In today's global manufacturing market, companies are realizing that in order to grow and maintain their competitive edge they must learn to better manage expenditures.
This became evident for Greif, a provider of industrial packaging products and services headquartered in Delaware, OH, when they sought to put more focus on their direct and indirect procurement procedures to reap the significant savings potential.While some long-term contracts were in place for categories such as air travel and healthcare benefits, the majority of Greif’s indirect spend was decentralized across 68 locations throughout the U.S. Without the resources and tools needed to focus on these indirect categories, Greif had not been able to leverage their spending and negotiate optimal contracts with preferred suppliers.
Greif's needed an answer to the question: How could they best manage their spending to drive cost and performance improvements? Would they build an indirect procurement capability — hiring, training and developing an organization and establishing tools and processes — or partner with an external service provider who could quickly bring resources, processes and technology to bear?
Procurement Outsourcing
After careful consideration and conducting a thorough evaluation process, Greif decided that partnering with ICG Commerce, a procurement outsourcing specialist, would be most effective solution. Greif understood that it would simply be too time consuming and costly for them to set-up an internal procurement system, and would have been a severe distraction for existing team members focused on direct materials procurement.
Once they selected ICG Commerce, Greif set three specific objectives for the newly formed partnership:
• Significantly drive down the cost of indirect and some direct material expenditure
• Automate the purchase-to-pay process, moving from manual to automated invoice processing
• Significantly increase historical purchase data to allow for better management of expenditures.
Solutions for Containing Costs
ICG Commerce addressed and managed nearly 20 buying categories on Greif’s behalf, including Chemicals, Fuel Oil, Transportation, MRO, Travel, IT, and Energy. Beginning with a detailed spend assessment, Greif and ICG Commerce developed a strategy to drive savings, automate the purchase-to-pay process, and improve their ability to capture and utilize detailed spend information to drive ongoing cost and supplier performance improvements.
A four-part strategy was developed to drive significant and continuous cost reductions:
• Strategic Sourcing – With access to deep process and category experts and an arsenal of sourcing tools, including category-specific work plans and RFP templates, Greif was equipped to identify cost-saving opportunities, rationalize suppliers and improve contracted supplier service levels. • Supplier Implementation – A detailed implementation program involving the Greif/ICG Commerce procurement team, preferred suppliers, and each of the key manufacturing facilities ensured that each local supplier branch understood contract terms and expectations as well as how to effectively serve each of the Greif plants.• Purchase-to-Pay Process Automation – A hosted purchase-to-pay solution allowed requisitioners to quickly find and order items from preferred suppliers while capturing line-item-level detail for future review and use. By deploying the system in over 60 plants and training over 250 end-users, Greif gained access to detailed compliance information, by business unit and plant, and the ability to track savings by category, location or business unit.
• Ongoing Category Management – With the right tools in place, process and category experts not only measure savings and compliance but also supplier performance. By evaluating this information, along with market index data and benchmarks, ICG Commerce’s category experts are able to drive continuous cost and service improvements for Greif.Higher Service, Lower Costs
In the first year, the Greif/ICG Commerce team completed the strategic sourcing and implementation of 12 buying categories, launched sourcing projects for an additional eight categories, and implemented a solution for automating Greif’s purchase-to-pay processes for a set of targeted categories. The team is now actively managing a significant portion of the company’s indirect expenditures, driving solid savings and value-driven opportunities and is striving to achieve their 90 percent compliance target.
Not only is the company seeing measurable savings on indirect goods and services but employees are realizing time savings during the requisition and purchase processes. Plant buyers no longer have to manually determine the appropriate supplier and order each item manually, thereby allowing them to focus on more critical business activities. In addition, the Accounts Payable team has seen the number of “touches per invoice” drop from three to almost zero, with an extremely low exception rate.