Delivering cost savings for a global lighting company

An emerging recession and depressed housing market had placed significant pressure on costs and profitability for a leading architectural lighting group.

Efficio created a new global sourcing organisation and transformed disjointed practices across the Group into a common sourcing strategy. The programme delivered significant savings - and laid a sustainable platform for ongoing improvements.

Background

Our client, a leading architectural lighting group with a number of business units, operates in several countries around the globe. The group is the result of a merger between different operating companies, and has subsidiaries in several countries. Its main industrial operations are concentrated in Europe and China.

With a recession and depressed housing market putting group profitability at risk, Efficio was asked to design and implement a strategic cost reduction programme. The goal was to generate savings of 7-14% per year - and to create the infrastructure to ensure those savings were sustainable over time.

The key challenge for Efficio was that each business unit largely worked independently. Supplier selection was driven mainly by geographical proximity and historical relationships, rather than best practice. A cultural divide between units also meant there was little coordination, and no common procurement strategy
 

Approach

We used our expertise and experience to quickly identify key opportunities for cost savings, including:

• Restructuring the supply base to leverage non-domestic and low-cost supply markets
• Simplifying and rationalising product requirements and component specifications across the Group
• Redesigning the distribution network to reduce the number of local warehouses and rationalise the number of providers
• Clearly identifying and influencing all cost drivers (a total cost management approach)
• Implementing a multi-round tender and negotiation process to review suppliers and contract terms

The process also delivered a number of improved strategic outcomes for the client, including:

• Ensuring required supply chain service levels, availability of local stocks and adherence to European certifications and regulations through selection of European trading companies connected to manufacturers in low-cost countries as suppliers
• Enhancing competitive advantage through strategic relationships with preferred key component suppliers with superior innovation and new product development capabilities
• More transparent management of price fluctuations through commodity-indexed contracts

Results

Efficio’s engagement helped deliver a number of significant benefits for the client, including:

• Achieved financial goals, delivering 12% cost savings group-wide
• Created significantly greater spend transparency and a more strategic approach to sourcing, with the potential to enhance competitive advantage by leveraging suppliers’ innovation and new product development capabilities
• Developed the infrastructure necessary to ensure that these benefits are sustainable over time – and to allow the identification of further savings and improvements in the future
• Implemented an integrated and strategic approach to sourcing, and a core set of specialist skills and knowledge to effectively leverage it