PROCUREMENT TRANSFORMATION AT A GLOBAL EPC COMPANY BACKGROUND The fortunes of engineering, procurement and construction (EPC) companies are strongly linked to procurement effectiveness since more than 60% of project cost is incurred for procured equipment and services. One of Valcon’s global clients was faced with major competitive challenges in the Indian EPC space. The client believed that improving procurement effectiveness would improve overall business competitiveness. The client chose to work with Valcon to enable better (quality), faster (delivery) and cheaper procurement. The project was executed in three phases: Diagnostic, planning and execution. Diagnostic • Procurement process analysis • Spend analysis • Category management Volume consolidation Product specification improvement Best price evaluation Strategic sourcing Process improvement Planning • Category prioritisation • Execution planning • Sourcing strategy Execution • Organisation development • Sourcing waves • Enabling tracks Import substitution Relationship restructuring PHASE 1: DIAGNOSTIC Valcon conducted a two month study of the client’s procurement operations. The study focussed on processes, spend, and category management. Besides significant gaps in procurement practices, the study uncovered an opportunity of 5-9% procurement cost reduction. FINDINGS FROM THE DIAGNOSTIC PHASE • Procurement across divisions was done almost independently disabling any leverage • Significant difference in procurement practices between divisions • Poor data quality that was unsuitable for spend analysis • No categorisation of items making it impossible to establish effective category management • Fragmented vendor base PHASE 2: PLANNING he consultant team worked with procurement leadership in developing targets, prioritising initiatives, mobilising the team, and developing the execution plan. The focus was generation of financial value. Based on a category-wise sourcing strategy, eight sourcing waves would focus on cost reduction. PHASE 3: EXECUTION Organisation was restructured and KPIs realigned to mobilise the organisation towards delivering the savings. Eight full time consultants worked with the client for six months. Core financial benefit was driven using sourcing initiatives focussed on individual categories. 92 sourcing initiatives based on six key levers were developed and implemented to drive results. Consultants evaluated each product category in detail to develop specific sourcing strategy. Several additional accrued benefits like increased transparency, improved operations efficiency, increased cash and liquidity, and better coordination had also improved overall business performance. Enabling tracks worked on streamlining the procurement function. Process alignment and improvement enabled a consistent and predictable execution framework. Nearly 80 processes across divisions and functions were streamlined. Data track covering more than 50,000 purchase lines annually enabled visibility and transparency in the organisation while planning track enabled procurement alignment with project planning at a similar scale. RESULTS The initiative has delivered a financial result of nearly INR 815 Mn. Process alignment and improvement enabled a consistent and predictable execution framework. Nearly 80 processes across divisions and functions were streamlined. It has also helped India’s procurement group to better address global sourcing needs from India. It had a significant impact in making the organisation globally competitive. The global entities have received it well and are eager to apply it to their divisions. The client is now keen on driving global procurement transformation using India as a model. Savings graph Enabled Qualified Identified High target VALCON · 608A, 6TH FLOOR · PHASE 1, SPENCER PLAZA · 768/769, ANNA SALAI · CHENNAI - 600 002 · TEL. +91 44 4305 1775 · WWW.VALCON.IN
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