As one of the leading waste to energy companies in the Netherlands, our customer runs two waste to energy plants. Based on non-reusable waste, energy like electricity, district heating and process steam is produced. Because of the shift to renewable energy, this company transforms from a traditional "waste incinerator" into one of the main producers of sustainable energy in the Netherlands.
After the takeover by a consortium of private equity companies, the challenge for our client was to increase its efficiency significantly on short notice. For this purpose, central purchasing activities were bundeled and optimized.
In addition to the required detailed technical knowledge, the change in attitude of employees from a public to a private equity environment was also a barrier that could not be underestimated to all those involved in the project work. Especially the costs of maintenance of the installations were important for this project. In the past, external costs rised when priority was given to timing and avoiding risks during planning production stoppages for maintenance. Of primary importance was maintaining the quality and planning requirements when implementing new, competitive services for all involved.
By creating a central purchasing department and the overall bundling of demands, PrexPartners managed to reduce the external costs by 9 % at an equal or even better service level. In addition to the economies of scale by bundling and standardization of products and services, the technical development and the broadening of the supplier base across national boundaries in particular, proved to be a successful lever.
AIl major maintenance and production-related purchase domain (such as mechanical and electrical maintenance, industrial cleaning, scaffolding and others) have, through the introduction of new services or new merit-based agreements to reduce costs, succeeded. Furthermore, setting up a professional project purchase led to a clear improvement of the planning and budget security during purchasing maintenance services and investments.
With five companies in different areas of construction (and construction related sectors) and with 500 employees, our client realized a turnover of about €110 mln. The family business put, after the transfer of responsibility to the second generation, optimization goals of procurement on the agenda. The objective of the management was to develop all companies to "Best in Class" of the construction sector.
As in many other companies in the construction sector the purchasing department was, before the start of the optimization project, of secondary importance. Project overall purchase was rather the exception. The buyer’s role was initially confined to the settlement of purchase orders. Suppliers could negotiate within the same contract with the seller, the buyer and the project manager, without their awareness of prior negotiations. Rarely these multiple negotiations were beneficial to our client.
Despite the large number of existing suppliers and subcontractors, there were always difficulties in finding suitable subcontractors for technical areas. During the procurement phase, it was not often possible for our client to receive adequate offers.
Another challenge in setting up a "Best in Class" purchase was the establishment of overarching project transparency requirements for single and recurring needs. To realize price advantage already in the proposal phase, reduce cost risks and ease the internal processes, the purchasing department has to be involved earlier in the project process.
By creating a central purchasing department and the establishment of a fully integrated procurement process, we have managed to raise the profit with 7-11% per project. In addition to the improved terms of suppliers and subcontractors, the improvement in the quotation calculation in particular was a decisive factor for the success of the project. Collaboration between sales, calculation services and procurement resulted in better and more competitive offers. The combination of project overall demand led to a fall in the number of suppliers and subcontractors by 40%. Additionally subcontractor pools for key sub contractors were set up and secured by long term contracts. These pools resultat in a preferential treatment of our customers. A clear reduction of tender risks and a significant better budegting were a direct result.
Regular review and coaching meetings with the employees of the purchasing department and the management ensure the further development of the procurement. Thus, as a review showed 18 months after the completion of the project, reported purchasing advantages could be maintained on a long-term. Today the company management, by linking PrexPartners "Procurement tool" to their ERP system, can check the purchasing results at project level on a daily basis.
The Ministry of Finance of a German state commissioned PrexPartners to evaluate the purchasing structure of ministries and higher authorities. The focus was on comparing the purchase of the ministries and agencies of this state with the structures of other states. Moreover, PrexPartners had to investigate the possibilities for a central purchasing agency and work out the structure. The potential savings through economies of scale had to be determined by an internal and external benchmarking.
As with many other projects, the first major stumbling block also appeared in this environment: to create transparency on the relevant purchase volume. It is not easy to work out a structure for purchasing categories based on cameralistic accounting. Moreover, in the development of a new purchasing organization, not only practical but also political considerations had to be taken into account.
During the expert interviews PrexPartners could state that the tender risks based on the public tender regulation were a major challenge for most authorities. Many officials were only part-time responsible for the purchase and did not have the opportunity to prepare or learn for these requirements.
Team officials expressed willingness to cooperate. The existing communication and decision paths proved further challenges for the rapid and efficient implementation.
Following the example of several states, PrexPartners proposed the establishment of a central procurement authority, based on a decentralized Lead Buyer structure. This structure makes it possible to utilize the skills of the various agencies and ministries and to utilize the best scale effects. The ability for buying work clothes and uniforms in the procurement authority of the police or the purchase of CEP services at the Ministry of Justice, are used here as an example.
Reducing both the legal risk and the cost of external legal support for contracts was achieved by pooling the purchasing from experts within the agency. The position "purchasing agent in sideline" could be eliminated in most cases. Overarching framework agreements reduced the number of procurement processes considerably.
