Situation
A major global hospitality company asked Lansdowne to conduct a diagnostic project with the full involvement of the extended buying community within the corporation, as well as other functions which can impact on what procurement is required to do. The diagnostic arrived at a procurement opportunity valued at £33m against the previous year spend levels, and £27-29m against an estimated current year’s spending, assuming a 60% reduction in building and construction and flat demand in other categories.
The 6-week diagnostic project did not allow time to perform the detailed work required to understand what had already been factored into budgets or what the effect of actions relative to underlying inflation is. The proposed approached provided the Finance function increased visibility in these areas.
The main areas where additional resource was needed to capture savings were:
- procurement of building and construction services
- repairs and maintenance
- facilities management, furniture, fittings and equipment
- other property categories.
Other categories wanted to benefit from specific skills in cost analysis and process optimisation. There was a general agreement that now, with deflation beginning to replace inflation, was a good time to conduct a thorough strategic sourcing process of these and other categories.
Approach
In addition to providing overall programme management, we were directly involved in five key workstreams:
- Workstream 1: One-time spend/ supplier rationalisation/ process optimisation. The focus of this workstream is to deliver savings on the £18m of ‘one-time spend’, as well as to lead the supplier rationalisation process. The full delivery of the potential benefits will involve the wider business in setting company expenditure policy and authorization limits and levels, and in ensuring compliance and discipline to new supplier approval, invoicing and accounts payable processes.
- Workstream 2: Input cost analysis and consumables category sourcing acceleration. This stream supported the category sourcing work currently underway within the formal procurement function. Two kinds of external support was provided:
- We undertook detailed input cost analysis and total product analysis to provide buyers with the best negotiating position across all food, drink and consumables characters.
- We accelerated the sourcing of some categories, the sourcing of which was handed over to procurement from corporate functions, as well as some categories where buyers are overloaded due to strategic issues elsewhere.
- Workstreams 3-5: Property category strategic sourcing. Working with the property procurement team, we re-competed the following categories: Building & construction, R&M, FFE, Property professional services and Facilities management. This followed a rigorous nine-step approach to ensure we have both a competitive supply-base and one, as much as can be established, resilient to the difficult market conditions.
Results
In summary, the project delivered a number of key benefits to our client:
- The project secured returns on strategic sourcing across all categories, in in excess of the £28m savings number, and £23.8m that year.
- We establish a financial tracking system to report back on improved terms and the savings to be achieved
- Embed information and process improvements as identified in the diagnostic and which exploit cross-functional skills for the best commercial results – e.g., efficient product development and one-off payment/accounts payable processes
- In conjunction with HR, designed a motivating reward system for the commercial procurement function that incorporated reliable metrics on the quality of procurement as well as fits with existing company remuneration and reward schemes.