Regal Ware, a midsized manufacturer, requested K2 Sourcing help them find savings and improve the purchasing process within the fastener and hardware category.
These are high mix low volume purchases with custom requirements. After assessing the category our organizations agreed it was a good candidate for utilization of Strategic eSourcing to rapidly redefine the supply chain.
First, K2 Sourcing and Regal Ware mapped the current supply chain order and replenishment process. The current process utilized MRP with orders placed weekly to one of over 15 suppliers. Lead times for the 100+ items varied from a week to 2 months resulting in overall inventory turns of about 3.5 per year. In most instances, the Buyer paid for freight. Regal Ware personnel received and putaway inventory to several different cell locations. Suppliers invoiced per shipment creating very high transaction and AP costs, and payments were matched against receipts.
After defining the ideal future state, and carefully determining stakeholder needs, existing and new suppliers (provided by a combination of K2 Sourcing and Regal Ware experience) were invited to participate in an Electronic Request for Proposal (eRFP) conducted on the K2 Sourcing eSourcing platform. K2 Sourcing worked with suppliers to answer questions, and ensure suppliers understood the requirements. Regal Ware answered product specification questions, and allowed suppliers to visit and view samples.
A large base of qualified suppliers responded to the eRFP. After reviewing the responses, a short-list of suppliers was selected and final cost negotiations were rapidly conducted. K2 Sourcing’s sourcing automation platform reduced the analysis and negotiation cycle time by over a month and reduced Regal Wares event administration costs.
The results met the ideal future state image of the supply chain and exceeded cost reduction expectations. The supply base was consolidated to 2 primary suppliers. Both suppliers agreed to provide vendor managed inventory (VMI). The VMI program included weekly deliveries directly to the production line to the two Regal Ware manufacturing facilities. Suppliers would manage to bin minimums and maximums providing replenishment as required. Rather than invoicing per shipment, suppliers are now providing monthly summary invoices. In the final results we saw:
- Purchase price reduction 19%
- Freight terms changed to delivered
- Estimated 80% reduction in number of invoices and receipt transactions
- Receiving labor savings estimated at over 25 hours
- Inventory turns increase from 3.5 to estimated 18
K2 Sourcing’s Strategic eSourcing as a service provided the resources and tools that helped Regal Ware to work with a larger base of suppliers to determine the right long-term partners. The result was substantial savings and a more efficient supply chain ready to tackle future growth.