Procurement Transformation of Indirect Costs
  • Complete spend and demand visibility
  • Increased cost awareness, reduced maverick buying

Contact

LinkedinXing
Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​

E.florian.dederichs@ocmconsulting.de

W.www.ocmconsulting.de​

Optimising procurement management and procurement processes

 

Many buyers and executives in procurement management surely sometimes feel to be in the wrong profession: Like firefighters, they often only come into action when the house is already on fire and carry out little more than damage limitation. In order to get the best out of your purchase department, it is important to define effective procurement processes that enable the department’s early and preventive involvement, and, at the same time, to organise the available resources in such a way that one cog meshes with another to drive the pistons efficiently and achieve the best possible outcomes.

A functioning purchase department requires a goal-oriented structure, efficient procurement processes, and motivated and trained employees.

In this context, questions arise such as:

  • Why is an efficient procurement management so important?
  • What are important tasks when setting up the optimal purchase department?
  • What does the optimal organisational structure of the purchase department look like?
  • Optimised procurement processes and methods: How does procurement get the most from its resources?
  • What can the development and training of your procurement teams look like?

In the following sections, we highlight the most relevant issues, discuss challenges and possible solutions, and provide an outlook on how an optimal procurement management and efficient procurement processes can make a decisive contribution to a company's success.

 


 

Why is an efficient procurement management so important?

 

Only with optimised procurement managementpurchase departments can achieve the best outcomes specified by the procurement strategy. Efficient workflows, streamlined approvals, and daily coordination make the most of valuable resource time. Superior communication processes and data evaluation are the basis for more accurate and comprehensive information, which is essential for good decision making. Moreover, procurement relies on high-quality, motivated, knowledgeable employees performing at the best of their abilities, through clear assignment of responsibilities, the provision of opportunities for further training and education, access to up-to-date information, and continual motivation and inspiration.

 

What is important when optimising procurement management?

 

Procurement management relates to the organisation of information, procurement processes, systems, and personnel in such a way that the objectives set by the procurement strategy are achieved with the highest possible efficiency.

Effective procurement management structures resources and procurement processes in such way that the set objectives and tasks of the procurement strategy can be reached. The alignment and control of the purchase department is the responsibility of the procurement management team, as well as the associated HR managers and, in some instances, the executive team. As a rule of thumb, regarding timing and frequency of changes in procurement management, far-reaching organisational changes are not recommended at intervals shorter than one year, since they are usually accompanied by a knowledge transfer and familiarisation phase. However, reviews and improvements to procurement processes, information flows and through upskilling the purchase department in form of trainings can and should take place more regularly.

 

Typical challenges and possible solutions for purchase departments

 

In order to find out how an optimal purchase department is set up and what short-comings might look like, we describe in the following section some typical situations and challenges as well as possible solutions.

Many purchase departments are familiar with the following situation: Buyers are busy with tasks outside their remit or the proportion of their time available for strategic and operational projects is significantly less than is desired. Tasks are often disregarded because it is unclear who is responsible. There is an unbalanced workload within the purchase department and buyers are overstretched. These situations are often symptoms of a suboptimal organisational structure. Typical consequences are: missed opportunities, poor quality of procurement services, and frustrated employees.

We use a two-step approach to determine an optimal organisational structure for the purchase departments of our customers. By means of a task-requirement profile, we develop the tasks, responsibilities, and activities within the optimal target organisational structure. The defined categories, the category strategies, and the overall corporate structure informs the following, to be completed for all tasks: WHAT (operational tasks, category & project procurement processes, support activities, management tasks), WHERE (centralised, decentralised), WHEN and HOW OFTEN (time and frequency). All of this must take into account quality restrictions, budget restrictions, a comprehensive division of responsibilities, the necessary skills and knowledge to fulfil the requirements, as well as personnel, location, and system restrictions. This procedure ensures that the business-critical tasks and the initiatives with the greatest savings opportunities receive the most focus, all without violating the aforementioned restrictions.

The defined procurement roles and activities are combined into personnel profiles, with each profile comprised of the relevant skills and knowledge required. Teams are formed from combining the profiles into functional units. Typical profiles of a purchase department include: strategic buyers, tactical or project buyers, operational buyers, special functions such as analysts and e-procurement specialists, and leadership positions. Depending on the maturity of the purchase department and the size of the categories, modern procurement professionals increasingly specialise in individual process steps (e.g. negotiation experts, tender experts, content experts, etc.). Regardless of what are considered the 'most useful' profiles for your company, it is essential to optimise the interaction between all the profiles. In many cases, we use a matrix structure to arrange the profiles into specialist and function-specific teams. This typically consists of a content dimension (for example, along the internal process steps of a category) and a function-specific dimension (e.g. strategists). Within each team, specialist and function-specific responsibilities, as well as the overarching tasks, are coordinated and managed to ensure the best results are achieved.

