Building a better logistics and procurement model case study

Generating savings at a leading global metal producer

Summary:

Client needed PwC to conduct logistics and procurement review
PwC won the engagement after demonstrating the strongest subject matter knowledge
Our approach was continually adjusted to meet the client's needs
Management at all levels expressed very high satisfaction with PwC's services

Implementing lasting, positive and integrated change to business functions is crucial for organizations to meet strategic goals and gain a competitive advantage. This was true for a leading global mining and metallurgy company. As financial competitiveness, global trade, market share sustainability and customer demands increased, designing the right logistics and procurement models to support their long-term production goals became a key priority.

The challenge

The metals company was looking to invest in the production expansion at one of its main refineries as its current production capacity was expected to increase dramatically. But in doing so, the company expected to face a number of logistics and procurement challenges, as their current operations structure including processes, management, people and systems, was not optimal to support the growing production and sustain their financial management goals.

To address these concerns, the metals company engaged PwC to conduct a logistics and procurement review. The intent of the review was to support the company’s financial goals during the ongoing and post-production expansion through strategic and operational actions, such as evaluating the current operations, identifying how they could better meet their production goals in a cost-effective manner, integrating as a matrix the corporate and local unit, and managing the variable and fixed costs.

"It was important for us to work with the company to understand the worries and cultural barriers that could hinder the successful implementation of the project down the road and help get buy-in upfront."

Our approach

As with any major business transformation, gaining an understanding of the underlying issues upfront was key to starting the project. Prior to beginning the logistics and procurement review, PwC team members with deep mining industry background met with the metals company’s executives and other important stakeholders from across different business units to learn more about their current structure and concerns around the business and the anticipated expansion.

To further their understanding, the entire PwC team visited the expansion sites to witness first-hand their operations, determine critical and bottleneck logistics and procurement processes, and meet a number of key users. They quickly learned that the current structure was not able to support the expansion because:

  • Local structure, processes and procedures were not standardized with the corporate model
  • Lack of synergy on corporate and local contracts
  • Logistics structure was decentralized internally in the finance, commercial and production areas
  • Limited goal focus due to unclear roles, responsibilities and leadership definition on the current structure
  • Poor review of new and current purchasing contracts and
  • Deficiency of management oversight with logistics providers.

By examining their operations, PwC would be able to recommend viable process solutions to help the company ensure their logistics and procurement models were running in the most effective and efficient way to sustain the business financially during the production expansion.

The PwC team conducted both strategic sourcing and logistics and procurement transformation methodologies and reviewed industry benchmarks and best practices.

Throughout the review, the metals company and PwC worked as an integrated team by designating company representatives for each area being reviewed and matching a full-time PwC team member to each of them. This strategy ensured that each business unit was involved and kept up-to-date throughout the assessment. Both teams also came together every week to play a soccer match―a fun way to strengthen the project teams, although there was no shortage of friendly competition on the field.

Taking the view that business transformation is a journey, not a project, the PwC team helped the metals company identify the stakeholders who could be resistant to change and presented several workshops to communicate the benefits of new logistics and procurement models to get their buy-in.

"Like any transformational project, it’s crucial that companies take the time to address concerns and present the pros in a way that make sense to all stakeholders," says Paulo Petroni, a PwC associate partner. 'It was important for us to work with" the company to understand the worries and cultural barriers that could hinder the successful implementation of the project down the road and help get buy-in upfront."

This investment was well received by the metals company, who emphasized that the PwC workshops helped to put the case for change to the top of the agenda.

By engaging the key stakeholders and outlining the key issues in their current structure, PwC developed a written report outlining recommendations on how the company could transform their operations into a more optimal and cost-efficient logistics and procurement model that focused on financial management. PwC suggested a project implementation based on a self-payback approach in which the savings generated by the recommended projects would be used to finance subsequent project phases.

The result

The extensive logistics and procurement review led PwC to recommend solutions that would enhance the metals company's operations around processes, structure, management, people and systems. Key recommendations included:

  • Strategic redefinitions of the different types of supplier contracts and quality assurance methods for reviewing contracts;
  • Organizational restructuring of the existing procurement and logistics area (e.g. hiring more senior resources and shifting roles and responsibilities);
  • Improvements in inbound, internal and outbound logistics processes and
  • Standardization of procurement processes and strategies.

The PwC team also provided recommendations to enable the metals company to take advantage of opportunities and quality assurance for reducing maintenance, repair and operations inventories and methods for logistics planning process.

Integral to the success of these recommendations was the implementation of change management practices throughout the transformation. PwC suggested a number of change management tactics to keep internal and external stakeholders informed, such as regular communications and stakeholder analysis and management.

The metals company has since approved and implemented all of PwC’s recommendations, which have resulted approximately 10% in net profit. As a result of the new structure, the company doubled their warehouse capacity while putting in less investment, and achieved significant cost savings in exports logistics and procurement for strategic sourcing. The company continues to execute on the actions implemented in this project in a more structured and efficient way, enabling them to maintain savings and increase earnings.

PwC team

The team was led by Paulo Petroni, operational consulting partner; Rogerio Toledo, relationship senior manager; Eric Ichikawa, general project manager and procurement specialist, and Alexandre Meira, logistics specialist.