A client with a multi-billion dollar spend and several manufacturing plants looks for cash in cost reduction and working capital improvement.
Our client has one of the highest per-unit overhead and material cost bases in its industry. With nearly $2 Billion in annual material spend across almost 400 suppliers, the company must reduce cost to become more competitive and generate cash to fund critical transformation and growth initiatives. Possible sources of cash generation are working capital at several domestic manufacturing plants, capital expenditures, and product development budgets.
RSC accepts the challenge by exploring the best sources of cash generation.
RSC works alongside client leadership and with their supply chain, manufacturing, and product development teams to ensure all areas of potential savings are found. To that end, RSC initiates five parallel workstreams to quickly find the most fruitful avenues to cash flow:
1. Analyze purchased parts for cost reduction opportunities:
Consolidate buy to fewer suppliers for volume savings
Commonize components to reduce SKUs
Identify overpriced purchase parts
Shift away from non-competitive suppliers
2. Conduct VAVE (Value Analysis/Value Engineering) workshop review of products to reduce design-driven cost
3. Scrutinize days-on-hand and minimum order quantity for all SKUs in inventory
4. Evaluate capital spend projects budgeted for the next two fiscal years
5. Conduct a Make vs. Buy assessment to improve equipment utilization internally and at suppliers
Hundreds of cost savings ideas were found in the initial diagnostic phase of the project. Based on findings from this extensive evaluation RSC put a plan together to immediately begin realizing top priority cost savings and institute organizational changes to keep the client on the right path including:
- Establish an execution team and governance to expedite identified cost savings actions
- Institute new competitive bidding process for capital spend projects
- Refresh product design approach and create holistic metric for features, cost and benefit
- Generate new supplier competitiveness metrics and guidance for improvement
$31 Million short-term plus $21 Million in long-term savings in 54 material cost reduction actions
$34 Million in additional annual savings identified in VAVE review of products
$5 Million working capital freed up by material inventory improvements
$4 Million in savings from insourcing and outsourcing changes with suppliers
Total of $95 Million in savings