- Procurement Strategy
- Procurement Management
- Procurement Transformation
- Strategic Procurement & Category Management
- Operational Procurement
Procurement transformation: effective & sustainable cost optimisation
COOs, private equity investors, and senior management often quickly turn towards cost cutting in order to achieve cost and EBITDA targets. “Brutal” or unsensible cost cutting can do substantial harm to a business. Which is why we heavily advocate considering the significant and far-reaching opportunities that effective procurement transformation alongside the entire procurement and manufacturing process of a company can and should yield.
Successful and well-executed transformation programmes can typically achieve double-digit percentage cost savings in procurement without causing any damage to the business. If implemented sustainably and measured transparently, these reduced procurement costs can directly impact EBITDA. Why is procurement transformation continually underestimated when it comes to cost reduction and improved efficiency along the procurement process? To address this, we discuss questions such as:
- Why procurement transformation? We seem to be constantly transforming and optimising...
- When is it the right time for procurement transformation?
- What does a lack of mandate, prioritisation, and buy-in mean for a transformation or sourcing programme?
- What are the most common mistakes made in project planning, management and coordination?
- Is there a lack of resources, know-how, and skills in cost optimisation?
In discussing these and other issues, we identify the common challenges and propose solutions for successful procurement transformation. In addition, we will reveal 3 critical factors to make a decisive value contribution to a company's success.
Why procurement transformation? We seem to be constantly transforming and optimising..
Continuous improvement within your purchase department is appropriate and important. However, deeper, more transformative procurement transformation is needed for 2 reasons.
First, within existing departments, the transformative impact of new ideas, approaches, and structures wears thin: the innovation required to make real change increasingly diminishes.
Second, deep procurement transformation requires a skillset beyond conventional procurement activities, as well as a sufficient amount of experience in transformation or procurement optimisation.
By procurement transformation, we refer to fundamental changes in procurement as an action or reaction to a changing environment. A procurement transformation programme pursues clearly defined goals, drives and implements this organisational change over a set period of time. Common procurement transformation objectives include:
- Realignment of the procurement strategy, realignment of the procurement management, and procurement process optimisation
- Comprehensive procurement programmes for various categories to achieve far-reaching procurement savings and/or quality improvements
- Digitalisation of procurement and the introduction of new, disruptive technologies
A procurement transformation programme is typically entrusted with implementing the solutions to the purchase department’s strategic or organisational challenges. In addition, procurement transformation often addresses existing significant procurement savings opportunities across several categories. The time pressure and the expertise required in the topic, as well as the workload of implementing a procurement transformation programme, necessitates specialised project managers and project teams. If the working conditions of your procurement department have changed considerably or the last major transformation project took place some time ago, it is advisable to review the opportunities.
When is the right time for cost optimisation, procurement transformation and a sourcing programme?
Many companies make the mistake of not regularly taking an in-depth look at the potential for procurement transformation with the help of unbiased external expertise. The traditional view of procurement is often too entrenched in the organisation. It is seen purely as a buyer and procurement costs depressor instead of a central body for the efficient management of all external expenditure. However, the integration of a procurement perspective – e.g. in product development or supply chain management – usually brings unimagined potential for optimisation to light.
The need and opportunity for procurement transformation often only arise reactively as a result of changes in the market, changes in the company structure, and technological innovation. If there are regulatory changes, a new production technology is introduced, or a price declines, and this opportunity is missed, the impact can be significant. This is where rapid action by procurement management and strategic sourcing is even more critical. The speed at which these changes are hitting companies continues to increase, making forward-thinking procurement transformation and rapid response critically important.
A proactive and effective procurement optimisation and transformation capability is therefore not only an instrument for success, but also an increasingly important performance indicator for procurement.
Pitfalls & solutions for successful procurement transformation & sourcing programmes
In the following section, we would like to highlight a common problems and best practice solutions on a few examples where the approval of a procurement transformation initiative was at risk or the initiative itself was on the verge of failure.
What is the added value of a successfully implemented procurement transformation project?
Established companies that have always been successful and still are today have one thing in common: they are adaptable – they succeed in adapting to market conditions, technological innovation, and internal changes. The same applies to procurement. In addition to having the right strategy and organisational structure, this requires the ability to successfully carry out the transformation – whether with in-house personnel or with the support of external resources. Procurement transformation often pursues different goals – but success is always based on 3 elements:
- Optimal results due to an optimal strategy and choosing the right approach. The most important factors are the skills of the resources, including technical, methodological, and, above all, strong communication skills
- Efficient project execution as a result of a structured project plan and project management setup in combination with buy-in from the entire organisation
- Sustainability as a key gauge of a successful transformation. Good and fast results are costly if compliance is not sustainably embedded in the organisation
OCM offers comprehensive support in optimising your procurement processes. Our comprehensive product offering Procurement Consulting contains 100% application-related project modules for procurement transformation and is based on our broad expertise across all levels of procurement.
We offer our support along the entire project lifecycle: from the identification and analysis of opportunities, through the conception of a project plan and its realisation, to the sustainable implementation and control of the realised opportunities.
We would be happy to present our approach and project modules in this regard or discuss concrete solutions based on your individual challenges.
Our project modules at a glance:
Procurement Consulting Modules
Procurement Opportunity Assessment
- Benchmarking & Identification of Opportunities
- Tangible Action Plan for Implementation
External Cost Transformation
- Reduce costs & stop maverick buying
- Procurement Optimisation & Zero-Based Budgeting
Procurement Process Optimisation
- Procurement processes optimisation: fast, cost-efficient, digital
- Trained and invested employees
- Improving compliance
- Procurement Strategy & Cost Optimisation
- Increase quality & prevent maverick buying
Procurement Strategy Design
- Sustainable max. value contribution through optimal procurement strategy
- Reduce costs, optimise procurement processes
BI Cost Reporting
- Consolidated data sources
- Meaningful live analyses
- Fact-based decision making
Procurement Operating Model
- Maximising the value-add of the procurement organisation
- Optimise, measure, & control procurement processes
Training: Strategic Sourcing & Negotiation
- Buyers trained as specialists
- Putting theory into practice and implementing with support
Interim Procurement Manager
- Rapid response: candidates within 48h
- Matching of requirements and assessment of suitability using procurement experts
- From operational buyer to CPO
- Competitive advantages in speed, scope, & significance of information
- Efficiency through automation, data integration, & process simplification
- Procure-to-pay cost reduction
- Fraud prevention
- Efficient Cooperation
- Performance-based Supplier Management
- Cost Optimization
- Bespoke Optimal Insurance Cover