www.pwc.co.

uk/procurement

Strategic cost reduction

through Procurement
Releasing the untapped value from your third
party spend
Contents

Why focus on Our approach

procurement?

1 2
Why PwC? Our experience

3 4

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1. Why focus on procurement?
As retailers and FMCGs evolve to meet the changing shopping habits of
consumers, so too must the way in which they manage their third party
expenditure

There is a cost base that many companies miss when looking for efficiencies. Third party goods and services such as marketing,
logistics, IT, property and production costs can account for between 15-25% of an organisation’s total cost base but are often not
given the same level of attention as other cost lines such as payroll or cost of goods.
Effective management of third party spend can on average release savings of between 7-12% and can have a direct impact on
the bottom line.
This cost base is growing due to a number of observed trends:

Shifting consumer expectations - Customers expect more,

and it takes flexibility, agility and speed to keep up - but what’s
the cost?

Impact of the National Living Wage - The new legislation

adds direct and indirect costs to employment and the supply
chain – how do you minimise the impact?

New channels - Interacting with customers goes well beyond

the shop floor nowadays – How do you exploit new channels and
deliver value?

International expansion - Cross-border operations can be

expensive and incur hidden costs – how do you manage third
party spend to drive value?

Digital transformation - Over 50% of customers are digital

natives and expect seamless interaction with your platforms –
how do you keep up while managing costs?

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2. Our Approach
Using our experience we evaluate each category using a variety of sourcing
levers to identify cost reduction opportunities and create a platform to
sustain those savings throughout the relationship
When we have worked with organizations we have helped to release benefits upwards of 12% cost savings,
whilst also putting the right strategies and skills in place for continuous improvement.

How do we best use the full

range of sourcing tools,
including eProcurement
Competitive and eAuctions, to generate
maximum supplier
Sourcing competition?
How can we leverage the
size and scale of our
business, and the supply
market, to deliver benefits? Spend Alternative
Consolidation Is the specification fit for
Specification purpose? Does it still meet
the needs of the business
and or customer?
Sourcing
Do we know the “true”
business needs and Levers
customer requirements –
both internal and external?
Total Cost of Is the whole life cost of
Business Needs
Ownership the good or service being
analysed holistically?

Can we develop more

Restructure
strategic partnerships with
suppliers to deliver mutual Relationships
benefits?

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Our online maturity assessment helps to identify gaps in your operating
model which need addressing to sustain savings deliver and effectively
manage your organisation’s third party spend
The maturity assessment will help you determine:
• Do you manage third party spend as strategically as other areas of spend? • Do you effectively control and manage your spend?
• Could you benefit from working more effectively with your supply chain? • Could you benefit from a new procurement operating model?

Gap against best

practice for the
dimension

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Our project approach is built around three key phases

PHASE 1: Identify the PHASE 2: Deliver the PHASE 3: Sustain the

benefits benefits benefits

• Develop spend cube to define category • Implement prioritised sourcing projects • In parallel to phase 2, design and
profiles to quickly release the savings implement the future operating model
• Establish cross functional category • Work with budget holders and finance • Embed new ways of working required
teams to track and deliver the benefits for continuing and sustaining benefit
• Conduct opportunity workshops to • Plan for an implement successive waves delivery
identify long list of potential sourcing of savings over the financial year • Train and transfer knowledge to
opportunities category team
• Further validate and quantify sourcing • Embed ongoing benefits tracking and
opportunities reporting
• Work with category team to agree
savings potential and prioritise
opportunities for implementation
• Conduct maturity assessment to identify
gaps in current operating model

Stakeholder & Programme Management

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We can leverage our global database of category best practices to deliver
significant procurement cost savings

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3. Why PwC
What sets us apart from our competitors?

We have deep &

1 extensive experience
in Cost Reduction
projects
PwC has sourced over £1bn of spend globally across a range of key third party
categories, (e.g. Marketing, HR, FM, IT, Professional Services, Logistics) achieving
typical savings of 12%.

We have a tried &

2
We work cross-functionally to develop cost reduction solutions, investigating specific
tested approach to
spend categories using multiple levers. This allows us to prioritise opportunities and
Procurement
projects develop an appropriate delivery plan.

3
We have a highly
Our global team of over 300 procurement and supply chain consultants brings deep
experienced team
category capabilities, specific knowledge of supply markets and industries, and an
with a breadth of
category expertise expert hands-on approach to delivery.

4
We ensure that
We bring, develop and build the required know-how, tools, templates and training to
clients are left with
ensure long-term sustainability, and to embed cost reduction into the day-to-day
the tools for ongoing
cost reduction culture

5 We deliver fast and

sustainable benefits
We are able to deliver fast sustainable savings, with benefits starting to accrue within
3-6 months. We deliver a compelling Return on Investment and have a strong track
record of commercial innovation.

