Cost reduction of the value chain
Despite years of expertise, the company was unable to run the business profitably on the subcontinent. It therefore called in an external consultant, Wamser+Batra. The purchase prices, which the customer considered too high, were to be reduced by 15 percent with the support of an experienced India consultant.
Instead of immediately entering into negotiations with suppliers, Wamser+Batra's experts first conducted intensive informal discussions with a wide range of departments, including purchasing, sales, R&D, logistics, production, finance, HR as well as suppliers and customers. In order to obtain comprehensive information, our consultants follow hierarchical, cultural and linguistic rules. In the Indian society, which is characterized by strong hierarchical thinking, we rely on interviews on the same social level. In order to perceive "Indian" nuances, we also prefer conversations from Indian to Indian as well as interviews in the respective preferred language.
The analysis revealed the following weaknesses:
- The company had a reputation among suppliers for being a bad debtor. With a surcharge on the actual purchase price, they therefore secured themselves against foreseeable payment delays.
- The company had underestimated how openly suppliers in India communicate with each other about customers and their payment conditions.
- Orders were placed from day to day without negotiating longer-term contracts with suppliers.
- The purchasing department only ordered from a few suppliers with whom it had good relationships. There was no real competition.
- The company, which offers European quality products on the Indian market, was ten to 30 percent cheaper than comparable competitors, but had previously assumed that it was one of the more expensive suppliers.
- The company therefore granted its customers relatively long payment terms as compensation.
- There were considerable deficits in communication. Only a few people passed on information in the company, which was characterised by a patriarchal management style. There was hardly any exchange between the hierarchical levels, but also between the departments.
After completion of the six-month consulting project, the company was operating profitably. This was due not only to more efficient purchasing, but also to renegotiated sales conditions and improved internal processes.
- The company agreed binding long-term payment plans with the suppliers, from which both sides benefit. The company is no longer charged mark-ups. The suppliers improve their cash flow.
- In order to build trust and ensure a commitment, sanctions are agreed for late payments, as well as cash discounts.
- The company extended the list of suppliers and the suppliers are changed more frequently.
- Clear responsibilities in purchasing ensure more transparency about which purchase prices the individual managers negotiate.
- Regular training leads to salespeople using reliable sources about selling prices.
- It was analysed to what extent factors such as customer orientation or service quality contribute to sales success in addition to prices.
- The prices could be raised and still new customers could be won.
- Wamser + Batra filled the position of a new (Indian) purchasing manager.
- Departments scattered over several locations were concentrated at the site of the plant.
- Employees are trained on an ongoing basis in order to anchor the company's global corporate culture more firmly in India.
Since the completion of the project, Wamser + Batra is still in regular contact with the top management of the European parent company, but also with the local management. In this way, the consultants can see for themselves that their work has been sustainably successful to this day. This succeeds even though the Corona pandemic broke out seven months after the project was completed.
The 360-degree view of the company paid off. This enabled us to identify alternative courses of action beyond lowering purchase prices. To this end, we first analysed the situation with those responsible at the European headquarters of the plant manufacturer before the project was launched in India.
The simultaneous deployment of European experts with experience in India from our team as well as our local Indian experts enabled the project to be completed successfully and on time.