Start by creating transparency Corporate leaders often face a dilemma.
On the one hand, their profits are being eaten up by rising overheads, while on the other, listed companies are under pressure to steadily increase their profits and pay dividends – because they are accountable to their shareholders. So where can costs be saved? Expenditure on human resources has already been reduced so much in recent years that any more cutbacks will jeopardize quality. Could making procurement more efficient be the answer?
Interview with Stephan Berk, Managing Partner
Mr. Berk, you are the Partner in charge of the Supply Management offering at TALOS. What are the main challenges you have to deal with?
Procurement is a significant cost factor for any business. The main aim is therefore to spot potential savings, optimize processes, and implement appropriate tools. Moreover, the importance of regulatory compliance in procurement is constantly growing. Some companies come to us when they’re starting out because they want to set up an efficient procurement department from the outset. Others, especially large international corporations, realize that their existing procurement processes are too disparate and unfocused, usually because they’re decentralized.
Why are they decentralized?
An inefficient structure like this is usually attributable to the corporation’s historical development. Over time, it will have acquired various companies, each with their own procurement organization. This frequently also means that different company departments use different processes and IT systems. And this thwarts centralized procurement management.
What are the disadvantages of decentralized procurement?
Above all, it’s not cost-effective. One reason is that neither economies of scale nor standardization / bundling effects can be harnessed if each department / country unit handles its own procurement. Also, more procurement staff are required. And investments in certain Procure2Pay and Source2Contract systems usually only make financial sense above a certain size / spend volume.
How can the situation be remedied?
Suitable action includes introducing standardized and clearly defined processes and procurement IT-systems. Furthermore, communication is vital, because the changes taking place in the company need to be explained. The benefits of centralization must be quantified and justified to the decision-makers, as top management commitment is vital for the creation of a central procurement organization.
When a company comes to you and wants a new or improved supply management system, how do you proceed?
At first, the main challenge is to create transparency by analyzing the current situation. We consult existing external and internal analyses and conduct our own studies of the 3rd party cost base as well as the organization, processes and systems currently used in procurement. In addition, we hold individual meetings with procurement managers and internal customers of the client’s procurement department so that soft factors can be taken into account.
How does that help?
TALOS is distinguished by its pragmatic solutions. Numerical analysis isn’t enough by itself. To bring about genuine improvement, we have to develop bespoke solutions which are nevertheless based on good practice.
What happens following this analysis?
Once the analysis results have been studied, we can pinpoint the gaps where processes, systems or organizational aspects need to be modified. Based on the transparency analysis we also identify and quantify savings initiatives by recording them in a template - the savings initiative snapshot - geared to the client’s requirements listing the potential savings in Swiss francs along with the costs, savings levers, the personnel in charge, and a host of other factors. Using this snapshot, the savings initiatives are then implemented and tracked.
How long do you support this process?
From transparency analysis through implementation to success monitoring. After the transparency phase, there usually will be a client management decision on two aspects of implementation: 1) the spend categories and the time at which the savings initiatives can be put into effect without disrupting the company’s business activities, and 2) how the changes to organizational aspects, procurement processes and IT systems are to be carried out. Of course, we also track the improvements. After all, in our view, the benefits achieved for the client need to be sustainable.
To discover our full range of services in the area of Supply Management or to discuss your specific business challenges, please get in touch with Stephan Berk via firstname.lastname@example.org
Global procurement service provider
The client strived for streamlining its procurement processes in order to make its services for its prospect customers more efficient. Hence, the processes for an already existing customer were to be documented, and the information gathered was to be used to create process templates / standards suitable and beneficial for future customers. Furthermore the client staff had to be trained and convinced to accept the new procurement processes instead of sticking to their existing proven procedures.
Workshops were held in which TALOS demonstrated to the client how to record and document procurement processes in a professional manner. These workshops also served to collate and leverage the existing process knowledge at the client. At the same time, TALOS collaborated with the main client stakeholders to compile the requirements regarding the new processes. In the second step, the new processes were designed, validated and tested. Prior to their introduction, the client employees were familiarized with the new processes and the supporting procurement systems. TALOS’ holistic, pragmatic approach ensured smooth implementation.
In addition to achieving considerable process related savings, the new processes above all resulted in a significant increase in process quality. Many regulatory requirements were finally met and could now be verifiably monitored. This in turn attracted new customers, boosting the client’s revenue. Both the improved price-performance ratio and the documentation of the processes provided a good argument when prospecting for new business. What’s more, the internal transfer of process knowledge among the employees of the client was considerably facilitated and enhanced.