- Complete spend and demand visibility and control over the approval process
- Increased cost awareness, reduced maverick buying
- Concrete action plan for cost optimisation
Procurement transformation of indirect costs in the renewable energy engineering sector
Companies in the renewable energy sector have had to face many challenges in recent years, among others in indirect procurement. Medium-sized companies in particular have been hit hard by rapid changes in the market.
The steady decrease in state subsidies and the introduction of new tender procedures are reducing revenues. At the same time, the market demands increased cost efficiency due to ongoing standardisation and technological developments, an effect which is further intensified by strong competition from Asia. Furthermore, the first generation of products is often located in the last third of their respective life cycles. Complaints due to design defects, signs of wear and tear, and incorrect service-life expectations are beginning to surface and are reaching the companies.
In addition to these external changes, many companies face increased pressure from investors or owners due to mergers, acquisitions, or changes in the ownership structure.
All of this is forcing many companies in the industry to cut costs throughout all procurement categories and increase efficiency, sometimes with survival at stake. The case described below shows a situation where our client experienced exactly these challenges – high external pressure due to structural market changes as well as increased earnings expectations due to the entry of a new investor. The case study of a 6-month client project demonstrates how through a holistic approach we were able to implement procurement transformation, achieve significant reductions of indirect costs, thus contributing to the sustainable competitiveness of our client.
The initial situation
The annual expenditure on the indirect procurement categories under consideration amounted to approx. 80 million euros, distributed over 12 different cost centres. Poorly functioning or non-existent approval processes and an inadequate procurement category and general ledger account structure led to a lack of transparency, high prices, and unmanaged spend.
Budgeting, the instrument of choice for controlling expenditure, also failed to fulfill its control and steering function due to a lack of data transparency. It was unclear who was spending how much, on what, and whether it was even necessary in the first place.
The particular challenge of the project was not only a lack of cost efficiency in general, but that cost reduction could not take place because the actual spend requirements of the respective cost centres were unknown. If the budget were to be split equally across all departments without differentiating accordingly, this would have inevitably led to considerable problems in day-to-day business.
The approach and problem solving
The first problem that had to be solved resulted from the lack of transparency in the system, as described above. Without a sufficient understanding of the cost approval processes, as well as budget and cost centre responsibilities, an effective procurement transformation initiative could not begin. In addition, categorisable information was needed regarding which cost centre spent how much and when in order to be able to assign the accountability for each euro spent. This was further complicated by the fact that the company did not have a clear and unambiguous general ledger account and procurement category structure or strategy.
Results and Conclusion
A holistic costs savings project approach achieved immediate results and paved the way for the medium-term procurement transformation of the organisation in terms of its management of indirect costs.
Out of approximately 80 million euros in annual indirect costs, the project enabled the company to save around 30 million euros. The greatly improved understanding of the spend allowed the company to manage its budget and expenses more sustainably in the future. The newly established approval processes ensured a careful review of expenditure in line with the company’s needs and objectives. Finally, the new procurement processes and tools for workforce management significantly improved performance, which ultimately led to more efficient procurement in terms of results and time allocation.
OCM offers comprehensive support in procurement transformation and the design of your procurement department.
We combine our proven approach for strategic category procurement and procurement optimisation to achieve quick, significant, and sustainable savings. We can examine your cost saving opportunities – for direct as well as indirect costs - and identify the measures that would fulfil them and therefore achieve your goals.
We would be delighted to present our approach and modules to you or to discuss concrete solutions based on your challenges.
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