Case Study: How Collaborative SRM Liberated $1.6M in Working Capital for a Mid-Sized Pharma Leader
The Problem: The "Insurance Policy" that was strangling growth.
The Result: $1.63M inventory reduction, zero stock-outs, and a shift from "Firefighting" to "Flow."
The Commercial Insight: Safety Stock is a Symptom, Not a Strategy
In the pharmaceutical world, "Safety Stock" is often treated as a necessary evil. For one mid-sized, established pharmaceutical client, that "evil" was valued at $8.7M for Active Pharmaceutical Ingredients (API’s) alone.
When we audited their supply chain, the insight was clear: their high inventory levels weren't a strategic choice — they were an expensive insurance policy against a lack of trust. Because they didn't trust their suppliers to deliver on time, they were using their balance sheet to "buy" peace of mind.
The Challenge: High Cost, Low Visibility
The client faced a classic problem:
Capital Stagnation: $8.7M was tied up in API safety stock, cash that could have been used for R&D or market expansion.
Low Reliability: Despite the high stock levels, they were still firefighting. OTIF (On-Time In-Full) was inconsistent, and the threat of a stock-out was a constant executive concern.
Transactional Friction: Relationships with key API suppliers were adversarial and opaque.
The Collaborative Sourcing Intervention
We implemented our proprietary SRM Governance Model to move them beyond traditional spend-based segmentation.
Step 1: The Trust-Transparency Audit
We mapped their supply base using our 10-point diagnostic. We discovered that several of their most vital API suppliers were in the "Critical Zone" — high importance to the business, but low in Trust and Transparency. They were "Black Boxes" that the client was over-funding with safety stock to mitigate risk.
Step 2: Architecture of Governance
Once the "Critical" suppliers were identified, we moved them into a high-touch SRM Governance Framework:
Monthly Operational Syncs: To surface tactical bottlenecks 30 days before they became crises.
The 5-Pillar Scorecard: We shifted the conversation from "Where is my order?" to objective performance across Operations, Value, Resilience, Finance, and Innovation.
Radical Honesty Protocols: We established a "Single Source of Truth" for data, eliminating the manual spreadsheets and conflicting stories that fueled the lack of trust.
The Results: Real-World Impact
Within just 6 months of implementing the Collaborative Sourcing framework, the results were transformative:
Inventory Reduction: Safety stock was reduced from $8.7M to $7.07M.
Cash Liberated: $1.63M in working capital was released back into the business.
Reliability Gained: OTIF scores improved significantly, and for the first time in a long time, they achieved zero stock-outs for 6 consecutive months.
The Financial Impact: Understanding the Bottom Line
Clients often ask: "How does an SRM workshop actually show up on my financial statements?"
Here is how this $1.63M win impacted our client's numbers:
1. The Balance Sheet (Liquidity & Working Capital) Inventory is a "Current Asset." By reducing it by $1.63M, the company effectively turned "dead" product back into Cash. This improved their Current Ratio (liquidity) and freed up capital that was previously trapped in a warehouse.
2. The P&L (Profitability & EBITDA) Reducing inventory doesn't just free up cash; it reduces the Carrying Cost of Inventory.
Warehousing & Insurance: Lower stock means lower storage and protection costs.
Cost of Capital: If the company was borrowing at 6%, liberating $1.63M saved them nearly **$100k in annual interest expense** alone.
Obsolescence Risk: Reducing stock levels dramatically lowers the risk of write-offs due to expiry or shelf-life issues, which hits the P&L as a direct expense.
Conclusion: Where Does Transformation Start?
This turnaround didn't require a new ERP system or a multi-million dollar software suite. It required a shift in Relationship Architecture. By moving from a "Transactional" to a "Collaborative" model, this client stopped paying a $1.6M "Trust Tax" to their suppliers.
Are you ready to liberate the trapped capital in your supply chain? Our 6-hour SRM Excellence Workshop is the entry point. We provide the diagnostic, the pillars, and the 30-day pilot plan to help you move from Firefighting to Flow.
Book your workshop or get in touch for a free initial consultation by contacting us here: contact@collaborative-sourcing.com