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Achieving Excellence in Sourcing
The client, a major basic materials company based in Europe, approached McKinsey to help them reduce costs and transform the way they worked. Sales prices in the client’s industry had been on a long declining trend. The traditional answer to price erosion had been investments in bigger production assets to increase efficiency. However, the industry had now reached overcapacity, and the client needed to find new ways of reducing costs. Purchasing, which had been only locally optimized, was seen as major opportunity.
The company wanted to achieve savings of several hundred million Euros and, at the same time, transform its purchasing into a unified and more centrally led function. Tighter collaboration between business units would increase purchasing power, allow old ways of working to be challenged, and promote the circulation of best practices.
The project was to last 20 months, and would involve breaking down the spend base into manageable categories and investigating them. It was a big undertaking from the client’s perspective, closely supported by the top management.