For most manufacturing portfolio companies, purchased materials and components are one of the largest costs on the income statement and one of the least actively managed. Each company buys on its own, with a small purchasing team, from suppliers it picked years ago. Across a portfolio, that often means the same aluminum extrusions, steel tube and castings are being bought five or six different ways at five or six different prices.
A centralized procurement partner changes that. Instead of every portfolio company running its own sourcing, one partner handles purchasing across the portfolio: reviewing what each company buys, combining volume, qualifying suppliers and keeping parts arriving on schedule. Below is how that works and where the value comes from: less supply chain labor at each company, economies of scale across the portfolio, and a simpler job for the deal team tracking it all.
Why portfolio companies overpay for purchased parts
Most lower middle market manufacturers weren't built with a strategic procurement function. Purchasing is often one or two buyers whose days go to expediting late orders, chasing quotes and sorting out quality problems. That leaves little time to rebid parts, develop alternate sources or question whether a part could be made a cheaper way.
- Each company buys alone. A company buying a modest amount of aluminum extrusions gets a small-customer price, even if a sister company buys similar material from a different extruder.
- Supplier lists only grow. Every urgent part adds a vendor. Years later, a company may have dozens of small suppliers, each with its own terms, quality system and lead times.
- Specs never get revisited. Parts keep getting bought to the original grade, gauge and process long after a less expensive option would do the same job.
- Multi-step parts hide cost. A part cut at one shop, formed at another and coated at a third carries freight, scrap and coordination costs that never appear on a single quote.
None of this is a failure of the purchasing team. It's a capacity problem, and it repeats at every company in the portfolio.
What a centralized procurement partner looks like
Chapman Smith works as an extension of a manufacturer's purchasing team. For a private equity portfolio, that means one partner working across several companies, with one point of contact for the operating team.
- Spend review. We look at what each company buys and identify the parts where price, supplier count or process can improve.
- Sourcing and qualification. We quote with qualified mills, extruders, foundries and fabricators, and run first article inspection and our own PPAP before parts reach the customer's PPAP.
- Supplier transition. We move parts to new sources alongside each company's purchasing and operations team, so production keeps running through the change.
- Ongoing management. We manage releases, stock parts at our warehouse against each company's forecast, and keep reviewing for better options after the savings are booked.
Each portfolio company keeps control of its specifications and approvals. What goes away is the day-to-day sourcing legwork.
Economies of scale across the portfolio
The biggest lever in a portfolio is volume that already exists but is split up. When one partner buys for several companies, demand spread across many small suppliers can be combined into fewer, larger relationships.
- Combined material buying. Aluminum extrusions, steel tubing and pipe, castings and flat rolled steel show up in very different end products. Pooling like materials across companies moves the whole portfolio into better pricing than any one company gets alone.
- Volume beyond your portfolio. Because Chapman Smith buys for several OEMs, your companies benefit from our combined volume with mills and manufacturers on top of their own.
- Vendor consolidation. Fewer, stronger suppliers means better terms, fewer quality systems to audit and fewer invoices to process at every company.
- Spec and process review. We look at whether a different grade, gauge or form does the same job for less, and where material like excess prime steel fits the application.
Savings built this way hold up because they come from how the portfolio buys, rather than from a one-time negotiation that drifts back over the next few years.
Want to see what your portfolio's purchased spend could look like combined? Talk to us about a portfolio spend review.
Less supply chain labor at every company
Much of the cost of purchasing never shows up as a price. It's the hours buyers, engineers and quality staff spend managing suppliers. A procurement partner takes that work on:
- RFQs, bid comparison and supplier selection
- Supplier qualification, first article and PPAP
- Coordinating multi-operation parts across cutting, forming, welding and coating, including freight between shops
- Expediting, shortage recovery and replacement sources when a supplier fails
- Stocking programs and scheduled releases matched to production
Buyers spend their time planning instead of firefighting. Growing companies add sourcing capacity without adding headcount, and add-on acquisitions can move onto an established supplier base instead of building a new purchasing function from scratch.
A simpler job for the deal team
For an operating partner or analyst, procurement savings are hard to track across a portfolio. Every company has its own systems, suppliers and definition of "savings." Working with one partner gives the deal team:
- One point of contact for purchasing questions across the portfolio
- Savings measured against a baseline for each company, so results are comparable
- Day-to-day sourcing decisions handled within guidelines you approve, such as approved suppliers and price and quality requirements, with larger changes brought to you with the numbers already worked out
- Early warning on supply risk, such as a supplier exiting, lead times slipping or a tariff change hitting a part
Instead of rebuilding the purchasing picture from each company's data every quarter, the deal team gets one consistent view.
How the savings show up in EBITDA and enterprise value
Purchased cost reduction drops straight to EBITDA, and in a portfolio company, EBITDA is multiplied at exit. As an illustration: a portfolio company with $15 million in annual purchased materials that reduces that cost by 5% adds $750,000 to EBITDA. At a 7x multiple, that's more than $5 million in enterprise value from one company. Actual results depend on the spend and the parts, but the math is why procurement is often one of the fastest value creation levers available.
There are balance sheet effects too. Stocking programs held at our warehouse let companies buy at volume pricing without carrying the inventory, which improves working capital. Moving work to qualified outside suppliers adds production capacity without new capital investment.
Where to start
Most portfolios start with one company. Send us the last 12 months of purchase history, or a list of top purchased parts with prints, and we'll come back with where we see savings and how we'd get there. Once the results are proven at one company, the same approach extends across the portfolio, and the combined volume makes each additional company more valuable.
Send us one portfolio company's top parts to review. You can also read more about how we work with private equity firms and portfolio companies.
Frequently asked questions
What is outsourced procurement for private equity portfolio companies?
Outsourced procurement means an outside partner handles sourcing, supplier management, quality and delivery for the parts and materials a company buys. For a private equity portfolio, one partner can do this across several companies, combining volume and giving the deal team one point of contact.
How is this different from a group purchasing organization?
Group purchasing organizations usually negotiate contracts for indirect spend like office supplies, MRO and services. Chapman Smith focuses on direct materials and custom components made to your prints, and takes responsibility for supplier selection, quality and delivery of the finished part.
Do portfolio companies lose control of their suppliers?
No. Each company keeps control of its specifications and final approvals. We handle the sourcing work within agreed guidelines and bring larger changes to the company and the deal team for sign-off.
Can you support add-on acquisitions?
Yes. An add-on can move onto the portfolio's existing supplier base, and we manage supplier transitions so production keeps running through the integration.
Is there a minimum spend to work together?
No set minimum. We look at whether the parts matter to the business and have a future. Many portfolios start with a handful of parts at one company and expand from there.
Ready to see where your portfolio is overpaying? Request a portfolio spend review.
