Sales Were Growing, Margins Were Shrinking: How Fragmented Purchasing Contracts Were Eating Into Profit

Context

The company manufactures metal components for industrial machinery and equipment: structural elements, welded assemblies, and CNC-machined parts. It employs approximately 135 people and has been operating in the market for over a decade, supplying clients in Poland and Western Europe. Over the past two years, sales grew by more than 20% in total, but operating margin was steadily shrinking. Management commissioned Grevo to audit procurement costs and production processes to determine where the profit was disappearing.

Challenge

Rising sales alongside a falling margin signals that costs are growing faster than revenue, but management had no data pointing to the specific source of the problem. The finance department suspected rising steel and energy prices, while the procurement department defended its contracts as being "at market rate." Without breaking costs down to the level of individual contracts and individual orders, the company couldn't distinguish market pressure from its own inefficiency.

What we found

The audit covered all purchasing contracts above €4,650 in annual volume, as well as the full internal order pathway. The company was buying steel, aluminum, and fastening components from 14 suppliers, none of whom received more than 15% of total volume, too little to negotiate a meaningful volume discount. Eight contracts had been renewing automatically for at least three years, with no market repricing. The internal order process required sign-off from four people and took an average of 9 business days, which, whenever materials ran short, forced the production department into emergency spot-price orders averaging 14–18% above contract prices.

What we proposed

Grevo proposed consolidating purchases of key raw materials: replacing fourteen suppliers with five strategic ones, under uniform master agreements that included volume discounts and a fixed quarterly price-review window. For suppliers left outside the consolidation, extended payment terms were negotiated (from 30 to 45 days) in exchange for maintaining volume. The internal order process was simplified from four approval levels to two.

Implementation

Implementation took five months. The Grevo team led negotiations with suppliers together with the client's procurement department: 11 renegotiation rounds in total, 5 of which resulted in a supplier change for the given raw material. The new order process was rolled out in stages: first for steel and aluminum as the largest volume category, then for fastening components and coatings. The client's procurement team was trained on the new approval procedure.

Result

Purchasing costs for key raw materials fell by 11% on an annual basis, with production volumes unchanged. Internal order lead time dropped from 9 to 3 business days, which nearly eliminated emergency spot-price orders. Operating margin rose by 2.3 percentage points in the first full quarter after implementation. With an annual purchasing volume of around €5.6 million, an 11% reduction translates to approximately €600,000 in annual savings, without any investment in new equipment and without changes to the client offering.