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Tackling the Procurement Problem

The way you configure your requirements and specifications can save you money

Oft­en­ti­mes pro­cu­re­ment pro­ce­du­res are not stream­li­ned un­til the suppliers are selec­ted. But tra­di­tio­nal ap­proa­ches such as ne­go­tia­ting a vo­lume dis­count or en­cou­ra­ging com­pe­ti­tion bet­ween suppliers won't ne­ces­sa­rily to save you as much mo­ney pos­si­ble - be­cause there are still un­tap­ped sa­vings hid­den ear­lier in the pro­cess. The ma­nage­ment con­sul­tants at Eb­ner Stolz can help you tackle your pro­cu­re­ment sys­tem right from start, when you con­fi­gure your re­qui­re­ments and draw up the spe­ci­fi­ca­ti­ons. This can re­sult in si­gni­fi­cantly grea­ter and lon­ger-las­ting sa­vings than the "ty­pi­cal" ap­proach to pro­cu­re­ment.

Pro­cu­re­ment prac­tice of­ten looks like this: The de­part­ments for­mu­late their re­qui­re­ments and make a short list of po­ten­tial suppliers. Pro­cu­re­ment adds suppliers to this list, puts the goods or ser­vices out to bid and ne­go­tia­tes the bids un­til a con­tract is en­te­red into. The only dis­cus­sions bet­ween Pro­cu­re­ment and the De­part­ments re­qui­ring the goods or ser­vices prior to the RFP are li­mited to ad­ding to the pro­duct de­scrip­ti­ons, qua­li­fi­ca­ti­ons of suppliers or lo­gisti­cal ques­ti­ons.

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Back to the be­gin­ning

Eb­ner Stolz con­sul­tants start with the con­fi­gu­ra­tion of the re­qui­re­ments, where there is si­gni­fi­cant sa­vings po­ten­tial that has of­ten re­mai­ned un­tap­ped – par­ti­cu­larly at small and mid-si­zed com­pa­nies.

By con­trast, in sec­tors such as the au­to­mo­tive in­dus­try, cost ma­nage­ment be­gins with the con­fi­gu­ra­tion of the re­qui­re­ments. Di­rect early ac­tion on ma­te­ri­als costs from the time they are in­cur­red has an ef­fect on the fu­ture cost of the goods them­sel­ves. The task of the Pro­cu­re­ment De­part­ment should not be li­mited to car­ry­ing out the RFP; in­stead, they should work clo­sely with the tech­ni­cal de­part­ments and other users. To­ge­ther they should al­ways scru­ti­nize every part, every ma­te­rial and every ser­vice. Is there re­ally a need for this quan­tity or size, or these func­tio­nal or qua­lity fea­tures? Might ano­ther so­lu­tion be suf­fi­ci­ent? What al­ter­na­tive spe­ci­fi­ca­ti­ons might be more ef­fi­ci­ent? Which ver­sion can be more ef­fec­tively in­te­gra­ted into the com­pany's va­lue chain?

Pro­blems with For­mu­la­tion of Re­qui­re­ments: too late, too impre­cise, im­ple­men­ted solo
Pro­cu­re­ment at many mid-si­zed com­pa­nies is still tra­di­tio­nal be­cause it has al­ways been done that way – in other words, it is fairly pas­sive. Long es­ta­blis­hed, "well-worn" struc­tures and be­ha­vi­ors pre­vent ef­fi­ci­ent busi­ness: Of­ten, the de­part­ments are not clear enough in in­di­ca­ting their re­qui­re­ments. Par­ti­cu­larly when ser­vices are to be pro­cu­red, this can re­sult in more than was nee­ded, with the re­la­ted high costs. Be­cause peo­ple who do not spe­cify ex­actly what they need of­ten pay more than they need. The folks in Pro­cu­re­ment of­ten re­ceive an or­der that is on such a short ti­me­frame that they have no other choice than to fill it half­way. To fi­gure out the func­tion le­vel, qua­lity le­vel or the scope of the need is not even in the realm of pos­si­bi­lity.

