Cost optimization of indirect spend at ICA

Summary

To adapt to a new, more challenging market, ICA underwent a significant cost reduction program and re-organization. As part of this initiative, ICA approached PIR and Aurentor for assistance in reducing their indirect spend.  

The project had an immediate positive effect on the bottom-line result and will in total reduce ICA’s indirect spend by 300 MSEK. This initiated a change in how ICA works with indirect procurement by introducing category management and instilling confidence when negotiating with suppliers, thereby shifting the scale in favor of ICA.   

Background 

In the face of shifting market trends, with premium assortments and stores giving way to low-cost and budget options, ICA found their position challenged. To remain competitive while managing the inflations raising costs of interest and supply, the company needed an overarching cost transformation.  

One of the identified cost transformation opportunities was within goods not for retail where ICA hoped to reduce their addressable spend by 5-10%. 

This target was highly ambitious and demanding, challenging the entire organization to find cross-functional cost opportunities within a decentralized structure. Many tough decisions had to be made with a top-down perspective, while they at the same time needed to stay true to the company's core entrepreneurial values, with bottom-up ownership. Additionally, the company underwent a major reorganization during the cost transformation, which increased uncertainty and raised the decision-making threshold, making cost prioritization difficult. 

Solution 

To reach the ambitious target ICA found three prioritized areas: Consultants, IT Hardware & Software, and Store equipment. To address the identified savings potential, three project streams were established – one for each of the prioritized areas. Each stream worked closely with both C-level management and organizational management to identify and implement cost-saving measures, ensuring alignment at all levels. To achieve the best combination of our specializations and competencies, the project streams mixed both PIR and Aurentor consultants. 

Consultants  

The consultant stream had a savings target of 200 MSEK as well as designing a governance structure for procurement of consultant services to ensure long-term cost control. The savings goal was achieved by using three main levers: 

• Demand stopping consultants, by identifying areas where the organization could cease using consultant services.  

• Swapping consultants to full-time employees, by collaborating closely with organizational managers and HR to identify and recruit long-term positions previously filled by consultants. 

• Re-negotiation of framework agreements for consultancy suppliers, by consolidating and reducing the number of suppliers to create an incentive to reduce the remaining suppliers’ prices. 

IT Hardware & Software  

The IT Hardware & Software stream had a savings target of 50 MSEK. To achieve this target, the stream followed three steps: 

1. Analyzing and categorizing the IT spend, to establish an approach for the project and identify potential opportunities.
2. Reviewing the IT and hardware setup, to identify redundancies, opportunities for reducing IT expenses, and synergies – whether functional, technical, or economical
3. Terminating redundancies and re-negotiation with strategic suppliers, to realize the identified savings opportunities. 

Store Equipment 

The store equipment stream had a goal of improving processes and re-organizing to build enablers for cost reduction within store equipment. This was realized through several initiatives, e.g.: 

• Optimizing assortment, by improving and streamlining the available articles, to enhance efficiency.  

• Updating the category management structure, to improve ways of working and allow cross-functional collaboration.  

• Defining collaboration through the value chain, to ensure the right assortment over time.  

• Ensuring system support, to support the new processes. 

Results

At the end of the project the three streams successfully realized the identified savings potential of 300 MSEK within ICAs indirect spend. In addition to reaching the cost reduction target, the project resulted in changing ways of working to allow continued cost out and cost control by setting new processes and inspiring new ways to handle suppliers and indirect procurement. A key success factor to achieve this was consulting done right, working peer-to-peer with ICA and their organization to tackle the task at hand together ensuring commitment and follow-through even for the most challenging decisions and changes, creating real results.