Improving margins - but based on partnership
The starting point:
A vertical fashion brand owned by private equity is on a growth course and has already been able to leverage potential in many areas of the company. So far, the sourcing department has not been investigated, as no convincing approach has been identified so far - not least due to the rather low volumes.
The investor expects concrete improvements for the planned exit. The management therefore wants to establish a fast-acting yet sustainable margin programme together with TRE. Internally, there are hardly any resources and competences for sourcing. The respective designers and product managers place with what they consider to be reliable agents and suppliers, mostly without personal meetings.
What has been done?
After a very brief stocktaking, it became clear that there was little "push" and scale arguments for improving purchasing prices. We jointly recognised that we must first and foremost focus on our own attractiveness and future viability and want to visit the suppliers and agents personally. A partnership-oriented and future-proof supplier portfolio is the top priority.
- Identification of the top 20 suppliers and evaluation of the mutual relationship quality and importance.
- Benefit argumentation from the supplier's perspective in form of a storytelling "what's in for me?"
- Establishment of an appreciative managing director communication and preparation of the trips.
- Joint visit to the top 20 suppliers in Asia, Turkey and Eastern Europe
- Negotiation / renegotiation of purchase prices, agency commissions, payment terms and kick-backs
- Evaluation of the future viability and attractiveness of the top suppliers and decisions to expand or exit suppliers
- Monitoring and evaluation of results
- Outline the future process and create a "strategic sourcing" function
What did we achieve?
The results achieved have satisfied the investor, although the expectations of a pure kick-back and payment targets have not been fully achieved. However, management and investor are convinced that this will lead to much more sustainable results and much better cooperation with suppliers. The trip and the personal contact at management level have improved trust and mutual understanding.
- Approx. 1.5% margin improvement from kick-backs granted on past growth
- Approx. 2.2% margin improvement on current orders through renegotiation
- Approx. 1.5% margin improvement by reducing or staggering agency commissions
- Change from LC financing to 60 or 90-day TT payment
- Approx. 25% of purchasing volume with 30 days longer payment term
- Focusing the supplier portfolio and concentrating volume on the top 10 / top 20 suppliers
- Feedback to the design teams where suppliers see qualitative improvements and potential in the cooperation
- Outline requirements profile and target processes for sustainable establishment of strategic sourcing in the company
In close coordination with the top management, we set up and accompanied the process methodically and in terms of content. We set up the analysis and evaluation as well as the "storytelling" and supported the CEO on the journey through the negotiation process. We were able to provide the management with arguments vis-à-vis the investor as to why the chosen partnership approach was more promising.
The achieved purchasing improvements and the supplier concept helped the company to find a new investor in the sales process.