Based on an internal and external benchmarking of the current purchase volumes, PrexPartners determined savings of EUR 25 million each year, which is achievable without the creation of additional posts.
In recent years, the merger and integration of multiple SMB / SME centers was point of interest at a German listed company group. The headquarters of this customer is located in Germany with different distribution and production facilities worldwide. Until now, some central functions of the holding company were consolidated, while all entities of the group maintained accounting of profits and costs, while working independently of each other. The company is specialized in developing and manufacturing of sensor solutions, modules and systems for various industries.
In recent years, in addition to the improved competitive position in this market environment, both the quality requirements and the cost pressures have increased for our customer. The reason for this is that new technology in products is currently being used in millions of products, such as tank pressure sensors in the automotive sector. This leads to major challenges for the SMB / SME’s. Moreover the setting up of an ambitious growth program was due the next few years and the organization will be adjusted accordingly. The focus was on achieving synergies in the procurement of all the different locations.
A purchasing optimization program with an emphasis on process and interface optimization was implemented. In the context of optimization of material costs were 20 product groups processed with an addressable purchasing volume of approximately € 45 million over tendering / negotiation process. This realized savings> 5 mln. € p.a with an EBIT effect of € 1.5 million. Furthermore, in the strategic product groups like PCBs (assembled / rough) as for assembled cables in Eastern Europe, new efficient supplier relations could be built in Asia.
As part of this project, the role of strategic purchasing as enterprise was redefined. The same goes for a location overarching coordination role. On top of that, a Lead Buyer-organization was introduced. In addition to collect all bundling potentials for the whole company group, the early integration of the strategic purchasing at the tender stage of new projects was a key success factor. This allowed sales and development to fall back on an efficient and competitive supplier portfolio and more new projects could be won without additional cost risks.
This customer is the logistics subsidiary of a globally acting engineering company that outsourced all logistics activities for its 20 production sites, 250 outlets and foreign firms to this entity. At each manufacturing site our client had an office for operational and logistical tasks such as the settlement of the purchase and distribution logistics and the management of warehouses. The headquarters of the logistics company is in Germany.
Until now, each production and sales location was responsible for its logistics costs. This means that on their own initiative, the logistics requirements such as the transports were negotiated and procured.
The logistics subsidiary was only used for the operational handling of the logistics. The purpose of the project was to centralise all external logistic services such as road transport, ocean freight and CEP services centrally and to achieve the best possible bundling effect. Besides creating data transparency across all flow of goods, specific requirements for logistics processes were optimised. Examples of these are; used materials, load times, available time on the cargo, but also the delivery schedule, which is required for a succesfull project. This information, which normally is not present in IT systems, were gathered with all responsible site managers, analysed and checked for viability.
By bundling general cargo transportation in the procurement logistics for the production sites according to a concept of regional shippers, transport costs were reduced by 8%. Transport logistics for full loads and heavy transports for distribution logistics were reduced by more than 12% and costs for sea freight by 6%. In addition, a prolonged global Framework Convention on significant savings to all CEP services was agreed. An effective and strategic procurement for the project was set up for logistics services with the necessary controlling tools, which made the results sustainably assured. Moreover, in the framework of this project, PrexPartners achieved the buy-in of the location managers for the centralisation concept.
A medium-sized automotive supplier for components / assemblies made of precision steel had initiated various optimization programs as part of a change of ownership to tap further market potential through a sales increase program in various business units on the one hand and on the other hand to realize all efficiency and cost potentials of the company in a timely manner. An important leverage was the optimization of material costs for the global acting company, which has already procured all production materials with a total volume of approx. 250 MEUR for the decentralized locations in Europe, Asia and US via strategic purchasing in the headquarters. This optimization project was carried out with the support of an external consultant in order to quickly realize the already budgeted cost savings with its additional capacities and also the necessary expertise in the relevant areas of need.
Both top categories, Precision Steel Pipes and Plastic Parts, with over 40% of the total direct purchasing volume have been personally managed by the purchasing manager for years. In these two categories, the dependence on current suppliers was very high. Regarding the precision steel products, given the specific technology and material specifications, the supplier choice was narrow, with 5 players only on the market. These suppliers couldn’t even always compete on all segments, given specifications or measurements. The Plastic Parts 400 articles were sourced from a list of existing suppliers, while all tools were already in possession of the customer. Without a credible use of force building up a new supplier, there were very few savings to expect. By contrast, there was a high internal qualification effort for the existing products and relocating products; these costs will be reducing the possible savings. The high expectation of the new owners towards the results and savings generated by this purchasing process was generating a lot of insecurity for the project team. Short timed reviews were organized every 4 weeks with the management.
This project, which lasted 9 month in the first phase, generated savings of 6 MEUR out of a relevant purchasing volume of 65 MEUR. These savings are mostly based on new long term conditions with existing suppliers of the two top categories which are Steel and Plastic Parts. The key factor success to get the existing suppliers to align on the best respective market prices was to lead very wide tenders on the complete article scope. During this process were identified two new potential suppliers, from Turkey and India, who were qualified in the second phase of the project.
