As one of the leading waste to energy companies in the Netherlands, our customer runs two waste to energy plants. Based on non-recyclable waste, energy is generated like electricity, district heating and process steam. Because of the shift to renewable energy, this company transformed 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 bundled and optimized.
All purchasing categories were therefore checked. 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 for all those who were involved in the project. 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 borders in particular, proved to be a successful lever.
In all essential areas of maintenance and production-related purchasing such as mechanical and electrical maintenance, industrial cleaning, scaffolding, etc. has succeeded in significantly reducing costs by introducing new service providers or new, performance-based contracts. Furthermore, setting up a professional project purchasing led to a clear improvement of the planning and budget security during purchasing maintenance services and investments.
With five companies in various areas of the construction and ancillary building trade, our customer with 500 employees realized a revenue of approx. € 110 million. 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 the "Best in Class" of the construction sector.
As in many other companies in the construction sector the purchasing department was a subordinate area of the construction project business, before the optimization project starts. Cross-project procurement was the exception. The buyer’s role was initially confined to the settlement of purchase orders. A coordinated approach to suppliers and subcontractors did not take place within the company or only to a limited extent and responsibilities were not defined clearly. Suppliers was able to negotiate within the same contract with the seller, the buyer and the project manager, without their awareness of prior negotiations. These multiple negotiations have rarely been to the advantage of our client.
Despite the large number of existing suppliers and subcontractors, there were always difficulties in finding suitable subcontractors for technical areas. Even in the tender phase, our customers were sometimes unable to receive reliable offers from the supplier market.
Another challenge in building a "Best in Class" procurement department was to create cross-project transparency about for single and recurring needs. In addition, the purchasing department should be involved in the project process much earlier, in order to be able to use price advantages profitably already in the offer phase and to reduce cost risks and relieve the internal processes afterwards.
By building up a central purchasing department and building a fully integrated procurement process, it was possible to increase the return per project by 7-11%. In addition to the improved conditions with suppliers and subcontractors, the improvement in the offer calculation was a decisive factor for the success of the project for the customer. Cooperation between sales, quotation calculation and purchasing led to an improvement in the quality of offers and more competitive offers. Bundling the cross-project requirements led to a 40% reduction in the number of suppliers and subcontractors. Subcontractor pools for core areas could also be built up through long-term contracts. These enable our customers to receive preferential treatment and result in a significant reduction in supply risks.
Regular reviews and coaching meetings with employees from the purchasing department and management guarantee the long-term development of purchasing. A comprehensive review 18 months after the completion of the project showed that the proven purchasing advantages could also be maintained in the company in the long term. Today, by connecting the PrexPartners "Procurement Tool" to the ERP system, the management can monitor purchasing results at project level daily.
The Ministry of Finance of a German federal state instructed PrexPartners to evaluate the purchasing structures of the state ministries and upper state authorities. The focus here was on a comparison of the procurement of the state's ministries and authorities with the structures in the other federal states. In addition, PrexPartners should examine the possibilities for a central procurement authority in the country and work out their structures. The savings potential through economies of scale should be determined by an internal and external benchmark.
As in many other projects, creating transparency about the relevant procurement volumes proved to be the first major hurdle in this environment. Based on cameralistic accounting, it is more difficult to develop a structure for the procurement categories. In addition to the practical as well as political aspects had to be considered when developing a new purchasing organization. In addition, during the expert interviews, PrexPartners was able to work out that the requirements for public tenders and the associated legal risks by the officials were a fundamental weak point. Many officials were only part-time responsible for the purchase and did not have the opportunity to prepare or learn for these requirements.
Despite the willingness of the officials working on the team to cooperate, the existing communication and decision-making channels proved to be another challenge for a quick 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. By bundling procurement from experts within the authorities, the legal risk has been reduced as well as the costs for external legal support for tenders. In most authorities and ministries, the position of “purchasing agent in part-time” could be dropped. General framework contracts also significantly reduced the number of actual procurement processes.
