SGS Maine Pointe helps petroleum products firm to 43% procurement saving
When a distributor of petroleum products faced price hikes at a key part of its supply chain, they turned to consultants from SGS Maine Pointe for help. The firm provided an independent market analysis, which enabled diversify its suppliers and realise major procurement savings.
Over the last decade, a number of significant challenges have placed pressure on the globalised supply chain many companies had come to take for granted. Geopolitical turmoil, extreme weather events and a global pandemic have seen supplier prices soar, and left organisations dependent on a sole supplier extremely vulnerable.
This was exactly the position that a distributor of petroleum products found itself in recently. The midstream and downstream provider relied on a single supplier to provide mission critical fuel additives, such as jet fuel de-icer and gasoline detergents, which were critical to the company’s end product. Historically the supplier had been very dependable and offered value-added services such as checking tank levels and equipment, so the petroleum distributor was not keeping up on market trends, and trusted the long-term relationship would remain dependable.
When the supplier continually demanded significant price increases, without revealing the reasons behind the increase, however, it became clear the organisation was trapped in a one-sided relationship. Negotiations were impossible – and the company’s leadership were concerned there was no alternative, but to meet the demands.
At this point, the petroleum products distributor made a call to SGS Maine Pointe, a global supply chain and operations consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. The client tasked the SGS Maine Pointe team with providing an independent market analysis, to identify if there were any alternatives, and if there were, to help build a strategy that might help face down the substantial price increases from the supplier.
The petroleum products distribution company had several fears that had previously prevented them from considering alternative suppliers for the specialised chemicals it needed. This included possible disruption to the firm’s supply chain, the loss of value-added services, and the cost to switch. The company also feared they lacked the scale to attract a direct-to-manufacturer relationship, providing further pressure to keep the incumbent who was a distributor.
In this case, though, SGS Maine Pointe had the subject market experts and structured process ready to challenge these fears. According to a release on the consultancy’s website, the Maine Pointe team was able to conduct an independent market analysis that identified six other additive suppliers, including direct manufacturers. The consultants then analysed and compared the different ways each supplier priced and transported additives and logistics, reducing the complexity of decision-making and establishing the pricing transparency that the incumbent had refused. They also broke down the myth that ability to deliver value-added services was unique.
The services delivered to help do this included a new request for proposal (RFP) and competitive negotiation process; network modelling and optimisation that identified a new, less costly regional distribution strategy for more than 100 terminals; and a custom index-based market visibility tool for pricing fuel additives, logistics, and freight that allows the company to keep an eye on the marketplace. At the same time, the consultants provided a model contract for the company; a supplier transition plan to use in the future, including identifying a 3PL supplier that could deliver further savings; and a de-risked supply chain where 32% of product was now delivered by a second supplier.
It was at this point that the incumbent supplier realised that there was a real possibility of losing their customer entirely unless they began to negotiate. Along with using a second supplier, the negotiations with the initial supplier resulted in a total procurement saving of 43%.
Looking ahead, the savings will continue, too. Maine Pointe identified additional 3% potential savings on freight, and helped to identify a more efficient distribution strategy – showing that companies have a lot to gain by facing their fears, and trying to re-imagine their legacy procurement tactics with the help of consultants.
Maine Pointe concluded in its write-up, “Fear of change can keep a company from realizing significant cost savings or considering new strategies. An independent evaluation can help break through entrenched dependency on a privileged, incumbent supplier.”
