Case Study: Product Classification
Millions Saved in Overhead
A leading international manufacturer of adhesives, coatings, and sealants undertook a company-wide strategic initiative in order to optimize performance and stimulate financial growth. The underlying objectives were to achieve a $10 million reduction in the costs associated with procurement while sustaining organic growth of 8-10%. The manufacturer began this process with the consolidation of European and North American adhesive operations. A major component of the reorganization was the establishment of a global procurement function in order to leverage purchasing volumes across 11 businesses and four international divisions. The company chose to implement an SAP system to integrate the vendor databases.
The Challenge
Not surprisingly, following this reorganization the new IT architecture required extensive cleansing of the data from each of the divisions. Each of the prior businesses had used different approaches and standards in managing its vendors.
The cost reduction associated with procurement was dependent on the manufacturer's ability to analyze vendor utilization and spend patterns. The analysis would require research on 240,000 products.
Finally, the company had over 1,500 purchasing agents globally that would use and maintain the new system within 3 months after the IT infrastructure was operational.
Business Oriented Decisions
PeopleForce was retained to research the products and to prepare the product data for spend analysis. Our project involved the mapping of old product descriptors into a standard schema.
The product records were initially analyzed for duplicate occurrences, then 80,000 unique items were mapped to the UNSPSC code structure by PeopleForce team members with specific knowledge and experience in industrial operations. When the legacy file data was inadequate, PeopleForce conducted external research in order to establish the proper classification. The review process was completed in three weeks. PeopleForce helped the manufacturer reengineer its procurement function by better understanding its vendors' products and improving the process through a streamlined ERP implementation.
Throughout the project, business impact, not technical perfection, drove technical choices such as the level of granularity of the research and the resulting quality levels.
The Results
The manufacturer realized savings in excess of $10 million in the first year, as measured by the reduction in SG&A as a percentage of operating revenues. In Year Two, an additional 8% reduction in operating expenses was achieved.
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