In addition, based on an external and internal benchmark of the current procurement volume, PrexPartners was able to identify savings of EUR 25 million per year that could be achieved without creating 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 headquarter of this customer is located in Germany with different distribution and production facilities worldwide. Only the central functions in the holding company have been consolidated so far, while the individual group companies have retained their responsibility for profit and costs, so that they continued to work independently from 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 now more and more being used in millions of products, such as tank pressure sensors in the automotive sector. This is due to the fact that due to the new technologies in products have now reached series maturity and partly will be used in millions, e.g. as tank pressure sensors in the automotive industry. This leads to major challenges for the SMB / SME’s. In addition, an ambitious growth program should be implemented in the coming years and the organization 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 € million p.a with an EBIT effect of € 1.5 million.
Furthermore, in the strategic product groups like PCBs (assembled / rough) new efficient supplier relations could be built in Asia as well as for assembled cables in Eastern Europe.
As part of this project, the role of strategic purchasing as a cross-company or cross-location coordination function was redefined and 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 offer 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. Our customer had branches at all production locations for handling operational and logistical tasks such as the handling of procurement and distribution logistics and the management of warehouses. The headquarter of the logistics company is in Germany.
Until now, each production and sales location were 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 centralize 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 optimized. Examples of these are Equipment used, loading / unloading times, advance notice of the cargo space scheduling, but also the delivery schedule, which is required for a successful project. This information, which normally is not present in IT systems, were gathered with all responsible location managers, analyzed 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 long-term, global group framework agreement for all CEP services was concluded with significant savings. A powerful strategic purchasing for logistics services with the necessary controlling tools was built up through the project work, which made the results sustainably assured. Furthermore, within the scope of this project, the acceptance for this central approach was created together with the location managers.
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 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 an owner-operated delicatessen company, the goods produced are delivered fresh daily to food retailers, restaurants and hotels via their own branch and logistics network. Due to tough competition in the food retail market, the customer is being faced with permanent pressure on costs. Fluctuations in raw material prices (e.g. wheat, chocolate, etc.) make it more difficult to calculate costs.
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 it shoved saving opportunities in both, immediate demands (e.g. spices, additives, etc.) and indirect demands (e.g. packaging, logistics, temporary employment, etc.) in order to achieve significant improvements in earnings through purchasing. The approval processes for ingredients used as well as for packaging that gets in touch with food require a long test period when changing suppliers.
The professional approach of the so-called B and C goods by an active supplier management, resulted in significantly reduced costs for all product groups and projects as well as to strengthen the position in that highly competitive market situation. 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. The success of purchasing has strengthened the importance of indirect purchasing by management, both internally and externally, with the establishment of a new purchasing organization.
The clinic is one of the largest providers of maximal medical care in Germany. It is one of the largest employers, training center for future physicians, 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. The first step was to put the purchasing community in competition with other purchasing associations. It had to be checked what potential there was to achieve in the prices and conditions.
In addition, approaches to cost optimization in the collaboration of purchasing with users from medicine and nursing as well as industry had to be developed. 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 optimization.
In the cooperation between the purchasing department and the users, the purchasing department was able to develop professionally from the original role as order processor and quantity bundler. Together with the doctors and nursing staff, a buyer assists 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, employees were specifically trained and qualified, who can communicate with users on an equal footing with their professional competence and with knowledge of the application area in the clinic.
Purchasing as value-added partner controls the entire supply chain and warehousing in the surgery room and on the individual stations using a sophisticated system of logistic parameters. In conjunction with the number of cases and the proceeds, the procurement supports the optimization of costs and earnings. It helps in the selection of products with which the material and process costs can be optimized. The buyer supports the decision-makers in the clinics with information on the costs and consumption of the products, to optimize the value-added process of patient treatment. With this bundle of measures, the material costs 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.
T +49 2161 904 9690
T +32 472 02 57 75
T +32 472 02 57 75
T +49 2161 904 9690