Title

Turning procurement into profit in the cannabis industry

Section
Case Study
Summary

In a market as competitive and oversupplied as the Canadian cannabis industry, companies can no longer afford to continue focusing on top-line growth and market share expansion alone to drive profit. Our client, one of Canada’s largest licensed cannabis producers and suppliers, recognized a significant opportunity to boost its profits: cost reduction via procurement.

Despite its rapid growth, the cannabis industry is still relatively young (adult-use cannabis was legalized in Canada in 2018), meaning established processes are often yet to be determined. Insights into trends and best practices – both within and outside the industry – can help to guide business strategies. Our client therefore sought a procurement and supply chain partner with both cross-industry and cannabis-specific expertise. The goal: to help the business create and execute negotiation strategies and formalize its procurement processes to reduce costs and elevate the function into a strategic one. 
 

Results

Together, the combined client-Efficio team:
  • Delivered a 15% cost reduction across key categories
  • Integrated procurement with other business functions, such as marketing and finance, to build forecasting and planning processes
  • Upskilled the client’s procurement team
  • Increased Procurement’s credibility and strategic position within the business

Challenges and approach

Optimizing costs to drive profit

The core of Efficio’s engagement was negotiating cost savings on external spend through a strategic sourcing approach. This structured process involved:
  1. Analyzing the supply market and identifying potential alternative suppliers or benchmarks for both direct and indirect categories
  2. Identifying the appropriate sourcing or renegotiation strategies
  3. Negotiating with, evaluating, and selecting suppliers
  4. Quantifying the negotiated savings via an agreed process

The combined team drove a 15% cost reduction across key categories, including:

  • Flowers – Leveraged alternative licenced producers for opportunistic spot buys and sourced strategic contract grow partners with competitive, high-quality supply agreements
  • Packaging – Switched to lower cost pouch suppliers, moved label printing in-house, and reviewed packaging consolidation opportunities with the product development, sales, and engineering teams
  • Logistics / warehousing – Executed a full RFP process for warehousing and transportation, which resulted in significant cost savings
  • Lab services – Minimized unnecessary testing

Empowering procurement for long-term success

Our client’s procurement success stretches beyond a one-off cost reduction.

Our consultants empower our clients to deliver sustained value and so, as is often the case in Efficio, this meant delivering formal and on-the-job training to upskill its internal procurement team.

In addition, Efficio helped the client’s procurement team to establish its strategic position within the business by delivering results and improving stakeholder relationships. Procurement kept the client’s leadership teams engaged via clear communication on the vision and benefits of the transformation programme. Cementing Procurement’s credibility and strategic importance has laid the groundwork for future procurement initiatives.

Balancing structure with flexibility

Cannabis-related regulations are constantly evolving. This can make long-term planning difficult for cannabis businesses.
Efficio offered a balanced approach between bringing best practice knowledge from other industries and leveraging the consultants’ cannabis-specific expertise. This helped our client to formalize the forecasting and planning processes and align supplier contracts with those forecasts, while also building in the flexibility needed in a constantly-changing industry.
Cross-function collaboration is another key aspect to supply planning. The client’s procurement team collaborated closely with the product development, engineering, and marketing teams to develop a more proactive approach to inventory management, lower carrying costs, and freeing up production and warehouse capacity for high-value operations.

Looking ahead: supply chain management

As the cannabis industry matures and companies consolidate, supply chain planning and management will become increasingly crucial for organizations to stay profitable and competitive. This includes:

  • Optimizing seed-to-sale processes and warehouse, transportation, and operational network strategies, all while ensuring compliance with regulations
  • SKU rationalization, demand management, and inventory control
  • Warehouse process optimization and standardization for increased efficiency
  • Demand management and inventory content 

How Efficio can help

Get in touch via our cost optimization service page or our supply chain management service page if you’re looking for a procurement and supply chain partner to help increase your business’ profitability or optimise your supply chain.

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