The initial situation
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. With the support of an experienced India consultant, the client wanted to reduce its purchase prices, which it felt were too high, by 15 percent.
The analysis
Instead of immediately entering into negotiations with the suppliers, the experts from Wamser+Batra first conducted intensive informal discussions with a wide range of departments, including purchasing, sales, logistics, production, finance, HR as well as with suppliers and customers. In order to obtain comprehensive information, our consultants follow hierarchical, cultural and linguistic rules. In Indian society, which is characterized by strong hierarchical thinking, we rely on interviews at the same social level. In order to perceive “Indian” nuances, we also prefer conversations from Indian to Indian and interviews in the preferred language.
The analysis revealed the following weaknesses:
Purchasing
- The company had a reputation among suppliers for being a bad debtor. They therefore secured themselves against foreseeable payment delays by adding a surcharge to the actual purchase price.
- The company had underestimated how openly suppliers in India communicate with each other about customers and their payment terms.
- Orders were placed from day to day without negotiating long-term contracts with the suppliers.
- The purchasing department only ordered from a few suppliers with whom it had good relationships. There was no real competition.
Sale
- 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.
Internal organization
There were considerable deficits in communication. Only a few people passed on information in the company, which was characterized by a patriarchal management style. There was hardly any exchange between the hierarchical levels or the departments.
The turnaround
At the end of the six-month consultancy 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.
What has changed:
Purchasing
- The company has agreed binding long-term payment plans with its suppliers, from which both sides benefit. The company is no longer charged surcharges. The suppliers improve their cash flow.
- In order to build trust and ensure commitment, penalties are agreed in the event of late payments, as well as discounts.
- The company has extended its list of suppliers and is switching providers more frequently.
- Clear responsibilities in purchasing ensure greater transparency regarding which purchasing prices the individual managers negotiate.
Sale
- Regular training ensures that sales staff use reliable sources for sales prices.
- The extent to which factors such as customer orientation or service quality contribute to sales success alongside prices was analyzed.
- Prices were raised and new customers were nevertheless acquired.
Internal organization
- Wamser + Batra filled the position of a new (Indian) purchasing manager.
- Departments scattered across several locations were concentrated at the plant site.
- Employees are continuously trained in order to anchor the company’s global corporate culture more firmly in India.
The companion
Since the project was completed, Wamser + Batra has remained in regular contact with the top management of the European parent company, as well as with the local management. This allows the consultants to see for themselves that their work is still successful today. This is possible even though the coronavirus 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 reducing purchase prices. To this end, we first analyzed the situation with those responsible at the plant manufacturer’s European headquarters before starting the project in India.
Thanks to the simultaneous deployment of European experts from our team with experience in India and our local Indian experts, the project was completed successfully and on time.