The list of C items a company needs for its day-to-day operations can be long, ranging from the proverbial pencil eraser to expensive capital goods such as new server landscapes or comprehensive store furnishings. This is often the case at J. W. Ostendorf GmbH & Co. KG (JWO), a paint manufacturer in Coesfeld, Germany, that supplies successful retail companies in the German and international DIY industry with complete lines of paint products. JWO also develops tailored retail brands for paints, lacquers, and stains intended for direct use by end consumers.
JWO’s standard process for ordering A and B items – production materials, in other words – involves SAP’s Materials Management (MM) component. SAP also provides a solution for C items in the form of SAP Supplier Relationship Management (SAP SRM), but many small businesses and midsize companies consider the cost and effort involved in its implementation and licensing prohibitive. This is why the consulting and software specialitsts, nextevolution AG, developed a purchase requisition workflow for C-item procurement based on its own Process Builder tool. JWO has been using this solution to approve orders since November 2010.
This workflow represents the latest addition to the already broad basis of nextevolution products in use at JWO. For example, the company has been using an invoice receipt workflow from nextevolution since 2006. “That said, invoice processing is essentially a standardized process that’s much easier to map than procurement,” explains Ralf Printing, who is in charge of the creditors group and directs the accounts payable department at JWO. “Companies like JWO procure a great many different items – promotional material, C items, services, and all the rest is subject to different levels of approval. That’s why we started back then with invoice processing; it’s also the area where you start seeing the savings that result from using a solution like this most quickly.”
Procuring C items an elaborate process
In procuring A and B items, order proposals are generated from within JWO’s SAP software. Planners then check whether the items are actually needed before entering the orders through the software. In doing so, they work within the conditions of specified quantity contracts and set prices; even the selection of suppliers is fixed. This means triggering approval processes is unnecessary in most cases. With C items, however, the amount of work required is much greater, even though the quantities ordered are marginal next to the overall ordering system. A number of person subgroups are also involved in procurement at JWO, from requesters in user departments – through purchasing and cost centers – to company management. In its ordering system, the company maintains a total of nearly 900 suppliers, only 200 of which deliver only the A and B items needed for JWO products.
To place an order, employees used to have to enter the desired C items into a purchase requisition form by hand and have it signed by various releasers. The form then ended up in purchasing, where the data was once again entered into the SAP system and the order process began. Only in IT and waste disposal did JWO have isolated purchase-requisition processes within its SAP software. With the SAP standard, therein lies the rub: If the combination selected is invalid – the item entered and the corresponding material group don’t match the value, for example – the purchase requisition remains open. Even more importantly, JWO used to handle the vast majority of its remaining C-item orders manually, which offered little transparency and was prone to unnecessary duplicate entries.
Advance specification of material group accounts
“These were the reasons why we started looking for a solution that would facilitate data entry, configuration of multilevel automated workflows, and advance specification of accounts for each material group, which in turn would make finding products and suppliers as simple as possible,” reports Erwin Neelen, head of IT at JWO. This is how the company came to implement its new purchase requisition workflow.
To enter a C-item request, user department employees can use the MM component as they normally would. In it, they can either import their purchase requisition in Microsoft Excel format by batch input or now search for the desired item in online stores that have been integrated through an OCI interface. Process Builder then provides a form into which the request is entered, which also serves as the transaction that starts the purchase requisition workflow. Here, employees can initiate clearing in advance and ask purchasing about the price of the item. After issuing inquiries to the corresponding suppliers using Microsoft Word forms generated within the workflow, the purchasing department uses the same workflow to pass the incoming quotations on to the user department in question.
“At JWO, the purchasing department is primarily responsible for prices, which is why prices are always set at the end of the order release process,” Ralf Printing explains. Nevertheless, JWO obtains services in which purchasing plays a mainly supportive role – in procuring servers, for example. There are also special marketing services for which the pricing responsibility lies with the respective cost center owners or the company owner herself. The procurement of certain spare parts for production falls under this category, as well. “In each individual step of the workflow, we can determine how the corresponding processor is found and define account specifications by material group,” Printing adds.
Workflow contains seven release levels
JWO’s purchase requisition workflow includes seven release levels that may be required before an order is triggered. Those pertaining to the cost center and user department director in question must always be passed. Depending on the type and extent of the requirements at hand, further levels are incorporated; these involve investment and budget releases, as well as approval from the company owner in the case of expenditures intended to support marketing. “We’re very cost center-oriented,” states Erwin Neelen. “To find the contact person you need at any given release level, you have to go through the corresponding cost center.”
Roland Klose, who is responsible for C-item purchasing at JWO, used to spend much of his time just on entering order data – which requesters had already filled into their Excel forms – into the company’s SAP software. This task has since been eliminated, giving Klose more time for price negotiations with suppliers, for example. “You can really tell that the whole ordering process is much faster,” he says. “I’ve always got the order process overview open in the background and can see in the workflow where requirements are accumulating, as well as what our current status is in meeting them.” Six months after implementing the purchase requisition workflow, JWO had already assigned and triggered 2,200 C-item orders.
The number of order-related processes within the JWO group has increased significantly as a result, which was one of the main objectives of the project. By automating its ordering process and entering order data into its SAP system only once, JWO is also preventing data redundancies. Meanwhile, a greater degree of transparency has enabled the company to improve both the reliability and data quality of its procurement processes. JWO was ultimately able to replace its previous standalone solutions for C-item procurement in the areas of IT and waste disposal.
A holistic solution
“Today, we’ve realized holistic processing and have all our documents and data in-system, from demand planning to invoices,” states Ralf Printing. “We can jump from the order workflow into the invoice workflow to view the quotations pertaining to a certain invoice, which gives us maximum process transparency.”
The invoice workflow has undergone constant improvement since its implementation in 2006. JWO now uses it to handle debit-side processes and approve discounts. The company has also been using its accounts payable workflow – which mirrors its workflow for accounts receivable – to approve its customers’ invoices since early 2010. In individual cases, incoming invoices are to be posted as credit memos on the debit instead of the credit side in order to prevent offsetting between customers and vendors. Such invoices are released and posted through an approval workflow identical to the one used for normal cost accounting.
Process for issuing discounts
As mentioned, JWO also uses a workflow to approve the discounts the company grants its customers (read: DIY stores) when they purchase certain amounts of goods. This is made possible by an integrated Excel cross-sheet that tracks the planned and actual sales of each individual store. Based on this sheet and a graduated series of approval steps, JWO determines whether discounts are justified and approvable. This is another process that used to be entirely manual.
Finally, JWO has also begun using another solution from nextevolution – electronic customer files. Three types of these files were configured present information on JWO’s customers in a clear format: company files (the German DIY chain Praktiker, for example), customer files (for individual stores), and complaint files. Around 500 inbound documents are assigned attributes through a central inbox and then allocated to the individual subdirectories. In addition, JWO eventually wants to make practical use of the contract management solution it has already acquired from nextevolution to oversee its patents and validity periods and monitor pending extensions.