Supply Excellence — A.T. Kearney: Where the Deals Are…and Aren’t

A.T. Kearney: Where the Deals Are…and Aren’t

December 5th, 2006 · by Tim Minahan · No Comments · best practices, costing, sourcing, supply management

Yesterday’s post provided recommendations on how to assess supply markets and where to find the best sources for information on supply market trends, pricing, and cost drivers. I shared that A.T. Kearney Procurement Solutions was among my favorite sources for supply market intelligence.

Today, I’m happy to report that some of this company’s experts have agreed to provide Supply Excellence readers with a pre-holiday cheat sheet on which spend categories are ripe for sourcing and which categories you can expect to see price increases and tight supply. In true consulting practice, the below post was a collaborative effort from the following A.T. Kearney Procurement Solutions experts Judi Carithers, Lynnetta Engelkes, Sarah Holliman, Aaron Michaels, and Leigh Anne Raschkow.

So it’s the end of the year and you’re probably thinking of how to wind things down before you go out on vacation, right? Most of us take some time off at the holidays to relax and spend time with our families…but ending the year with a solid plan for what to source next–and possibly even putting the process in place–can help you start the New Year with a bang. All the ads on television and in the papers tell you what’s hot (Elmo is still in!) and what’s not this holiday season. Well, we’ve done a little sourcing-related research and can tell you which categories you should consider sourcing now and which you may want to hold off on.

What’s Hot

Office Supplies - Office supplies continues to be a popular category to source with savings ranging from 5-30% and spend amounts ranging from $30 thousand to $9 million. Although paper pricing has been on the rise, the leading companies in the US office supplies industry have experienced heightening competition and pricing pressure over the past couple of years. Low cost competition from Asia is exerting pricing pressures as well.
Multi-Functional Devices - Office equipment, specifically multi-functional devices (MFD’s) are in the forefront as companies are phasing out inkjet printers. Companies are looking to bundle the MFD’s with toner and services, however, this may not end up being cost-competitive. In some instances where a vendor’s product line does not meet all the customer’s specifications, these vendors are teaming with other vendors so that they can meet the customer’s specifications. With the rising trend for paperless offices, vendors will have to continue to be very competitive for the remaining market share. Savings ranges are from 15-40%.

What’s Not

Wood Pallets - The high double-digit savings achieved in sourcing wood pallets in the past may be more difficult to come by with uncertainty in raw materials costs, mainly freight and lumber, which together represent more than 50% of the cost of the pallet. Although fuel prices have declined, which in part is attributed to the seasonal change, the instability of fuel prices continues to be a key factor in transportation costs. The slowdown in new construction in the housing market appears to be having an impact on demand and is showing signs of pushing prices lower in the wood products sector, however the long-term impact remains uncertain.

Along with raw materials costs, labor remains an issue, as a result of immigration raids at IFCO Systems which have placed the industry in the public and government spotlight. Additionally, the fragmentation of the industry creates challenges in the white wood exchange market as buyers are looking more for pallet rental or centralized purchasing through a large, national organization. CHEP, a large national provider of plastic pallets and recycling programs, continues to “chip away” at the wood pallet market. At the same time, levers such as best price evaluation, volume concentration (on a regional/sub-regional level) and SKU rationalization still seem to work well and result in a decent amount of savings when sourcing this category.

Industrial Gases - Increasing demand for industrial gases combined with major industry consolidation has resulted in price increases. Capacity is already tight and consumption of industrial gases is expected to grow at a rate of 1.5 to 2 times that of industrial production. With environmental regulations requiring the switch to low-sulfur diesel fuel, the demand for hydrogen has increased. Once key suppliers have ramped up production capabilities, however, the supply should become more stable.

So, there you have it…your holiday shopping list for the hot categories to source! For more category or industry-specific information, contact us at atkps_sales@atkearney.com or call 888-327-3842.

Many thanks to the A.T. Kearney Procurement Solutions team for providing this pulse on these spend categories. Your insights and recommendations should come in handy in today’s tumultuous supply markets. I hope to make this spend category spotlight at regular feature on Supply Excellence.

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