Next Level Indirect Purchasing: Realignment Raises Significant Potential

The Client 

An international, medium-sized chemical company in southern Germany was struggling with two challenges: the limited availability of raw materials, including packaging for sales, and the availability of indirect materials and services - especially for maintenance, repair, and operations (MRO) - resulting in extreme price increases.

As a result, the focus of the existing purchasing organization was primarily on securing the supply of raw materials and packaging, without taking commercial aspects into account. For this reason, an interim manager with industry experience was engaged with the aim of identifying and sustainably implementing improvements, particularly in indirect purchasing.

The Challenge 

Initially, a cost analysis was carried out in collaboration with a management consultancy and an attempt was made to determine related blocks of expenditure by allocating items contained in SAP. This was successful for raw materials and packaging so that potential new suppliers could be identified and tenders initiated on this basis.

In the case of indirect materials and services, the approach was not successful due to the complexity and fragmentation of the individual expenses in collaboration with the consultancy; only a few product groups were identified and improved conditions were achieved through tenders and negotiations.

This resulted in the challenge of developing measures specifically for MRO expenditure that ensured both supply and competitive prices.

The Solution

In the light of this, the interim manager and the purchasing team develop the following measures:

• Creating transparency about suppliers, services, prices, contracts, and processes by analysing expenses in the MRO area. Among other things, this enabled a comparison of services and the associated costs
• Creating transparency about existing requirements in the MRO area, supplier selection processes and planned expenditure by establishing contacts with all internal functions involved in MRO expenditure (especially purchasing, specialist technical functions). This also includes coordinating the results of the previously mentioned expense analysis
• Creating transparency about existing contracts with suppliers and their selection process as well as individual commissioning
   

The Results

Analysis and intensive coordination with the specialist functions led to numerous measures and their application in the processes, including:

• Tendering and negotiation of service packages for framework agreements with an agreed price structure
• Negotiation of individual services on the basis of transparent offers
• Creation of tender structures in order to obtain comparable offers
• Development of a standard framework agreement format to strengthen your own legal negotiating position
• Simplified procurement process

Cost reductions in the double-digit percentage range were achieved, for example with forklift trucks, engineering service providers and cylinder gas. The establishment of catalogs for recurring requirements and the bundling of all non-manufacturer-specific technical parts not only lowered material costs but also considerably simplified internal processes and significantly reduced internal procurement costs in the long term.