Business IssueThe company, a global Fortune 10 automobile company with more than 215,000 employees, sought to significantly reduce global purchasing and supply chain costs. Due to the complexity of its contracts and quantity of purchased parts, they believed significant cost savings and cost recovery could be achieved in its supply chain following a comprehensive review of existing supply chain contracts for potential errors.
They sought a partner that could work closely with internal Purchasing and Supply Chain teams to not only review and validate contract errors but also assist with the recovery of overpayments.
Jefferson Wells developed a tailored, industry specific methodology for the company to help achieve its cost saving targets. This methodology involved analyzing contracts and various contract changes (pricing, parts, and engineering) to identify those that potentially were incorrect. These contracts were further analyzed by Jefferson Wells to determine not only if an overpayment occurred, but also the overpayment amount. Once completed, Jefferson Wells worked closely with the Global Purchasing & Supply Chain Group and the Supplier to recover overpayments.
During contract reviews, Jefferson Wells found specific errors common across the company’s entire global organization. For example, engineering changes often lead to contracts being amended multiple times, and when amended, part prices would often be incorrect, leading to significant additional costs. Additionally, volume rebates intended to reduce the part price as volume targets were achieved, were not always applied, leading to significant overpayment.
The project was piloted in North America in 2000 and rolled out to the company’s operations in South Korea in 2008. Jefferson Wells initially implemented the same methodology utilized in North America, for the company’s Korean operations but quickly recognized the need to customize that methodology for that country.
Based on the success in Korea, Jefferson Wells was given the opportunity to extend the project to its other manufacturing facilities in Asia, followed by Australia and Thailand.
Since inception in 2002, the project, which will be extended to India in 2016, has produced impressive results (in US dollars):
- $1B in cost savings overall
- $65M in cost savings/recovery in Korea since 2008, a 30:1 return on investment
- $10M in cost savings/recovery in Australia and Thailand