In 10 months, L.E.K. Consulting helped a mid-market industrial manufacturer with a procurement transformation. The program improved earnings before interest, taxes, depreciation and amortization by 30% and payables by 24 days, unlocking millions of dollars in cash. More broadly, procurement evolved from a tactical purchasing function into a strategic capability that creates value, improves supply chain resilience and enables growth. The transformation included three core phases: indirect sourcing, direct sourcing and operating model evolution.
Proving out the value of procurement with indirect strategic sourcing
Historically, decision-making had been decentralized, unmeasured and organizationally vague. Indirect supplier decisions were distributed to plants, service centers and corporate functions. Suppliers were managed through local relationships, and few contracts were in place.
We reset procurement policy and contract standards, developed value analytics and introduced new suppliers. An array of analytically infused sourcing levers — strategic negotiations, cost modeling, benchmarking requests for proposal (RFPs) and demand management — created value.
In four months, procurement generated 20% savings across indirect spend and implemented new contracts and supplier management practices. The leadership team started to reset their expectations for procurement and shape a broader reorganization of the supply chain and procurement.
Reshaping the supply chain strategy and expanding the value equation through direct strategic sourcing
After establishing credibility through a rigorous, productive indirect program, we were given permission to address direct spend and a mandate to transform the way the company bought its materials.
There were some parallels to the indirect program, but the complexity was much higher. The company had grown through a series of acquisitions, building an industry-leading product portfolio. For the supply chain, this meant complexity — tens of thousands of parts, a national footprint and a global supply base.
Critically, the business had not integrated its supply chain teams and there was no dedicated procurement leader. Contracts were being signed at plants without procurement’s involvement. One plant optimized for itself, despite the broader leverage the full network of plants created. Externally, a shapeshifting geopolitical landscape created new tariff exposure and supply chain risk.
We led a collaborative, cross-functional program, deploying our seven-step strategic sourcing process and tool kit. Ninety percent of the direct spend was sourced, with categories ranging from steel, synthetic rubber, stamped parts and extruded plastic parts to bearings, bushings and sub-assemblies.
Fifteen percent savings was delivered across 15 categories. Two hundred-plus suppliers were engaged in RFPs and negotiations. New cost, economic order quantity and inventory models were implemented. A make-versus-buy evaluation led to vertical integration of engineered parts.
Significant value was created beyond cost savings:
- Sole source risk was reduced by 50% through new supplier qualifications, with a path to fully eliminate the company’s risk over two years.
- Tariff exposure was reduced by 30%, and exposure to China was reduced by 75%.
- Improved payment terms extended days payable outstanding by 24 days, freeing up millions of dollars in cash.
- Supplier productivity programs were established with strategic suppliers, building a pipeline of value engineering projects.
- Commodity risk management practices were deployed, including market intelligence and index-based pricing.
Procurement had not only transformed the company’s cost position, but also reshaped how it engaged its supply base.
Evolving the operating model to institutionalize capabilities and create a sustainable value engine
To truly transform procurement, the operating model needed to evolve.
L.E.K. collaborated with management to shape the new model and supported the implementation. A procurement leader was hired. The team was reorganized to bring all direct and indirect spend under management. New procurement process, policy, technology and tools were implemented. Critically, the C-suite supported procurement, buying in on sourcing strategies, funding new supplier qualification and tooling, and communicating wins across the business.
With the right structure, tools, and leadership in place, procurement had transformed into a leading capability and value creation engine.
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