Procurement Optimization

Long-lasting supply bottlenecks, the loss of established sources of supply, increasing geopolitical tensions and skyrocketing prices are just some of the challenges procurement is currently facing. How can procurement succeed in adapting to the new circumstances and continue on its path of delivering a measurable contribution to the company's success?

Overview

The last few years have been characterized by a number of challenges related to supply shortages (for instance caused by COVID-19, the semiconductor crisis and the Ukraine war) as well as rapidly rising prices.

As a result, many purchasing organizations have been forced to act more and more as fire extinguishers rather than as cost optimizers. The focus was primarily on addressing the most urgent issues in the supply of required materials and looking for short-term solutions, even if these resulted in higher costs.

To return to a proactive role in this situation, a comprehensive transformation of purchasing is necessary: In addition to the professionalization of the existing supplier relationship management, this also requires the inclusion of system-relevant sub-suppliers. Other fields of action include a system-based risk management, the revision of material group strategies and supplier portfolios, the continuous tracking and forecasting of cost trends, the initiation of cost-cutting measures, and the targeted digitalization of administrative activities. Improving transparency and performance management in purchasing is the basis for preventing disruptions from occurring in the first place or detecting them immediately after they occur so that the best possible solution can be developed as early as possible.

Questions for the team

What advice do you give purchasing organizations to reduce supply risks

There is a wide range of potential strategies, e.g., establishing additional suppliers or selecting supplier locations that are closer to the company's own plants, agreeing long-term partnerships with suppliers, increasing inventories, or simplifying the supply chain through in- or outsourcing. It is important to bear in mind that the examples given are complex strategies that can also lead to considerable additional costs. It is therefore important to define a coherent overall concept in which all the main effects on costs, delivery times and inventories are evaluated and compared with the advantages of a robust supply chain (e.g., no opportunity costs due to lost business, reduced effort for problem solving).

How do you see the future role of procurement?

No doubt, the expectations towards procurement have become much more complex and demanding in the last few years. At the same time, however, this creates the opportunity to overcome the image of a pure cost-cutter or "buyer" and to play a role as a driving force in optimizing the supply chain. In addition to the role of the "sourcing and market expert", we see the role of purchasing in the future increasingly in positioning itself more strongly as a proactive shaper of the supply chain and in serving as an intermediary between internal stakeholders and external suppliers. Key prerequisites for this are the improvement of transparency, the digitalization of processes, as well as a closer cooperation with other internal functions, e.g., as part of the sales and operations planning, and more intensive support for suppliers and other external partners.

What opportunities and risks does digitalization offer purchasing?

If digitalization is not managed in the right way, there is a risk that no substantial improvements or reductions in the workload will be achieved in the end, despite a considerable amount of time and money invested. Ultimately, even after digitalization, bad processes are still bad processes. Companies should therefore first do their homework and establish stable organizational structures and processes. With this in mind, the implementation of a well-designed digitalization concept provides additional capacity for value-adding activities and makes a significant contribution to increasing employee satisfaction in the procurement department and retaining high-potentials in the company over the long term.

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