Pricing & Purchasing Achieving Procurement Excellence

Aerospace & Defense

Challenge

The US Department of Defense (DoD) faced substantial payments to a private aircraft manufacturer due to volatility in the employment cost index (ECI).

Solution

S&P Global helped the DoD estimate changes to worker compensation and calculated new compensation projections. The DoD used these new projections to recalculate contract adjustments, avoiding significant costs that would have been incurred under the BLS employer cost index.

Results

S&P Global played a vital role in ensuring proper contract adjustments that saved the DoD and US taxpayers $520.6 million.

Agriculture

Challenge

One of the largest agrochemical and biotechnology firms found that their procurement teams teams around the world lacked a uniform source of market intelligence to benchmark costs, evaluate pricing, and understand market dynamics. The company sought to reduce costs while mitigating risks that come with volatile raw materials.

Solution

By working with S&P Global, the company was able to identify lower cost regions to source from, in one case saving $9 million on a single material. Additionally, the chemicals analyst spoke with senior leadership to help them better understand the supply chain impacts of volatile ethylene prices.

Results

The company blew past initial expectations, surpassing the goal of saving the company $500 million by almost 35%.

Automotive

Challenge

A truck manufacturer needed help negotiating a long-term supply contract valued at US$2.5 million.

Solution

The client used the S&P Global to derive a 1.4% escalation rate compared to the supplier’s 2.5% index. When confronted with this more appropriate index, the supplier conceded the lower rate.

Results

The client saved over US$2 million by identifying the right series for its escalator clause.

Building Materials

Challenge

A European building materials manufacturer wanted to secure an optimal aluminum contract price.

Solution

S&P Global economists accurately predicted a significant unwinding of aluminum prices.

Results

Armed with this forecast, the client floated aluminum purchases on the spot market for a few months before locking in a contract price at a 10-15% lower rate.

Chemical & Plastics

Challenge

A chemical company was implementing a cost savings plan and needed a way to better track spending throughout their supply chain as well as hold their suppliers more accountable in price negotiations

Solution

S&P Global provided the tools and data for the company to build a custom composite spending index. Armed with this information, the company asked various suppliers for price adjustments.

Results

The client saved US$8 million or approximately 10% of its procurement costs.

Electronics

Challenge

A global electronics company needed a formal cost-bench- marking model to track and forecast material cost inflation by commodity, equipment component and service.

Solution

S&P Global worked with the procurement team to identify over 300 “buys” and assigned each one an escalation measure. S&P Global constructed forecasting models for each assigned price measure. S&P Global formulated the model to compare historical and forecast escalation measures against the company’s own data. This provided an objective view of the purchasing department’s cost inflation management.

Results

In the first year alone, the client estimated US$60 million in cost savings in materials procurement. The client now uses the model as a strategic tool to establish purchasing performance targets.

Food & Beverage

Challenge

A global electronics company needed a formal cost-bench- marking model to track and forecast material cost inflation by commodity, equipment component and service.

Solution

S&P Global worked with the procurement team to identify over 300 “buys” and assigned each one an escalation measure. S&P Global constructed forecasting models for each assigned price measure. S&P Global formulated the model to compare historical and forecast escalation measures against the company’s own data. This provided an objective view of the purchasing department’s cost inflation management.

Results

In the first year alone, the client estimated US$60 million in cost savings in materials procurement. The client now uses the model as a strategic tool to establish purchasing performance targets.

Medical

Challenge

Global medical supply manufacturer needed data to help their team of 30+ global sourcing managers make the best decisions using the latest pricing trends. Previously, they relied on data that was limited in scope, covering only the large companies in the United States market. The information they did have was primarily backward-looking about where commodity prices had been in the past.

Solution

S&P Global provided data that is forwardlooking and provides context. “We now have information that tells us where the marketplace is going from a macro and a micro economic perspective,” said their Director of Sourcing. “We also get the story behind the price for a holistic understanding — it’s not just a price on a piece of paper.

Results

Within 18 to 20 months, they had already saved millions of dollars. The Sourcing team’s ability to create more accurate forecasts and better negotiate prices for cotton alone accounts for 8 percent of the total savings that were achieved.

Oil & Gas

Challenge

A major oil and gas company was concerned about rapidly rising steel prices and was considering locking in prices for the following year given supplier suggestions that future price hikes were imminent.

Solution

S&P Global advised the client not to enter into a contract with locked-in prices based on their estimates that steel prices would spike temporarily, then return to previous levels in the near future.

Results

The client saved over US$10 million by heeding S&P Global analyst recommendations and delaying its purchase.

Shipping

Challenge

A leading shipping company wanted to time the purchase of 10 million pounds of polyethylene (PE) to take advantage of the lowest price projected for the following year

Solution

S&P Global petrochemical expert, advised the client to make the entire purchase immediately based on his projection that PE prices would surge due to growing demand, tighter supply and soaring energy input costs.

Results

The client followed our advice. PE prices skyrocketed throughout the following year, and the client saved his organization US$1million on its PE buy.

Retail

Challenge

A major retailer, known for its diverse range of own-brand products, faced significant challenges in managing the cost volatility associated with contract manufacturing. The unpredictability of raw material prices, such as textiles and packaging materials, was impacting their ability to maintain consistent pricing and profit margins across their own-brand lines. The retailer needed a solution to forecast costs accurately and optimize their procurement strategy for contract manufacturing.

Solution

S&P Global's Pricing & Purchasing service provided the retailer with detailed insights into commodity price trends and forecasts, specifically tailored to the needs of contract manufacturing. Our experts worked closely with the retailer's procurement team to develop a strategic cost management plan. This included using our comprehensive price benchmarking tools to evaluate supplier quotes and identify cost-saving opportunities. Additionally, S&P Global's service offered in-depth analysis of market conditions and cost drivers, enabling the retailer to strategically time purchases and negotiate favorable terms with contract manufacturers.

Results

By leveraging S&P Global's Pricing & Purchasing service, the major retailer successfully optimized its procurement strategy for own-brand products and contract manufacturing. The retailer achieved a reduction in procurement costs by 15%, allowing them to offer competitive pricing to consumers while maintaining healthy profit margins. The strategic insights provided by S&P Global enabled the retailer to forecast costs accurately, negotiate better contracts with manufacturers, and enhance their inventory management. As a result, the retailer strengthened its market position, increased profitability, and ensured the consistent quality and availability of its own-brand products.

Apparel & Textile

Challenge

An apparel and textile company was struggling with fluctuating raw material costs, particularly cotton and synthetic fibers, which were impacting their production budgets and profit margins. The volatility in commodity prices made it difficult for the company to forecast costs accurately and negotiate favorable terms with suppliers.

Solution

S&P Global's Pricing & Purchasing service provided the company with detailed cost analysis and forecasts for cotton and synthetic fibers. By leveraging our comprehensive data and insights, the company was able to understand the underlying market dynamics and cost drivers. S&P Global's experts worked closely with the company's procurement team to develop a strategic sourcing plan that included timing purchases to take advantage of lower prices and negotiating long-term contracts with suppliers based on accurate price forecasts.

Results

With the support of S&P Global's Pricing & Purchasing service, the apparel and textile company successfully stabilized its raw material costs, achieving significant savings. The strategic sourcing plan led to a reduction in procurement costs by 15%, enhancing the company's profitability and competitive position in the market. The company was able to forecast costs more accurately, negotiate better terms with suppliers, and improve its overall supply chain efficiency