Cost savings on fasteners

Client background

Our client, a leading USA-based manufacturer of light, medium, and heavy-duty trucks, buses, emergency and military vehicles, was looking for ways to optimize its portfolio in accordance with its procurement transformation efforts.

Our approach

Technical reasoning

We look for any two very similar fasteners in the database. 

Let’s assume that we find two bolts that have identical raw material, head type, and finishing, and very comparable lengths, widths, heat tolerances, and thread lengths. Both are purchased in similar quantities over the year, however the price of one of them is 25% higher than the other.  This difference in price cannot be explained based on its attributes, and therefore becomes the basis for cost reduction at the SKU level.

This scenario, which occurs most likely many times within the procurement portfolio, describes precisely what easyKost uncovers for its users.

Savings generation process

Three savings generation strategies can be used once easyKost has been intiated, in order to maximize results while maintaining  the right amount of work per supplier type.

• Supplier Negotiations:  Strategic Suppliers
• Supplier Reallocation & Consolidation: Transactional suppliers
• Tail Spend Optimization & Consolidation: Tail suppliers

Application to client’s database

Using the client’s database, a cost model was created on easyKost. From there, easyKost highlighted the fasteners that are more expensive than they should have been (as shown below). This piece of information was then used to make a savings and representativity analysis per supplier to define negotiation priorities.

Out of a $93 Million spend in scope, the analysis and modeling estimated a savings opportunity of $5 Million. These savings were represented as follows:

• $2 Million from supplier reallocation
• $2.7 Million from supplier negotiations 
• $0.3 Million from tail spend

Results

With the help of easyKost’s recommendations and guidance, the client was able to achieve more than what was intially thought possible.

The below numbers were the outcome of the project: