Cost reduction in the value chain

the initial situation

Despite years of expertise, the company was unable to run its business profitably on the subcontinent. It therefore brought in an external consultant, Wamser+Batra. The purchase prices, which the customer considers to be too high, should be reduced by 15 percent with the support of an experienced India consultant.  

The analysis

Instead of immediately entering into negotiations with suppliers, the experts from Wamser+Batra first held intensive informal discussions with various departments, including purchasing, sales, R&D, logistics, production, finance, HR as well as with suppliers and customers. In order to obtain comprehensive information, our consultants follow hierarchical, cultural and linguistic rules. In Indian society, which is characterized by strong hierarchical thinking, we rely on interviews at the same social level. In order to perceive “Indian” nuances, we also prefer conversations from Indian to Indian as well as interviews in the respective preferred language. 

The analysis revealed the following vulnerabilities:

Procurement

• The company had a reputation among suppliers for being a bad debtor. With a surcharge on the actual purchase price, they protected themselves against foreseeable payment delays.
• The company had underestimated how openly suppliers in India communicate with each other about customers and their payment terms.
• Orders were ordered day by day without negotiating longer-term contracts with suppliers.
• The purchasing department only ordered from a few suppliers with whom there were good connections. There was no real competition.

SELL

• The company, which offers European quality products on the Indian market, was 30 to XNUMX percent cheaper than comparable competitors, but had previously assumed that it was one of the more expensive providers.
• The company therefore granted its customers relatively long payment terms as compensation.

Internal organization

• Communication showed significant deficits. Only a few people passed on information in the company, which was characterized by a patriarchal management style. There was hardly any exchange between the hierarchy levels, but also between the departments.

The turnaround

After completing the six-month consulting project, the company was profitable. Not only did more efficient purchasing contribute to this, but also renegotiated sales conditions and improved internal processes.  

What has changed:  

Procurement

• The company agreed binding long-term payment plans with suppliers from which both sides benefit. The company will no longer be charged surcharges. Suppliers improve their cash flow.
• In order to build trust and ensure commitment, sanctions are agreed in the event of late payments, but also discounts.
• The company has expanded its list of suppliers and is changing suppliers more frequently.
• Clear responsibilities in purchasing ensure more transparency about which purchasing prices the individual managers negotiate.

SELL

• Regular training ensures that salespeople use reliable sources about sales prices.
• It was analyzed to what extent factors such as customer orientation or service quality, in addition to prices, contribute to sales success.
• The prices could be increased and new customers could still be won.

Internal organization

• Wamser + Batra has filled the position of a new (Indian) purchasing manager.
• Departments scattered across several locations were concentrated at the plant location.
• Employees receive ongoing training in order to anchor the company's global corporate culture more firmly in India.

The companion

Since the project was completed, Wamser + Batra is still in regular contact with the top management of the European parent, but also with the local management. In this way, the consultants can convince themselves that their work has been sustainably successful to this day. This is successful, even though the corona pandemic broke out seven months after the project was completed.  

The 360-degree view of the company has paid off. This enabled us to show alternative courses of action beyond lowering purchase prices. To do this, we first analyzed the situation with those responsible at the plant manufacturer's European headquarters before the project started in India.  

By simultaneously using European experts from our team with India experience as well as our local Indian experts, we managed to complete the project on time and successfully.