The tangible benefits of sourcing
Many industries face intense pressure to cut costs. Executives everywhere are forced to tighten the budget belts.
Take the mining industry for instance: despite the pressure of cost cutting this industry has to contend with the mandate of safe production at all costs against the backdrop of other challenges such as commodity volatility, labour pressures, skill shortages, cost overrun on capital projects and adhering to stringent compliance criteria.
This article highlights significant and sustainable benefits that some of our mining customers have received by implementing various sourcing strategies.
Many of us understand that simply cutting costs without building a foundation for delivering supply chain benefits may improve profitability in the short term, but it is not sustainable in the longer term.
Most of our mining clients follow a three-pronged approach to sourcing:
Typically a three to six month process where subject matter experts collaborative ly assess the entire value chain in terms of TCO* and TVO* levers to increase both bottom-line savings and top-line growth.
Often consumables. In the interest of time, costs or risk, subject matter experts can identify certain value levers that can extract value from either existing contracts or new business requirements. This can be achieved by following a methodical checklist approach
Typically these are tail-end low priority sourcing events that most companies have until now not had the resources to manage. These events can contribute significantly to the bottom line if automated.
*TCO: total cost of ownership – the purchase price of an asset plus the costs of operation.
*TVO: total value of ownership – typically consist of price, usage I innovation, risk and sustainability, process and operational efficiency.
Ideally it would be great to push all spend through a strategic sourcing exercise but the requirements for highly skilled resources makes it costly. It should be noted that it is not sustainable when specialists leave before the full TCO/TVO is realised.
We have had the privilege of working with many of our clients on large-scale strategic sourcing projects over the last decade. The strong trend in addressing tail-end spend within our customer base has emerged only recently.
Have a look at a small sample of recent mining clients’ successes in terms of tactical consumables and transactional tail-end sourcing savings.
Customer’s success sample
Sample size: over 100 events.
Geographies: local and international.
Savings: Average of 35% savings in terms of both tactical (consumables) and transactional (lower value three-quote candidates).
Baseline: various business strategies in defining baseline prices.
Saving calculation: baseline versus price paid (all other award criteria taken into consideration).
Major savings were consistently achieved in engineering and manufacturing of bespoke components.
Initial quotes were often used as baseline prices. The suppliers maintained visibility of their rank (without visibility of the cheapest price) and continued submitting improved bids. Most of these items were well-specified by cataloguers in order to ensure like-for-like comparisons.