European packaging group
Consolidation of a critical area of supply – without destroying valuable local relationships.
The situation
This group has grown by acquisition, and as a result had well over 300 locations across Europe – a daunting prospect for a centralised procurement function. There were entire categories that they had decided to cede to local management, despite that fact that each site – with one or two peculiarities – shared many of the same objectives and conditions.
One of those categories was handling equipment – such as fork-lift trucks. And it’s not surprising procurement didn’t warm to the idea of creating a unified approach. Across the group there were 1,800 units, covering 800 different models sourced from 11 suppliers.
As well as different ownership approaches – outright title, leases, some with maintenance deals – there was also ancillary supply, such as maintenance and training. Even understanding the scale of the potential saving was impossible. So they didn’t try.
The solution
Proxima completely sympathized with the in-house team’s problem. And they, too, realized quickly that a conventional approach – starting with an audit of all the sites – was indeed impossible. But because Proxima helps a business to look at its supply ecosystem in a completely different dimension, we were able to help.
If it’s impossible to audit the sites ourselves, we reasoned, why not get someone else with access to the sites to do it instead? And who better than the very suppliers already servicing them.
After evaluating that six of the suppliers could deliver a Europe-wide offering, we divided up the sites between them for the audit as part of the tender. But, critically, we set out the contract as a “master vendor agreement” – meaning the winning supplier would subcontract sites they couldn’t profitably service to the “losers”. So each one had motivation to complete the audits and still bid competitively for the work.
The result
Once the audit was completely, we helped run a big-bath sale and leaseback deal on all the equipment to the master vendor. This consolidated the contracts at a stroke, as well as releasing a big one-off cash payment to the group. With a master vendor handling all the maintenance and training contracts, as well as the standardisation of the leases, admin costs were slashed.
That delivered a total cost of ownership savings of USD $1m (£660,000) on a USD $9m (£5.9m) spend.
But more importantly, it created a much deeper sense of shared purpose across the group. With the board’s full-throated support to get the project completed, local managers had seen clear benefits to group-wide procurement beyond simply cutting paperwork at headquarters. The equipment contracts had been complex, operationally sensitive and considerable – which has given them confidence to back centralise procurement with other, less mission-critical suppliers.