Aerospace Sheet Metal Fabricator Cuts MRO Spend $215K and Consolidates 30% of Suppliers — Case Study

An ESOP-owned precision sheet metal fabricator in the United States. Revenue $58M, gross margin 19%, EBITDA margin 9.5%. Customer concentration: 65% revenue from three aerospace tier-1 OEMs on long-term agreements with annual cost-down provisions. The operation runs two facilities, 220 employees, AS9100D certified. The CFO had been in role for five years and managed both finance and procurement.

OEM cost-down programs had compressed contracted unit prices by 4–6% over three years while raw aluminium and stainless input costs had risen. Direct material and labour optimisation had been pushed to its practical limit. The CFO needed another lever and was sceptical that MRO and indirect spend — historically treated as a low-priority line — had material margin to release.

At $58M revenue and 9.5% EBITDA margin, every basis point of gross-margin recovery equals $5,800 of EBITDA. The OEM cost-down trajectory was projected to take another 3–4 points of margin over the next two years. Without an offsetting recovery, EBITDA margin would compress to mid-single-digits — a covenant risk and a credibility issue with the ESOP trustee.

MRO and indirect spend totalled approximately $5.8M annually across 280+ active suppliers — a long tail that included cutting tools, abrasives, safety supplies, calibration services, lubricants, packaging, sublet machining, plating, and specialty fasteners. Procurement was decentralised across the two plants. Most spend below $5K transacted on P-cards or open POs without competitive sourcing. Vendor master had not been rationalised in seven years.

The ERP captured every transaction cleanly but did not normalise SKU descriptions across vendors — the same drill bit was procured from four suppliers under four part numbers at four different prices. Sublet machining and plating services were transacted as "service POs" with no consistent rate baseline. Cutting-tool vendors operated under matrix-discount contracts that had quietly shifted as the vendors reclassified part families. Calibration services had compounded annual increases that had never been benchmarked.

Twelve-week engagement structured in three parallel workstreams. Workstream A — MRO and consumable category: spend cube construction, SKU normalisation across vendors, contracted-rate validation. Workstream B — sublet services: rate-card reconciliation across machining, plating, heat-treat, and finishing vendors. Workstream C — supplier rationalisation: identifying single-source-without-reason vendors and category-level consolidation candidates. Each workstream produced a quantified recovery plan in week 9; weeks 10–12 covered vendor negotiations and ERP cleanup.

Three primary cutting-tool vendors had reclassified between 120 and 240 SKUs into different product families over the prior 24 months — moves that silently shifted the matrix discount applied. Net overpayment across the three: $76K over 18 months. Recoverable: $48K through credit memos plus go-forward repricing.

Two plating vendors and one heat-treat vendor had compounded 4–6% annual rate increases without benchmarking — totalling 12–16% above market median for equivalent services. A controlled mini-RFP with two qualified alternates yielded a high-single-digit rate reduction with the incumbent (who matched after the alternate quotes landed) and recovered $58K annualised. Calibration services consolidated from five vendors to two yielded a further $18K.

Of the 280+ active suppliers, a long tail had less than $2K of annual spend each — together representing roughly $51K of spend, a transaction-cost burden disproportionate to value. A further set of suppliers was consolidatable into existing larger relationships at improved rates. Net consolidation: 30% reduction in active suppliers (282 → 197), about $62K annualised savings, plus material P-card administrative cost reduction.

Cutting-tool credit memo packets and corrected matrix configurations issued to three vendors. Sublet service rate corrections negotiated and re-papered. Calibration vendor consolidation completed. Vendor tail consolidated through category-level award letters and P-card route-changes. Vendor master cleaned in ERP. Total identified leakage: $215K annualised plus $48K of one-time credit recovery. Net first-year impact: $263K.

$48K cash recovered within 75 days. $215K recurring annual savings on indirect and MRO spend. Roughly 0.5 points of gross-margin recovery on $58M revenue, materially offsetting OEM cost-down pressure. Supplier base reduced 30%. P-card transaction volume reduced 38%. Engagement payback: within two quarters.

Annual cutting-tool matrix reconfirmation built into the calendar. Sublet service vendors benchmarked against alternates every 18 months. Vendor tail review quarterly with a $1K threshold trigger. ERP SKU normalisation maintained through a procurement steward role assigned at each plant. CFO commissioned a follow-on diagnostic on packaging and freight 12 months later.

How long did the engagement take?

Twelve weeks for the full three-workstream scope. A focused single-category engagement (cutting tools only, or sublet services only) typically runs four to six weeks.

Did supplier rationalisation create supply risk in an aerospace context?

No. AS9100D-controlled suppliers were preserved without exception. Consolidation focused on indirect and MRO categories where switching cost is low and dual-sourcing is not regulatory. Approved-source-list integrity was confirmed before any vendor was offboarded.

What was the ROI?

Engagement fee was a modest fraction of the $263K first-year recovery. Multi-year ROI was meaningful given the recurring nature of the $215K annualised savings.

Why is MRO and indirect spend often the highest-yield audit category?

It is fragmented across many vendors, transacted in many small purchases, and rarely subject to competitive sourcing. The combination creates conditions where matrix shifts, rate compounding, and SKU misclassification accumulate undetected. The leakage is structural, not occasional.