deen
Nexia Ebner Stolz

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.

© Fotolia

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%.

back to top