Business Need:

Chasing the lowest cost for each and every part was problematic. First, it greatly increased the number of suppliers with whom the client was interacting. This meant more contact points to juggle, more data to track and more purchase orders to manage. And more purchase orders meant more shipments being sent against the same aggregate of products. As a result, while individual direct costs were lowered, overall indirect costs were higher than ever.

Solution:

Industrial Motion performed a thorough audit of the client’s procurement process. We found that the extensive vendor base was not well versed in international procurement. Vendors were shipping with freight companies that had no logistics systems and rates that were not competitive. We also found that the personnel cost alone to manage a single purchase order through its lifecycle was costing several hundred USD. Finally, increased shipments to the Southeast Asia operation meant more imports, resulting in much higher customs clearance and banking costs.

Result:

Industrial Motion was able to demonstrate that purchase consolidation would reduce the client’s indirect costs by such a large scale that they would significantly offset the marginal benefit of the direct cost savings. We were able to:

• Reduce the number of suppliers and subsequently reduce communication and personnel costs.
• Utilize our freight and logistics contracts, ensuring shipments are carefully matched to the freight carrier best suited to the transport and at the most competitive rates.

As a result, the petroleum company consolidated a large volume of their purchases with Industrial Motion, yielding millions of dollars in both direct and indirect cost savings annually.