Negotiation Factory - Saving €20 million in three days

When a world leader in transportation manufacturing needed to deliver urgent, double-digit savings, they turned to Efficio to help. To succeed, they needed a new way of engaging with their suppliers - and with each other.

Efficio planned, designed and managed a three day Negotiation Factory with carefully selected suppliers. We coached the client negotiation team and provided extensive on-site support throughout the process.

The results surpassed all expectations. Over €20m of savings in Engineering Services were delivered in just three days - double the client’s target. A further wave delivered not only a 7% reduction in temporary labour hourly rates (also double the target), but also a cash injection of over €1m, which proved to be vital to the business.

Our client is one of the world’s leading manufacturers of mass transportation equipment. Facing a challenging and highly competitive marketplace, they needed to radically reduce costs, with a particular focus on finding innovative ways to significantly reduce indirect spend.

Efficio worked with the client to plan and run a Negotiation Factory, which would bring suppliers together for a structured three day event to create a competitive, time-pressured environment. Efficio’s role was to design, plan and manage the event, and transfer key skills to the client’s relatively new indirect Procurement team. Efficio consultants coached and mentored the team to build their negotiation skills and enabled them to conduct the negotiations, with Efficio’s support.

The client had little clarity on the range of competencies each supplier could bring to the table. As part of the process, Efficio identified supplier competencies to enable a strategic supplier panel to be established and the complexity of the supplier base to be reduced. We also conducted RFPs to validate existing pricing and set a benchmark for the negotiations.

There was significant time pressure to deliver savings to the client, so design and preparation had to be compressed into a relatively short period. The task was further complicated by the complex matrix structure within the organisation. Traditionally, the structure had made it difficult for Procurement to gain agreement on expectations and outcomes as a base for supplier negotiations.

Approach

With the Negotiation Factory taking place over a deliberately limited timeframe of just three days, meticulous and detailed preparation was absolutely vital. To ensure the success of the Negotiation Factory, we left nothing to chance, including:

• Collecting and analysing data to establish spend and price transparency
• Profiling and selecting best strategic mix of suppliers for the event
• Working extensively with stakeholders to ensure full alignment on expectations and desired outcomes, including liaising with key leaders and executives, who presented to suppliers on the need for and drivers for change to demonstrate it was a business, not just procurement-led initiative
• Developing a detailed negotiation strategy and tactics, including anticipating supplier tactics
• Defining how savings would be tracked and measured
• Coaching and mentoring the client negotiation team, including dry-runs and responses to different scenarios
• Establishing a negotiation ‘war-room’ for the event which provided ongoing support for negotiators. This included real-time data analysis which allowed negotiators to evaluate the impact of supplier responses and inform decision-making

Results

In just three days, the Negotiation Factory delivered:

• €20m savings in the Engineering Services category - double the €10m target
• A reduction of more than 180 Engineering Services suppliers to a strategic panel of just 15
• An overall 7% hourly rate reduction in the Temporary Labour category (double the target), including a 10% reduction with the incumbent in the client’s key market
• A €1m plus cash bonus, negotiated with a key supplier

The process also delivered significant intangible benefits, including increased skills and capabilities within the client’s Procurement team, a much stronger relationship between Procurement and the business, and increased understanding and working relationships between the client and its key suppliers. The project’s success has set the foundation for ongoing, significant savings across the business.