Restructured global supply chain to save over 30% annually
A high volume consumer electronics manufacturer was growing at 2X to 4X annually with a critical component being procured from one US supplier. The supplier owned and controlled key technologies in the component. Despite the increased demand, the supplier was raising pricing with inflation and at times component availability was a concern.
ICG led a Collaborative Strategy Development project to create the “dominant sourcing strategy”. This approach shifted the single source model to a sourcing strategy having one dominant supplier with at least two others competing for future volume. This approach dramatically lowered component costs while aligning the supplier objectives to make new innovations. The most significant uncertainty in the Evidence Based Execution Plan was the supplier reaction so the first step was to propose the following to all potential suppliers:
- Intellectual Property was shared in a way that creates incentive for all parties to make improvements.
- There would be at least three active suppliers, dividing the overall volume:
- The primary supplier with annual volumes between 50% – 70%.
- The secondary supplier with annual volumes between 25% – 40%.
- The new supplier with annual volumes between 5% – 15%.
- The percentage of business was renegotiated annually.
Over five years, the client moved from receiving annual price increases to saving over 30% annually. By adding suppliers located in the US, Indonesia, Korea and Japan the client eliminated availability concerns, and all suppliers contributed quality and reliability improvements. This approach also changed the supply base by adding three new suppliers while the client gained a much greater understanding of the industry for future products.