Valcon helped reduce procurement costs for an auto parts manufacturer by ~5% through identifying opportunities to reduce annual spending. They conducted analyses of spending categories and worked with suppliers to implement projects in high spending areas like copper, aluminum, and steel. This included activities like benchmarking prices, developing alternative suppliers, and optimizing specifications. Valcon's approach involved analyzing demand and supply factors, developing sourcing strategies, and working with suppliers on initiatives to achieve and sustain cost savings.

1. Valcon helps improve bottomline performance of an auto-electrical
parts manufacturer by ~5% reduction in procurement costs
Valcon Management Consultants .
FL No 608A .
6th Floor .
Spencer Plaza .
768/769 .
Anna Salai .
Chennai 600002 .
www.valcon.in
Business challenges
A leading manufacturer for auto-electrical parts, having the largest
auto and farm equipment OEMs as customers, was facing pressures on
the bottom line due to increasing raw material costs as well as drop in
profitability due to drop in market demand and intense competition.
The company initiated internal cost reduction programs to maintain
profitability but they were yielding limited results. As annual procurement
accountedforalmost60%oftheturnover,anyreductionintheprocurement
costs had a significant impact on the bottom-line performance. Valcon
was invited to assist them in the area of procurement cost reduction
and deliver benefits by identifying and implementing improvement
opportunities.
How Valcon took the client further
Valcon conducted a scoping study and identified the opportunities to
reduce the annual spend by ~5%-6% over 6 months.
Valcon also worked with the client to achieve cost reduction in
purchase of raw materials, job work, imported and bought out items
across categories such as:
Based on the Procurement Cost Reduction model, specific levers
were applied to high value benefit categories. Under each applied
lever, projects were created and potential savings opportunities were
quantified. Project teams were formed for implementation and project
execution were prioritised based on value identified.
ƒƒ Copper
ƒƒ Aluminum
ƒƒ Steel
ƒƒ Packaging
How Valcon helped
Valcon adopted a two-phased approach to achieve procurement cost
reduction:
ƒƒ Savings identification
ƒƒ Spend analysis
ƒƒ Baselining
ƒƒ Kick-off workshop
ƒƒ Target setting
ƒƒ Team formation
ƒƒ Prioritisation of high value high
impact projects
ƒƒ Detailed supply and demand
analyses
ƒƒ Procurement Strategy
ƒƒ Goal alignment
ƒƒ Project execution
Value discovery
Valcon used its holistic framework to identify and evaluate
opportunities across various procurement categories.
In order to identify opportunities, annual spend and procurement
practices were reviewed along with the procurement function and
the senior management of the organisation. Over the spend base of
INR 118 Crores, projects covering more than INR 70 Crores of spend
were identified under ~56 projects with a potential to save more than
Figure1: Valcon’s procurement cost reduction model
Figure2: Spend waterfall chart
INR 3 Crores within 3 months. Further categorisation of procurement
spend was done into specific benefit categories based on
ƒƒ Commodity
ƒƒ Type of input/product
ƒƒ Cost attributes
which enabled identification and prioritisation of improvement areas.
Value realisation
In order to realise the value identified through different levers, it was
essential to have structured approach to implementation of the projects.
The various activities done as part of the project implementation ensure
systemic improvement monitoring as well as long-term sustenance.
Value discovery Value realisation
Price evaluation
 Extracting maximum value from material buying
 Setting up optimal processes for procurement
Consumption evaluation
 Evaluation of material
consumption
Procurement
cost reduction
Volume concentration
 Consolidation of volumes
across timelines and
other parameters
Specification improvement
 Identifying the optimal specifications and
material for economical buying
Relationship restructuring
 Identifying the best relation-
ship models for procurement
Sourcing model evaluation
 Adoption of best sourcing
models
Cu-Strip
0%
2%
4%
6%
8%
10%
12%
14%
16%
Digits on top of bars indicate
number of projects
26
6
5
7
3
26
3 23
6 4
Al-Ingot
Steel-
Lamination
Import-
Polepiece
Cu-Wire
Steel-Sheet
metalbody
Import-
Commutator
Import-
Carbonbrush
Steel-
Bearing
Import-
Sleeve
Al-Bracket
Steel-Shaft
Others-
Packaging

2. Valcon Management Consultants .
FL No 608A .
