Specialty fabricators, industrial OEMs, and contract manufacturers at $30M–$300M revenue carry vendor complexity across commodity inputs, MRO, industrial gases, freight, energy, and capital equipment service contracts. The leakage compounds against margins that COGS analysis rarely fully decomposes.
Mid-market manufacturing economics are dominated by raw material cost and conversion margin. The base material prices — steel, aluminum, copper, resins — are typically benchmarked against indexed contracts (CRU, Platts, AMM) that pass through to invoice via surcharges, escalator formulas, and reset periods. Each layer of that pass-through is a potential leak: wrong index applied, wrong base period, escalator above cap, no de-escalation when the index falls.
MRO and industrial supply add a second leakage layer. Grainger, MSC Industrial, Fastenal, Motion Industrial, and Applied Industrial operate tiered pricing programs whose realization depends on procurement enforcing SKU-level governance. Industrial gases (Linde, Airgas, Praxair, Air Products) carry tank rental, hazmat, demurrage, and delivery charges that drift independent of the per-unit gas price.
Freight is the third layer. Multi-modal manufacturers run LTL, FTL, parcel, and intermodal lanes — each with its own contract structure, fuel surcharge schedule, accessorial table, and money-back guarantee mechanism. Reconciliation at the contract-line level surfaces leakage that freight bill audit firms commonly partially capture but rarely fully resolve.
Steel (HRC, CRC, plate), aluminum, copper, brass, nickel, and resin surcharges audited against the contractually specified index, base period, and pass-through formula. Common findings: surcharge applied against a higher-than-contract index, base-period reset errors, escalator caps exceeded, missing de-escalation, and lag-period mismatches that benefit the supplier when prices fall.
Grainger, MSC Industrial, Fastenal, Motion Industrial, Applied Industrial, McMaster-Carr pricing audited for: contract tier flow-through, special-order surcharge errors, freight-included pricing flipping to freight-billed, pricing drift on non-stock items, and minimum-order fees above contract. Typical recoverable variance: 5% to 12% of MRO spend.
Linde, Airgas, Praxair, Air Products, Matheson contracts audited at the line level for: tank rental charges on returned cylinders, hazmat fees applied to non-hazmat deliveries, demurrage on cylinders within free-time, monthly minimum charges, and delivery fee escalation. A high-recovery category relative to spend size.
LTL (Old Dominion, XPO, Saia, ABF), FTL (Knight-Swift, Schneider, J.B. Hunt), parcel (FedEx, UPS), and intermodal pricing audited against contracted base rates, fuel surcharge schedules, accessorial fee tables, NMFC classifications, dimensional weight calculations, money-back guarantee claims, and tariff discount levels. Recoverable variance commonly runs 4% to 11% of total freight spend.
In deregulated states (TX, PA, OH, IL, NY, NJ, MA, ME, CT, RI, MD, DC), retail electricity and natural gas contracts audited for: pass-through charges above contract terms, ancillary service charges not within agreed structure, capacity tag misapplication, and renewal pricing not reflecting market resets. Distribution and transmission charges commonly carry unflagged errors.
CNC, robotics, CMM, welding, hydraulic, and material handling equipment service contracts auto-renewing at escalated prices; redundant coverage on equipment retired, sold, or relocated; preventive maintenance billing on a frequency above contract; capital equipment lease residual escalators not reconciled.
Ranges drawn from public industry benchmarks (KPMG Supplier Management commentary on contractual leakage; ProcureCon Indirect/Direct; MAPI Foundation manufacturing benchmarks; CSCMP State of Logistics reporting). Specific recovery figures depend on commodity exposure, freight mix, and procurement maturity.
Illustrative scope and structure. Specific findings vary by manufacturer and are confidential to the engagement.
Findings are delivered as a confidential dossier with line-item evidence, vendor-by-vendor recovery prioritization, and a 90-day implementation roadmap. For PE-backed platforms, the dossier ties into the sponsor's value-creation plan and supports post-close synergy capture reporting.
For Operating Partners & Advisors →Across US mid-market manufacturers, forensic vendor audits typically surface recoverable leakage in the 3% to 9% range of audited vendor spend. The upper end concentrates in manufacturers with commodity input exposure, multi-modal freight, and a long-tail MRO supplier base.
Steel, aluminum, copper, and resin surcharges are reconciled against the contractually specified index (CRU, Platts, AMM, RIN, MPP), the base period, and the index pass-through formula. Common findings: surcharge applied against a higher-than-contract index, base-period reset errors, escalator caps exceeded, and surcharge not de-escalating when the index falls.
Yes. Grainger, MSC Industrial, Fastenal, Motion Industrial, Applied Industrial pricing is commonly audited for: contract tier price flow-through vs invoiced rates, special-order surcharge errors, freight-included pricing flipping to freight-billed, and pricing drift on non-stock items. Typical variance: 5% to 12% of MRO spend in firms without active SKU-level governance.
Freight is reconciled against contracted base rates, fuel surcharge schedules, accessorial fee tables, and tariff discount levels. LTL classifications are reviewed for NMFC accuracy and dimensional weight overcharges. Parcel spend (FedEx, UPS) is audited for service-level mismatches, money-back guarantee claims, and DIM weight pricing errors. Recoverable variance commonly runs 4% to 11% of total freight spend.
For broader questions about scope, methodology, and engagement structure, see the full Answers page.