Case Study: Innovative Improvements to the Procurement Process Generates World Class Supply Results

Case Study: Innovative Improvements to the Procurement Process Generates World Class Supply Results

Kevin Fallon / Thursday, February 2, 2017 / Strategy Management, Case Study
In this case study you will see how a power electronics manufacturer made significant reductions in working capital and increased customer service level satisfaction by using innovation and the principles of flow.

The Challenge

Offering a wide array of power electronics components provided a competitive advantage for the manufacturer in the reliable power conversion solutions marketplace; however, it also created several supply chain challenges.

The biggest issue was the high mix of products caused this manufacturer to have over 12-week delivery cycles, while requiring additional inventory. However, they had to quote 6 to 10 weeks’ delivery to remain competitive. This sluggish inventory movement of less than 4 turns annually coupled with poor service delivery was crippling. They had to reduce inventory while driving responsive supply to unpredictable and cyclical customer demand.

An Innovative Solution

The manufacturer implemented an innovative procurement solution, a first of its kind, for improved visibility and predictability for supply. It was designed using the same principles as Pivotal Innovation’s Pivotal InnovatorTM platform. 

The company gained a competitive advantage in the marketplace in terms of supplier reliability, off-balance-sheet liabilities and total cost of ownership while minimizing the risk of crippling supply chain disruptions.

An initial group of suppliers, representing 50% of total procurement spend, were selected for the procurement process improvement engagement.  For each of those suppliers we implemented:  

  • Consumption-driven procurement strategies
  • Innovative inventory policies for both raw materials and supplier inventories
  • Optimized demand signals with replenishment strategy modeling
  • An optimal versus actual supply level business intelligence dashboard
  • Supplier replenishment cycle compression collaboration events

Impressive Results

The results realized by the power electronics manufacturer in working capital optimization, operating cost reduction and customer service level were impressive. Today, the company continues to drive innovation to further reduce the lead-times to its customers. 

The company realized: 

  • Working capital reduction of 55%
  • Operating cost improvement of 3%
  • Investment payback period of just over 3 months
  • Average supply lead-time reduction of 40% and on time reliability increase of 15%
  • Raw material turns improvement of 60%

The principles of Lean and Agile perform equally well when applied to strategy and innovation formulation and execution. Any company can leverage strategic imperatives and financial goals as the input functions to drive systematic and dynamic innovation the same way demand signals modulate Lean supply chains. We call this Innovation Dynamics™.

“Thank you for your valuable contributions to our organization.  The positive results of the procurement project driven by this solution will provide tangible benefits that will be realized for many years.”

                                                      - Director of Materials, Power Electronics Manufacturer

Want to learn more about the principles of Lean and Agile and Innovation DynamicsTM?  Click Here.

*President and CEO, Kevin Fallon and CTO, Justin Griep were formerly the CEO and CTO respectively of Demand Point, the award-winning, demand-driven technology and services company that designed this solution.

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