Observations and Approach
- The CFO Bridge team commenced their analysis and an issue with the Gross Margins. For the same client, despite an increase in pricing, the Gross Margins had come down by 12%.
- The analysis revealed inflated costs for many contracts and that the contracts were being awarded only to a few specific vendors
- Contracts were awarded to Vendors despite lack of expertise. The entire process of obtaining 3 quotes was a mockery as the Vendor himself used to share 3 dummy quotes.
- Every new employee in the Purchase department was bringing in his own set of Vendors CFO Bridge was assigned to supervise the entire process and design and implement the sourcing process.
- CFO Bridge set up a Commercial function segregating responsibilities between the procurement and commercial functions
Criteria were set for selecting vendors, and 3-4 vendors were shortlisted for every category with rate contracts. For standard items, Online orders were placed on ecom sites for best rates,
There were measures implemented such as Code of Conduct by suppliers, Consolidation of Vendors, Mandatory process and POs for any work and constant interaction with Vendors by the commercial staff.
A Service client was growing in Sales, however, its profitability was coming down despite economies in scale.
The client wanted CFO Bridge to investigate the reasons for the drop in profitability and implement measures to plug the gaps
- Within a year, the Gross Margins were reinstated to the original levels resulting in a gain of Rs. 4 Crs.
- Vendors had assurance on the business they could expect and could dedicate their best resources for the client.
- Sourcing and Operations employees could focus on the project executions instead of getting into commercial discussions