6th Floor .
Spencer Plaza .
768/769 .
Anna Salai .
Chennai 600002 .
www.valcon.in
Some project instances are given below:
Valcon’s approach
Valcon has an elaborate five step approach to identify, analyse and
execute opportunities in procurement cost reduction:
Supply
analysis
Implemen-
tation and
follow-up
Sourcing
strategy
development
Supplier
selection
Demand
analysis
Analysis Strategy Execution
54321
The various activities done as part of the project implementation
ensure systemic improvement monitoring as well as long-term
sustenance.
Throughout the five step sourcing wave, Valcon works with the client
Benefit category Project Identified saving Description Change implemented
Aluminum bracket Eliminating consumption variance in
casting brackets
4% of total aluminium ingots buying
value
ƒƒ Earlier, the drawing weights of
castings were not defined
ƒƒ BOM weight (measured during
the first physical weight sampling)
was taken for reference for
material issue to vendor and
product costing
Appropriation of BOM weights
according to drawing weights through
countermeasures
ƒƒ Dies repairs
ƒƒ Alternate suppliers
ƒƒ Process improvement
Steel lamination Yield improvement through
manufacturing process change
4% of total steel lamination buying
value
ƒƒ Earlier, the lamination plates were
manufactured with single square
packing tool which resulted in
yield of approximately 50%.
ƒƒ New die with double cavity
developed to improve yield to 53%
Copper Best price evaluation for copper strips
and wires
1% of total copper buying value Identifying the best price of copper
strips through
ƒƒ Industry benchmarking
ƒƒ Sourcing from alternate supplier,
ƒƒ Buying model evaluation
ƒƒ Zero based costing of fabrication
process.
ƒƒ Negotiations with current
suppliers
ƒƒ Development of alternate sources
to reduce total buying value of
copper strips and wires
Packaging Specification optimisation of
packaging material
15% savings identified on total
cartons buying value and 3% savings
on corrugated boxes
ƒƒ Specification optimisation
potential was identified through a
value-analysis exercise
ƒƒ The specification optimisation
precipitated into material savings
ƒƒ Existing suppliers were called for
idea generation, new samples
were tested and approved
team to analyse major categories, factors affecting the demand and
supply market forces and the constraints.
Structured initiatives and methodologies such as:
ƒƒ Strategic sourcing
ƒƒ Tactical buying
ƒƒ Global sourcing
ƒƒ E-sourcing
ƒƒ Share of business allocation
ƒƒ Alternate material usage
ƒƒ Supplier relationships management
ƒƒ BOM optimisation
ƒƒ Structured supplier negotiations, etc.
add value to the client’s practices and knowledge.
Summary
Valcon has strong credentials in implementing procurement cost
reduction programs across industries such as automotive and auto-
ancillaries, engineering & EPC, and consumer goods. Valcon’s
engagements have yielded a minimum cost reduction of 5%-8% of the
annual spend base for its clients and, in some cases, even higher.
Valcon uses it robust framework and approach and these
engagements are executed by highly experienced consultants with
deep understanding of industry and product categories as also of
the techniques of cost reduction. This ensures a quick realisation
of benefits by client organisation as also high returns on investment
made for the engagement.
Prioritisation of
high value projects
3
Benefit linkage to
profit & loss account
8
Sustenance measures
implementation
Online benefit tracker
Linkage to KPIs for
organisation alignment
Time bound
projects completion
Benefit sign-off
with finance
Procurement
cost reduction
program
implementation