LG saves money through Centralized Purchasing

I recently read a case study on LG Electronics strategy on centralize its purchasing function. The case study LG Electronics centralizes purchasing to save was published by Purchasing.com and talks about LG’s Transformation from de-centralized purchasing to a centralized structure.

LG has 120 operations Globally Comprising of four business units-Mobile Communications, Digital Appliance, Digital Display, and Digital Media. With such a wide operations in such different fields and regions, it was very important for LG to have visibility into it’s spend. Once the visibility is achieved, LG has started to effectively use its leverage among the suppliers. The result are there to see, since January 2008 about 50% of purchasing is now centralized in LG and has led to a reduction in 16% of material cost.

LG Procurement transformations results show the positive effect of spend consolidation and leverage buying in large OEM.

The case study re-emphasis on following three points:

1. For a large OEM with multiple divisions, centralizing purchasing is needed if a company is going to leverage its buys and reduce materials costs.
2. Procurement engineers can help reduce costs by suggesting changes in materials, suppliers or processes.
3. Suppliers will devote resources to OEM companies that are growing.