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4. Our Experience
Case studies

Driving value from procurement

The challenge
Our client, a FTSE 100 retailer, was trying to release value from this untapped £2bn to help transform their business and shortfall in profits. Goods
not for Resale (GNFR), aka third party spend, was seen as an unmanaged space adopting little or none of the strategic principles of other parts of
the organisation.
Releasing £100m from the £2bn was the target set; money that could be reinvested into business-wide transformation programmes or delivered
straight to the bottom line. Both were core demands of the Executive Board.

Our solution and objectives

The objective of our review was to understand the way our client managed their GNFR spend and give them a benchmark operating model. The
review uncovered between £78m and £138m of benefits and proposed a transformation plan to achieve those savings. Our solution would establish
a new centralised procurement function to manage all GNFR spend and release both quick wins and long-term sustainable savings.

Measurable results
We realised benefits of £23m while running the programme, and helped our client deliver a further £26m toward their target. This saving, directly
attributable to the bottom line, could be used to address both the profit challenge and business transformation programme required both for
shareholders and customers.
“This was a £10bn company, so third party spend represented 20% of their revenue. That was also 30-35% of their cost base, so it was a very
significant aspect of their costs. It covered marketing, IT, property, and facilities management – so many areas. It was by far the biggest cost
initiative they were running, and the one with the biggest P&L impact.” Leon Smith, PwC Partner

Qualitative results
• We developed comprehensive category plans for procurement with a pipeline of savings for three years.
• We increased procurement awareness throughout the organisation.
• We embedded a new supplier relationship management approach so our client could build on their brand reputation and position themselves as
a ‘customer of choice’ with their strategic suppliers, helping them capture innovation in their supply chains.
• We reviewed a selection of contracts for commercial and financial robustness.
• We put in place a new approach to benefits management and reporting.

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Case studies
Reimagining global procurement Managing portfolio purchasing

The challenge
The challenge
After a series of acquisitions, the client had reached new, global scale. However, A world-leading private equity house wanted to manage its
our client was lagging behind the competition in terms of purchasing capability portfolio company spend and implement portfolio-wide
and recognised the benefits of evolving its existing Group Purchasing function into supplier agreements in Europe. The was the first time that
a global Procurement Company model. In so doing, our client was looking to such an initiative had been attempted in Europe, so in
leverage its increased global scale to realise significant potential savings in both addition, the PE firm wanted to be able to demonstrate high
Direct and Indirect spend. levels of buy-in and participation across their portfolio.
Our solution and objectives
We proposed a future operating model with direct and indirect categories of spend Our solution and objectives
evolving to either centre-led or buy-sell depending on the complexity of the spend We delivered a pan-European portfolio purchasing project
and the scale of opportunity available. In parallel, the total expenditure of over covering 11 portfolio companies across 14 countries in scope
€8billion spend was analysed to ensure the optimal design of the new operating for Europe. We supported the client using our leveraged
model on a category by category basis. Commodity risk exposure was also analysed portfolio purchasing methodology. Our first step was to
and new hedging strategies, processes and governance structures designed and establish ‘Category Councils’ with over 30 representatives
implemented. Once piloted in two initial markets, we have helped industrialise the from the 11 companies. We developed and validated both the
implementation based on category, technology and geography. spend baseline and potential savings by portfolio company.
In addition to procurement operating model design, we also implemented an We also sourced a range of categories including fleet, mobiles,
enhanced opportunity assessment process, using a range of sourcing levers. The office supplies covering development of category and go-to
opportunity assessment was conducted across five categories of direct and indirect market strategy, all required tender documentation, supplier
spend. briefings and negotiations, eAuctions, and implementation
planning. Finally, we also modelled award scenarios, and
Measurable results
prepared recommendations for supplier selection
Creation of new Global Procurement Company driving significant annualised
savings across global spend categories and exceeding initial business case by over
200%. Measurable results
Qualitative results We delivered total savings of 11% across all categories,
• Setup of new operational system to support introduction of new procurement including 34% savings on mobile telecoms which represented
models an ROI of 12:1 against fees.
• Global spend analysis with consistent, cleansed vendor and material master
data providing true spend visibility and comprehensive, real time reporting Qualitative results
• Improved compliance to preferred suppliers, payment terms and contract We helped achieve multi-company and regional buy-in to the
prices through better data management principle of joint purchasing which can be sustained through
• Newly created internal risk management team delivering working capital the ongoing use of the Category Councils.
benefits

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Contact Us

Leon Smith Gavin Bowen-Ashwin David Hodge Nicola Beaumont

+44 (0) 7850 907714 +44 (0) 7595 850027 +44 (0) 7711 589134 +44 (0) 7525 926423
[email protected] [email protected] [email protected] [email protected]

www.pwc.co.uk/procurement

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