When procurement spending pressures profits
A United States-based fresh and frozen foods producer urgently needed a new strategy for managing its spending. The company’s revenues and earnings were trending downward as costs rose and competition heated up. Weak information systems and badly structured contracts made it hard for the company to pass cost increases to the retailers that make up its customer base. The company’s new owner, a private equity firm, brought in AlixPartners to design and implement a new system for gathering and evaluating competitive quotes from suppliers in four major spend categories: packaging materials, product ingredients, facilities management and other plant services, and freight hauling.
Custom tools sharpen spend calculations and enhance bargaining power
We took charge of the client teams responsible for capturing savings in the four spending categories. We led initiatives to invite competitive quotes and renegotiate contracts for nonstrategic items such as travel and office supplies; major cost drivers like vegetables and cheese; common ingredients such as potatoes and flour; and outsourced freight hauling and facilities management. We updated and standardized specs for key ingredients and drove an initiative to standardize packaging and labeling. During that process, our team also created tools to improve the quote process for traded agricultural commodities and then developed standard contract language and purchasing procedures.
When it really matters
The competitive-quote process we designed and implemented has delivered as promised. Overall cash expenditures are down, thanks in part to big savings on non-commodity ingredients. Revised specifications and direct contract negotiations have driven down the costs of commodity ingredients. Rebids for packaging materials have yielded significant savings. Indirect spending has dropped sharply. And finally, the company has avoided significant increases in transportation expenditures, even though it is replacing and expanding its vehicle fleet as fuel and maintenance costs rise.