In many companies, procurement ekes out a shadowy existence, works separately from the other teams or does not even exist in a professional form. Yet it is undisputed that procurement professionals contribute a large share to profits. So what are the right levers?
Profit lies in procurement. This old business rule has lost none of its relevance. In contrast to the past, in today’s fierce competition for market leadership, it is no longer just a matter of acquiring goods, materials and services at favourable prices – companies also need a consistent strategy for purchasing. Centralisation of competencies, stringent processes and cooperation are the most important components.
Unfortunately, the reality in many companies looks different:
- Maverick buying is widespread. According to a study by the Leipzig University of Applied Sciences, the maverick buying rate in German companies is 25.6 percent on average. This means that for every fourth invoice that arises in the context of a procurement process for materials, there is no purchase order. Existing purchasing processes are consciously or unconsciously ignored.
- Price lists, interdepartmental contracts and condition agreements are often in short supply. Instead, old, project-related requests are simply overwritten by new requests.
- When price comparisons and price analyses are used, they are often inaccurate or outdated. Total cost of ownership (TCO) comparison and best price analysis are often not carried out.
- Negotiations are insufficiently prepared and unsatisfactorily conducted, also due to a lack of training. Purchasing controlling is either rarely carried out or non-existent.
- And last but not least: a central authority for all relevant negotiation processes usually does not exist.
The consequences are at least serious, sometimes even threatening the existence of the company. Unprofessionally conducted negotiations unnecessarily increase the companies’ expenses.
What is at the root of this? In many companies, relationships between specialist departments and suppliers are historically firmly anchored, and the almost uncontrolled growth of these networks is not touched. When employees change, the new colleagues continue the processes unchecked. In addition, there is a misconceived sense of initiative. The employees who are approached about this often argue with superficial advantages such as higher flexibility and faster speed. The fact that in reality this often hides convenience and personal preference for exactly one supplier is not communicated. Here, too, a consistent approach by management with clear decisions is required.
The awareness is there among the employees concerned. In the manufacturing sector, for example, only 27 per cent of respondents rate their procurement activities as very efficient and 24 per cent as somewhat efficient, according to a survey conducted by Ayming in April 2021 (www.ayming.de). Employees who nevertheless need arguments for improving purchasing activities can be quickly convinced with the following figures: Someone who reduces purchasing costs by just 1 per cent achieves the same profit contribution as someone who increases sales by 5 per cent. These figures are all the more remarkable because publishing houses in particular now spend an average of 20 per cent of their turnover on the purchase of goods and services.
The following rule of thumb also applies to printing companies:
- If the purchasing volume across all services and products reaches the limit of 1.5 million euros, an independent consultant should randomly assess the company’s structures and processes every one to two years.
- With a purchasing volume between 1.5 and 6 million euros, it is advisable to hire a buyer who is involved in all relevant purchasing topics and negotiations.
- A total purchasing volume of 6 million euros or more per year requires the establishment of a purchasing department in the company, led by an experienced purchasing manager.
A mature purchasing strategy and appropriate negotiation tactics are the right counter to the challenges. This allows for cost-efficient and process-optimised purchasing, ensuring the ability to innovate, securing the need for materials in the short, medium and long term, determining ideal purchasing times per product and utilising warehouse capacities efficiently. Basically, in this model, the buyer should take the lead in negotiations. The head of the purchasing department should support the buyer in technical questions or tough negotiations.
Another lever for success in purchasing is cooperation. Small and medium-sized companies in particular should join forces for the purpose of joint purchasing. In the printing industry, purchasing pools help to bundle volumes and thus force lower prices. But higher process efficiency can also be achieved – through standardisation, automation and specialisation.