Driving Purchasing

Savings in a Private
Equity Context
Contact: Dan Haas

October 2001
This information is confidential and was prepared by Bain & Company, Inc. solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Case Example

Situation: Private Equity fund wanted to

drive purchasing cost reductions
across its portfolio

Complication: A twelve month effort to build

unified systems to streamline
and coordinate purchasing had
generated no results

What can Bain do to help?

DrivingPurchasing
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Purchasing Saving Approach
Our focus was to create a practical program combining
early wins with sensible cross-company sharing leveraging
shared commodity purchases

Establish Industry-
Roll-Out Quick-Hits
Target ‘Quick-Hits’ Specific Buying
Across Portfolio
Groups

Activities •Prioritize quick hit •Extend quick-hits •Prioritize industry

savings savings initiatives specific
opportunities to broader opportunities
portfolio
•Quantify potential •Quantify potential
savings •Negotiate savings savings
across portfolio
•Develop supplier •Implement
shortlist savings

•Negotiate savings

DrivingPurchasing
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 Bain Purchasing Project Learnings
Quick hits can best be achieved by shifting spend
to best price contracts and increasing volume

Improve Strengthen
Switch to Best Increase Reduce
Savings Strategy Contract Supplier Outsource
Price Contract Volume Complexity
Compliance Relationship

Description • Shift spend to • Renegotiate • Improve • Move to • Rationalize • Outsource

best contract contracts based contract preferred products activity carried
on combined compliance supplier out in-house
volumes • Integrate
• Consolidate supplier value
vendors chains
• Bundle all • Reduce inventory
vendor’s products • Create value
into one contract managed
relationship

Bain Examples • Reduced telecom • Reduced IT spend • Improved MRO • Reduced • Reduced • Reduced spend
purchasing costs by shifting IT spend by warehousing manufacturing by outsourcing
by establishing spend to increasing costs by costs by IT services
buying group and preferred supplier contract partnering with rationalizing • Reduced spend
shifting spend to compliance for logistics supplier SKUs by outsourcing
best contract hand tools & payroll
parts

Quick to Implement Medium to Long Term Long Term

(Moderate/High $) (Moderate/High $) (High $)

DrivingPurchasing
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The Process
 Month 1: Meet with six major portfolio companies
- Template for data collection
 Top 100 suppliers
 Purchasing by category
 Month 2: Identify quick hit opportunities
- Common across companies
- Easy to switch
- Low price contract in place with one company
 Month 3: Implement quick hit opportunities
- Vendor coordination
- Announcement of opportunities to portfolio companies
- Follow through to ensure compliance

DrivingPurchasing
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Initial Targeted Opportunities
We targeted 30% of purchases with significant
common purchases

$25.1M

$21.8M
$15.7M
$12.8M
$9.4M
$6.1M
$0.5M
Total =
$130.3M $120.6M $342.1M
100%
Portfolio E
Portfolio F
80%
% of Total Procurement

Portfolio D

60%
Portfolio C

40%
Portfolio B

20%
Portfolio A

0%
Freight Paper Temp

Furniture
Copiers

Office Supplies
Travel

Telecom
Support
Labor

IT/

DrivingPurchasing
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Category of Opportunity
We categorized opportunities into three tiers – switching
volume to best priced contracts stands out as the easiest
short term opportunity
“Easier” to “Harder” to
Implement Implement
Tier 1 Tier 2 Tier 3

Opportunity  A Portfolio  Relatively  Significant

Description company has generic services categories of
contract in place at which should spend requiring
advantageous benefit from significant
rates volume integration to
 Opportunity to consolidation achieve savings
and compliance
switch volume to
best priced
contract

Potential  Office supplies  Overnight/small  Corrugated

Examples  Office furniture package delivery cardboard
 IT hardware  Copier Paper  Trucking
 (Truckload & LTL)
Telecom
 Copiers  Other paper
 Travel
 [Temp Labor]

DrivingPurchasing
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Purchasing quick hits
Quick hits yielded $4-7 million annually

$12M
Opportunity (6 companies)

$4M – 7M
Estimated Savings

$8M

$1-2M
$4M

$0.5-1.1M
$0.7-1.0M

$0.3-0.7M $0.3-0.6M
$0.1M

$0M
Office Office IT Copiers* Telecom Small Package Low-End
Supplies Furniture Hardware (Long /Overnight Estimate
Distance)

Savings
15%-30% 20%-30% 5%-10% 10%-15% 10%-20% 10%-20%
Range:

DrivingPurchasing
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Cross Company Purchasing Councils
In larger, more complex categories, cross company
purchasing councils lead integrated supplier negotiations

Process (2-3 months per negotiation)

 Selection of council head
- Most committed large buyer of commodity
 Organize data collection
 Select targets based on commonality
 Conduct supplier negotiations
 Implement needed changeovers

DrivingPurchasing
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Paper Purchases
We are targeting coated and uncoated freesheet as the
largest areas with significant common purchases

Percent of Total Paper Purchases

$6.4M
Total =

$3.5M
$2.5M
$82.0M $30.8M $30.7M $155.8M
100% Gould (Dist.) Tolko
Unisource (Dist.) Holland Mfg.
Other
Xpedx (Dist.) Ohio Pbd.
80 Appleton
WWF Paper (Dist.)
Clifford (Dist.)

60 Athens Paper (Dist.) AT Clayton

Company 1

Abitibi
(Dist.)

Bowater
Company 2

IP
Company 3
40 IP
Company 4

Westvaco Westvaco Company 5

20

Groundwood
Uncoated FS Coated FS Kraft Paper

Coated Board
Newsprint
DrivingPurchasing
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Communication Plan
Key to ongoing success is maintaining ongoing contact with
individual companies to celebrate success and thank for support

Email Update Newsletter by Mail

Recipients  Purchasing managers  All portfolio companies

and CFOs at all portfolio
companies contacted

Timing  1-2 weeks  2-3 weeks

Key  Thanks for help to date  Thanks to key participants

Message  Opportunities identified to date
(e.g. office supplies)  Showcase of opportunities
 Targeted areas of focus identified
(e.g. paper council)  Targeted areas of focus
going forward

DrivingPurchasing
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