Strategic Sourcing

Deliver Cost Savings and a Strategically Aligned Supply Base

Strategic sourcing is a well-established procurement process to deliver durable cost reduction through re-alignment of the supply base.  Emphasis is on translating the organization’s strategy and stakeholder goals to commodity objectives that drive sourcing. APD brings commodity specialists and cost engineering experts together to implement a value-adding, sustainable supply strategy for a target commodity. 

Direct materials and indirect procurement categories with $10M+ spend under management are the optimum candidates for strategic sourcing. Typically, strategic sourcing is the preferred approach when a company is consolidating sourcing suppliers, pursuing global sourcing, or evaluating make vs. buy. Nearshoring is sometimes an important sourcing strategy for achieving strategic sourcing goals.

Strategic Sourcing projects follow a straightforward process: 

  • Segment the spend and interview stakeholders to develop commodity management objectives 
  • Identify suppliers with capabilities and capacity to leverage across the organization 
  • Conduct a multi-round market test to select suppliers that fulfil organizational needs while delivering cost savings 
  • Develop an action plan for sourcing strategies (including resourcing) and negotiating cost reductions with current suppliers

Need to quickly implement savings on exist spend? Explore Fast-Track Savings – Advanced Purchasing Dynamics

Recent Client Success Stories

$2B Insulation and Commercial Roofing Manufacturer Identifies $5.2M Savings on Coiled Aluminum and Stainless Steel 

A $2B manufacturer had acquired 3 plants that consumed $32M annually of coiled aluminum and stainless steel, a commodity new to the company. They had been adding suppliers to deal with post-COVID supply shortages. They engaged APD to conduct a strategic sourcing project to reduce costs by consolidating the supply base. Two of the plants were in Canada and one was in the U.S., subject to tariffs from low cost countries. 

APD’s metals commodity expert interviewed stakeholders from the plants and 9 current suppliers to understand the service levels currently provided and unmet stakeholder needs. They developed an Ideal Supplier Profile and evaluated the current suppliers and 12 potential suppliers to identify those that had the capability to fulfill current and future needs. After conducting a multi-round market test, they recommended a sourcing strategy for each of the 3 facilities across the two materials, resulting in a projected 16% savings. 

$1B Commercial Truck Manufacturer Identifies $1.8M Savings on Wire Harnesses 

A commercial truck manufacturer had been sourcing wire harnesses at the division level, and several recent acquisitions resulted in an opportunity to consolidate sourcing across 5 divisions. They engaged APD to conduct a strategic sourcing project to identify suppliers that could fulfill the needs of multiple divisions and reduce costs on the $8M annual wire harness spend. At the time, they had 14 active wire harness suppliers, with needing to be replaced due to financial issues and/or supply performance. 

APD’s consulting and cost engineering team segmented the wire harness spend to identify sub-commodities with different requirements, for example short design-to-build times and the capability to provide CAD drawings. They identified and evaluated 25 current and potential suppliers against an Ideal Supplier Profile and conducted a multi-round market test with the best 12, resulting in 5 suppliers that were the most capable and cost competitive.  Quotes from these suppliers represented a 23% cost reduction.   

Delivery Van Manufacturer Sources New Electric Vehicle with APD Assistance 

A legacy delivery van manufacturer designed an all-electric model, unique from its existing designs. They needed to quickly source all systems and components to hit prototype production schedule commitments. Realizing they needed experienced sourcing assistance familiar with the commercial vehicle and EV supply bases, they engaged APD to identify sources and obtain preliminary costs for: 

  • Aluminum extrusions 
  • Side and partition doors 
  • Stair coverings 
  • Stampings 
  • Steel bumpers 
  • Switches 
  • Weather seals 
  • Windshields and windows 
  • Wiper systems 

$150M Valvetrain Component Suppliers Identifies $2M Savings on Stampings 

A supplier to automotive and truck OEMs was under pressure to improve profitability. Their primary manufacturing processes were stamping and machining, and they decided to engage APD to conduct a make vs. buy study for the product lines that made up most of their volume. 

APD interviewed stakeholders to develop an Ideal Supplier Profile for each commodity. After vetting 43 potential suppliers against the criteria in the appropriate Ideal Supplier Profile, 19 were invited to quote. The best cost supplier in stampings generated a 15% savings, while all machining suppliers quoted significantly above the “make” cost (the company was able to use this finding to support future price negotiations with their customers).  

$4B Electric Steering Supplier Identifies $1.4M Savings on MRO Items  

An automotive supplier was using a 3rd-party MRO commodity manager to manage the buying of of $25M/year of MRO items to support a centralized MRO warehouse serving six production facilities. They were unhappy with the MRO commodity manager due to increasing costs and inventory levels, as well as service issues. They engaged APD to identify sources for directly purchasing the items as well as potential substitutes to further reduce costs. 

APD interviewed stakeholders to understand the current pain points and unmet needs with the 3rd-party MRO commodity manager and in parallel, developed a market basket with over 3,000 items representing 14 MRO categories. APD identified 33 suppliers for a multi-round market test and based on the results, recommended sourcing for each of the 14 categories, as well as providing a roadmap for investigating substitute items for low difficulty/higher savings potential categories.