At a private company for delicacies, the produced goods were delivered fresh on a daily basis to food retailers, restaurants and hotels via one’s own logistics network. Due to tough competition in the food retail market, the customers are being faced with pressure on costs. The calculation of costs is challenging because of the high volatility in prices of raw materials (eg. wheat, chocolate, etc.), that have to be counter weighted with reliabele indirect costs to reduce pricing risks.
A high degree of loyalty to suppliers was the cause of forced processes that didn’t always resulted in optimal purchase prices. Compliance with quality and regulations has the highest priority in food processing facilities. Besides the main products of the company, both immediate demands (eg. spices, additives, etc.) and indirect demands (eg. packaging, logistics, temporary labour, etc.) shoved opportunities to significantly improve the results through procurement. The release process for used ingredients and processed foods requires a long test period when changing a supplier.
The professional approach of the so-called B and C goods by an active supplier management, resulted in significantly reduced costs and a stronger market situation for all the product groups of the project. The savings accounted for approximately 10.8% of the addressable cost across all covered product groups. As part of the strategic supplier management, improvements within the process complexity were achieved by reducing the supplier base, simplifying the ordering and unwind processes and cooperation with new competitive suppliers. Because of the improved purchasing process by management, the significance of indirect procurement was improved both internally and externally with the construction of a new purchasing organization.
The hospital belongs to one of the largest national caregivers. It is one of the largest employers, trainingcenter for future physicians and nursing staff and center for development of new therapies in healthcare in Germany.
Looking for potential savings to improve financial management, purchasing is identified as an important area. Until now, the hospital thought the key to purchasing optimization was to join a procurement community, which negotiates favorable terms by bundling demands of the industry. In a first step the purchasing cooperation had to be put in competition with competitors. It had to be checked what potential there was to achieve in the prices and conditions.
Second, there had to be a dialogue with the users of the healthcare industry and the industry for the development of measures for cost optimization. In this situation, the experience from other "mature" sectors can be used to benefit the industry.
Almost all hospitals have joined a purchasing alliance. Because of that, a fierce competition among the purchase communities of healthcare arised, which is being used for cost optimazation.
Because of the cooperation between the purchase department and the users, the original role of buyer and bundler of amounts in the purchase department developed more professionally. Together with the doctors and nursing staff, a buyer assist in selecting medical supplies and organize the delivery of the goods at the point of use. They create transparency about the quantities consumed and take responsibility for the material cost ratio, ie. the share of material costs in the total cost of treatment. For this purpose, staff was purposefully trained. The purchase has gained a stronger position in the organization, because the experts could communicate with the users.
Purchasing as value-added partner controls the entire supply chain and warehousing operation room with a sophisticated system of parameters. Combined with numbers and income he supports the cost and profit optimization. He helps in choosing products that will allow optimizing the material and process costs. The purchaser supports decision makers in hospitals with information about costs and consumption of products, in order to optimize the value-added process of patient treatment. Because of this bundle of measures, the material cost could be reduced by more than 10%.
The owner and management of a middle sized medical technology company - offering products in Urology, Gastroenterology and Hospital care areas - wanted to realize the complete organizational integration of small companies recently bought. All Synergies that comes from a material costs optimization should be realized and a new purchasing organization throughout the company should ensure these effects for the long term.
There are 7 companies in this organization, spread throughout Europe and each of them with their own ERP, own categories and classification. Hence, the bundling of needs was only possible with a maximum effort, even if the purchased articles were similar or even equal. On top, the specifications of the purchased articles, even for trading goods, were not qualitative enough to be able to go into a typical tender process, which would compare prices for the same level of quality. Since each individual company was responsible for its own P&L, a group wide purchasing initiative was not necessarily welcomed. Also possible restrictions on the marketing, due to the reduction of the range of products for unprofitable products, were only to be implemented against strong resistance. In addition, the very high medical-technical requirements of the documentation as well as the explicit qualification of the products also had to be considered for the export markets in case of supplier changes and changes in the specifications.
By virtue of this group wide purchasing project and getting together the purchasers of each company on a regular basis, a common understanding was developed for further changes, including the analysis of the purchasing volumes and the necessary transparence to achieve the needed optimization. Thus, some categories of trading goods were identified, and volumes bundled. A wide range of suppliers were in contest, without any major change regarding qualifications, and significant savings were achieved: 3.5 MEUR out of a purchasing volume of 45 MEUR. In addition, about 50% of suppliers were reduced and at the same time the product range was streamlined. A uniform product group code was introduced and a central, powerful strategic purchasing unit was set up with various regional order centers. The system-supported, uniform material disposition then took place from these centers. During the 14 months PrexPartners supported this client, we didn’t only generate important savings but also implemented new standards and structure, so that this client can continue to expand successfully and sustainably.
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T +49 2161 904 9690
T +49 2161 904 9690