcing expertise, the committee engaged company XYZ to augment their procurement efforts. The primary goal of this initiative was to gain more competitive pricing through the control of corporate spending, strategic relationships, and market competition.
Mining company was dealing with different categories like general mechanical supplies, electrical/ electronic components, safety supplies, and equipment. The detailed analysis and baseline report quantitatively identified past purchasing patterns and revealed possible sourcing strategies that could be further explored. The actual results of the baseline process helped management to understand what they were sourcing, from whom they were purchasing, their pricing structure and terms, service level requirements, and various active considerations.
XYZ then proceeded to determine which spend categories presented potential savings opportunities. For each category, XYZ conducted a market assessment and analysis. Initial results of the market assessment combined with the use of XYZ’s databases indicated that material savings were achievable. The client’s executive committee and XYZ agreed to conduct a full sourcing project in each of the fourteen categories.
XYZ worked on a unique strategy for each product category in order to create pricing leverage. XYZ also managed to produce an average annual savings of 18% through a combination of the introduction of competition, developing strategic relationships with supplier corporations, and through extensive negotiations. Furthermore, the sourcing effort helped the client company’s managers improve their plant purchasers’ ordering, inventory, and reporting methods.
XYZ along with client and for each category worked as a team to develop and implement an effective change management system. The three entities in collaboration are successful in achieving supplier rationalization, successful implementation of new pricing and purchasing processes in each category. These new relationships and performance metrics, helped the client company to develop better systems for monitoring and controlling their spend for each product category. XYZ also ensured the success of the initiative through the improvement of the internal process and supplier auditing well after completing the implementation phase.
XYZ accomplished the goal of cost savings without any major interference in the client’s business processes. XYZ also provided the client with the tools and techniques necessary to improve continuously in their sourcing procedures. As a result of this sourcing initiative, the client company is addition to cost savings developed better reporting systems, strengthened supplier relationships, and enhanced control on the overall spending.
Q1: What general idea you have perceived from this case study, and what are the strategic objectives of the mining company to control the spending on the range of supplies? 10%
Q2: Identify the potential failures of the client’s purchasing and supply system? With your understanding of procurement processes, analyse the initial challenges which the company XYZ would have faced to improve procurement process. 15%
Q3: Evaluate and analyse in detail how the change management program introduced by the company XYZ which would have helped in improving supplier rationalisation, purchasing process improvement and price controlling for the client company. 25%