Using the same number of resources to achieve more in a set period of time is preferable. Obviously, efficient processes are the main driver to achieve this goal. That much is clear. So why do opportunities for improvement in so many companies still exist? The cause is usually insufficient optimisation and standardisation, or inadequate implementation of the procurement processes themselves. The symptoms of this are: unnecessary and wasteful actions or process steps, the repetition of process steps, variable durations for the same processes, or deviation between defined and actual processes.

The consequences of sub-optimal processes and methods are far-reaching and can have a considerable influence on procurement outcomes:

  • Inefficient procurement processes reduce employee efficiency and thus increase personnel costs.
  • Savings fall short or objectives are missed because process steps that impact the results are omitted or not executed to the required standard 

Process optimisation takes place at all levels of the procurement pyramid – from procurement management to operational buying. We support our clients in all aspects of the optimisation of their procurement processes and methods, both for individual procurement process steps and holistically.

Optimal procurement processes:
Firstly, with the assistance of the client's employees, all actual processes, interfaces, activities, and information exchanges must be recorded and then evaluated with regard to their efficiency in achieving their desired objectives. In coordination with the client, we first develop optimal target processes and compare them with the status quo in order to highlight the opportunities for improvement. Due to the great number and variety of procurement processes, to a large extent, efficiency and sustainable implementation depend on standardisation. We therefore coordinate all individual procurement processes with our clients with regards to standardisation and viable transformation, and thus design an optimal, harmonised, holistic process structure for your purchase department.

Methods and guidelines:
In order to communicate the procurement processes, with your cooperation we develop accessible and comprehensible guidelines for documenting and illustrating the different steps. Additionally, we can derive methods and tools from your and our best practices. We also ensure you benefit from technological innovations that accelerate processes and help your purchase department achieve better results.
Typical methods are: ABC/XYZ analyses, manufacturing cost analyses, supplier scorecards, linear performance pricing, life cycle concepts, balanced scorecards, expenditure analyses, optimal order quantity models, strategy frameworks, TCO price structure analyses, and contract evaluation tools.

Sustainable implementation:
The implementation of the new and altered procurement processes is critical for improving your performance. We focus on 3 main elements:

  • The procurement processes must be measurable and controllable in order to ensure sustainable compliance
  • The new guidelines, as well as the manuals and training sessions related to the new processes, must be comprehensible – a proper rollout must take place
  • Regular training and coaching enable sustainable implementation of the new processes and helps hone the skills of your purchase department with regards to the new working methods

New procurement methodologies, technologies, and regulations, and the increasing influence of procurement in the company means buyers are facing new and more complex tasks. Many purchase departments do not pay the necessary attention to this challenge. For the organisation to be able to use new technologies, concepts, and methods effectively, it requires not only optimal workflows and processes but also capable employees empowered by further education and training – no modern purchase department can operate to its full potential without fully trained resources.

We offer our clients a bespoke training programme to develop their buyers. OCM's training approach defines the individual requirement profiles for your purchase department, complete with the necessary skills, characteristics, methods, and analytical concepts. Accordingly, we determine the status of each employee within their intended profile, and from this generate targeted training content and goals within a bespoke training plan. Where possible, group training should be supplemented by one-to-one coaching so that individual development needs can be addressed directly. The development of a training and further education scheme benefits from regular progress reviews and should respond to individual needs.


 

What results and value-adds characterise a fully functioning purchase department?

 

Procurement management aims to achieve the objectives defined in the strategy. How a company organises its purchase department determines whether and to what extent these objectives will be achieved:

  • The optimised organisational structure of your purchase department ensures that you fulfill all business-critical roles of procurement with the available resources and prioritises the activities and controls that maximise the efficacy and efficiency of your procurement processes.
  • To make the most of your procurement resources, it is essential to have optimised procurement processes and methods. These must be implemented and controlled in a sustainable manner.
  • Investment in your employees in the form of consistent further education and training ensures the sustainable implementation of processes as well as the development of the skills and knowledge required in present-day procurement.

OCM offers comprehensive support in optimising procurement management and implement required efficient procurement processes. Through our Procurement Operating Model project module, we support you in developing and implementing the optimal organisational structure. In the modules Procurement Process Optimisation and Training: Strategic Sourcing and Negotiation we support the implementation of the optimal procurement processes as well as the further development of your employees.

In this way, we combine our proven approach towards designing the optimal procurement management with the elements necessary for sustainable implementation.

We would be happy to present our approach and project modules to you or discuss concrete solutions based on your challenges. You will also find further project modules in our extensive product offering Procurement Consulting.

Contact

LinkedinXing
Florian Dederichs

Florian Dederichs

Founder & Partner

M.+49 160 93882573​

E.florian.dederichs@ocmconsulting.de

W.www.ocmconsulting.de​

Our project modules at a glance:

Procurement Consulting Modules

Case Studies

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