As Crisis Looms, Effective Procurement is Key to Success

Feature Article | December 11, 2008 by Stefan Nicola, journalist

“A lot of companies have to completely redo their business plans for 2009. Practically overnight, we have come back to buyers’ markets in several sectors,” Jürgen Marquard, board chairman of the German Association for Materials Management, Purchasing and Logistics (BME), said recently at the BME Symposium on Purchasing and Logistics, Europe’s largest annual conference for purchasing executives. “That’s why 2009 will be a year of cost management and effective procurement strategies.”

The 43rd annual BME Symposium on Purchasing and Logistics, which took place in November in Berlin, provided the roughly 2,000 participants with the opportunity to hear some 130 expert speakers, visit the accompanying procurement and logistics fair, and exchange ideas as well as best practices on effective procurement.

KPMG’s tips for improving procurement

Virtually all experts at the symposium agreed that effective procurement strategies are essential as financial pressures on companies are increasing.

KPMG, a leading auditing firm, said the financial crisis forces firms to:

  • Improve their equity financing capabilities by introducing effective cost-management for supply chain and procurement in the short term
  • Optimize risk management by introducing effective supplier risk management or counterparty risk management in the mid-term
  • Adjust their logistical networks (taking into account financial risks) in the long run

Bertram Ehmann, CEO of Siemens’ Transformers business unit, which has close to 8,000 employees, called successful supply management “one of the key success factors in today’s globalized business.”

The financial crisis and the increasing complexity of global markets are making life harder for many companies. Yet these additional hurdles may ultimately help firms which bank on excellence and high performance when it comes to procurement, Ehmann said.

Strategic partnerships with customers and suppliers

“Better supply management in this case means significant competitive advantages,” said Ehmann, for whom effective supply management is based on having:

  • Long-standing strategic partnerships with suppliers
  • Selective insourcing
  • Operational experts
  • Decentralized procurement
  • Strong focus on value creation
  • Cross-functional teams inside ones own organization

At Deutsche Bahn (DB), a German railway and logistics giant, a cross-functional team made up of procurement and technology experts identified significant savings potential for procuring a key component for their trains: rail buffers. “We were able to save roughly 50 percent in costs on rail buffers”, said Lutz Bücken, of DB Integrated Systems Railway.

In addition to being renowned for its passenger train unit, DB is a major global logistics company, ranking number two worldwide in the area of airfreight. So it’s no surprise that the company relies on mutually beneficial relations with its customers and suppliers.

Bücken highlighted the importance of long-standing strategic partnerships when it comes to opening up new supply chain channels. For example, DB buys a significant share of the wheels for its ICE trains from a Japanese supplier. “We were only able to sign this contract because of a 15-year-long partnership with a major Japanese railway company”, which was a move that established the business relationship connection, said Bücken.

SAP helps companies streamline supply chain management

Regardless of the industry, effective cost management and successful supply management are keys to tackling today’s business challenges. SAP steps into the breach by offering solutions to help successfully tackle them both.

SAP Supply Chain Management (SAP SCM) enables collaboration, planning, execution, and coordination of the entire supply chain network. It provides preconfigured software for enabling collaborative business, accelerating implementation, and reducing costs. SAP SCM is recognized by key industry analysts as the market-leading supply chain management application.

With enterprise resource planning (ERP) software from SAP, companies can improve alignment of their strategies and operations, and at the same time pursue effective cost-management. Powered by the SAP NetWeaver technology platform, SAP ERP addresses the core business requirements of midsize and large organizations, including: financial; human capital management; procurement and logistics; product development; manufacturing; and sales and service.

Siemens’ Bertram Ehmann said that the right software solution can help companies with their procurement.

“Our businesses are well supported by SAP,” he stated. “Speed and flexibility in our Design to Order operations are essential. Any improvement to further foster our competitiveness is most welcome.”

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