An MDAX company in the automotive industry commissioned the procurement expert as interim head of Europe-wide procurement of professional services to bridge a vacancy. A central project in the mandate was the negotiations with a small (30 employees) engineering office. The supplier, known from many years of successful cooperation, had asked for the hourly rate for development engineers, which had not been adjusted for two years, to be raised to the current tariff level. The service provider was working for the group with more than 50 percent of its capacity.
Short-term change of supplier not possible for organizational reasons
The interim manager first checked whether a cheaper service provider could supply the engineering firm's special expertise in order to avert the price increase and also achieve savings. This was not possible because, among other things, the company had to provide evidence of new European safety standards for its software components within six months. This ruled out a change of supplier at short notice. The interim manager therefore entered into negotiations with the aim of securing the engineering firm's capacities for the next six months in return for the concession of a moderate (below the requested) price increase.
Supplier's remuneration slightly increased in return for capacity guarantees
In the meeting, the supplier informed the company that two employees from the contingent working for the vehicle manufacturer had already left the engineering firm and that two more would be starting work at the group's main German competitor in three months' time. This meant that the company would not be able to secure the urgently needed resources within the available period. To avoid this loss, the interim manager granted the price increase in full. In return, the office guaranteed to provide sufficient engineering capacity. It also promised to invest the higher revenues in staff retention as a priority. Previously, the supplier had already increased its personnel marketing costs on its own initiative.
Insourcing examined as an alternative for the procurement of engineering services
Even before the price negotiations began, the interim manager had already brought up the possibility of completely insourcing the previously procured services with its client. A feasibility study on insourcing showed that savings in the single-digit percentage range could have been achieved. However, the Group had stipulated that new staff could only be recruited outside Germany. Insourcing was therefore out of the question.
New suppliers identified and core competencies concentrated within the company
In order to find alternatives for the previous supplier, the interim manager initiated a global scouting process. In addition to the hourly rate, he also weighted the size of the company as an indicator of its ability to absorb capacity changes without interruption. Several European suppliers were identified whose offer prices promised savings in the lower double-digit percentage range.
The feasibility study on insourcing also served as the basis for a transformation project in the client's vehicle development department. By reallocating existing resources, the company now has greater control over critical development stages. All sensitive phases (e.g. design) will be handled in-house in future, while non-critical work (e.g. documentation) can be carried out by third parties. This strengthens the core competencies within the company, bundles expertise and reduces interface and coordination problems.
Costs for engineering services successfully reduced
After 7.5 months, the interim manager was able to successfully complete the mandate. With the newly identified service providers, a reduction in purchasing costs of more than ten percent can be realized. Thanks to the temporary extension of the contract with the existing supplier, the deadline for providing proof of compliance with the EU safety standard was met. Without this proof, no vehicle would have been allowed to be sold. The transformation in vehicle development makes a further contribution to improving results - and strengthens the client's particular technological expertise.