The So­lu­tion: New Struc­tures, In­ter­di­sci­pli­nary Coope­ra­tion

Struc­tures must be crea­ted that pro­mote coope­ra­tion on a le­vel play­ing field. This will af­fect the or­ga­niza­tion by enhan­cing the va­lue of Pro­cu­re­ment. And it will also af­fect the pro­ce­du­res, which must be chan­ged so that the folks in Pro­cu­re­ment are in­vol­ved in the plan­ning stage for the re­qui­re­ments. To do this, workers in Pro­cu­re­ment, who tend to have a com­mer­cial back­ground, need to enhance their tech­ni­cal skills - eit­her th­rough trai­ning or th­rough grea­ter in­vol­ve­ment with en­gi­neers and other tech­ni­ci­ans. This can turn a tra­di­tio­nal "bean coun­ter" into a stra­te­gic thin­ker who contri­bu­tes ideas by thin­king out­side the box.

But you shouldn't un­de­re­sti­mate the kind of push-back you may face, be­cause these ideas will turn in­grai­ned pro­ce­du­res and or­ga­niza­tion ups­ide down. It is dif­fi­cult to in­itiate and im­ple­ment these kinds of chan­ges from the in­side out. What you need is pro­fes­sio­nal, las­ting Change Ma­nage­ment.

Eb­ner Stolz has suc­cess­fully hel­ped Pro­cu­re­ment de­part­ments stream­line their or­ga­niza­tion on many oc­ca­si­ons. These chan­ges take at least six to twelve months. "A pro­ject like this re­qui­res a lot of time and pa­ti­ence. But our cli­ents whose Pro­cu­re­ment de­part­ment we've re­struc­tu­red like this have re­pea­tedly told us that the time and ef­fort has paid for its­elf many ti­mes over," com­ments ma­nage­ment con­sul­tant Ha­rald Göbl. At the end, the con­sul­tants are able to pull back be­cause the old ways of thin­king and ac­ting have chan­ged for good and the pro­ces­ses are firmly im­plan­ted. As André Grot­sta­bel, ano­ther ma­nage­ment con­sul­tant at Eb­ner Stolz, puts it: "By being open to re­struc­tu­ring and a new way of thin­king and com­mu­ni­ca­ting, you can tap si­gni­fi­cant po­ten­tial - po­ten­tial you won't even find at many other top com­pa­nies."

An Ex­am­ple from our Prac­tice

The com­pany pro­du­ces ba­ked goods such as crispbread, coo­kies and gra­nola bars. The pa­cka­ging of these foods ac­counts for a large share of the costs. For years no one ques­tio­ned the spe­ci­fi­ca­ti­ons for the wrap­pers and pa­per that they used; the ex­act same ones were al­ways or­de­red. Eb­ner Stolz be­gan put­ting the pro­cu­re­ment pro­ce­du­res and or­ga­niza­tion on the test bench. The con­sul­tants took a look at the pa­cka­ging and as­ked ques­ti­ons like "Does the wrap­per have to be so thick? Does the over­lap­ping of the wrap­per have to be so big? Can the pro­ducts be pa­cka­ged more tightly? Can the se­ams be clo­ser to­ge­ther? Is it pos­si­ble for the wrap­per to be thin­ner?" In the end they were able to re­duce the ma­te­ri­als by 10% and to cut costs by 25% wi­thout al­te­ring the qua­lity of the pa­cka­ging or the pro­duct. The pro­duct la­be­ling was also enhan­ced in a si­mi­lar man­ner. In ad­di­tion, by stan­dar­di­zing the for­mats, co­lors and print, the com­pany was able to re­duce the va­riety of op­tion si­gni­fi­cantly and thus in­crease vo­lume. The supplier pas­sed along the re­du­ced costs of prin­ting and set-up by lo­wering pri­ces by more than 30%.

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