Markets are constantly moving

Procurement management is a central factor for the successful implementation of a business strategy and a company's successful performance. A well functioning supply chain ensures that processes, organizational flows and IT systems from customer to supplier will meet present and future requirements. Mathias Renz, publishing manager of VentureCapital Magazin, talked to Gerd Kerkhoff whose consultancy once again received – from the [German business weekly] Wirtschaftswoche – the award "Best of Consulting" in the area of supply chain management.

VC Magazin: What are currently the greatest challenges in purchasing and procurement for small and medium enterprises and major groups?

Kerkhoff: Our clients see their greatest challenges in the organizational and procedural optimization of grown structures and in the optimization of the supply chain. Many companies have grown over the years – by way of mergers or organic growth. At some point, the question comes up as to whether such a historically developed purchasing organization and its associated processes will also meet the new requirements. With supply chains, the greatest challenge is to design processes within the sense of working capital optimization such that they convey production security and, at the same time, minimize the capital tied up in the production process to be as independent of banks as possible.

VC Magazin: What about the availability of the factor of "specialized personnel"?

Kerkhoff: Currently, we have a war for talents. There is a high potential of well trained and educated university graduates who are provided – during their studies already – with deeper insights into the subjects of procurement and supply chain management. The challenge for SMEs and for major groups is to win over these graduates for their own companies. Each participant can bring their arguments to bear. For the group, its internationality and orderly promotions; for SMEs, a greater degree of freedom and the value of one's own position in the company. For consultancies, it's the opportunity of getting to know several projects in a short period of time.

VC Magazin: International markets frequently offer goods at more favorable conditions. Which markets will be particularly relevant in the future?

Kerkhoff: Markets are constantly moving. That's why it is vitally important to know which countries developed which production advances and progress and regularities or set patterns. One example: In recent years, China implemented important standards for environmental protection. The country's competitiveness in certain product groups suffered due to that because suppliers in Laos or Mexico offer their goods at a lower price. A company should check regularly whether it is still properly set up with its current procurement markets or whether it would be worthwhile to break new ground. Accordingly, the overall complex of suppliers should be examined and queried at regular intervals.

VC Magazin: How are products avoided which have not been manufactured according to social standards?

Kerkhoff: Social standards are about dealing with conditions on location and about not demanding excessively low prices. If the supplier is unable to produce its product at the offered price, this might bring about that the self-imposed quality standards are no longer considered in the calculation. An example for it would be the Spanish wine scandal. Due to the lack of transparency in the individual countries, scandals cannot be entirely excluded even in the future; however, companies are very cautious today to ensure that they no longer purchase from such suppliers because they do not want to damage the reputation of their own brand.

VC Magazin: Companies dealing in visionary terms with their market environment will currently have the following procurement subjects high up on their agenda?

Kerkhoff: One trend is provided by interlocking or linking of purchasing strategies and marketing. When a company has suppliers which not only meet metric standards but also those which are currently discussed in social environments, this may be conveyed to the client as the supplier's unique characteristic. Thus, for example, the subject of social responsibility is always a part of brand protection as well.

VC Magazin: How long is your company's average collaboration with an SME client, and how do you bill your work?

Kerkhoff: The average collaboration takes four to six months. With regard to billing, the trend goes clearly for fixed paid products. Once you demand for the consulting service a commission for the product sold or the savings realized, it will only be a matter of short-term maximization in economic terms and it will no longer be about the systematic improvement of an organization which cannot be measured on a short term basis at all. A performance-related payment is an excellent basis for disputes regard the amount of fees. Many SMEs are interested in continuing collaboration with consultancies, and we are also interested in it of course – so all participants meanwhile prefer a fixed fee rate.

VC Magazin: How often is a private equity house nowadays among your ordering parties?

Kerkhoff: Meanwhile, we are increasingly counting private equity companies among our clients.
Because the deal flow rather decreased in the last ten years, investors have been working ever more intensively on the operative optimization of existing portfolios to realize significant increases in value. We experience increasing inquiries from private equity firms. The willingness of investment companies to award consulting mandates for portfolio companies increases with every successful project – but of course only if there is expertise in the desired sector.

VC Magazin: In 2012, you were awarded – twice in a row, by the business journal Capital – the title of Hidden Champion of the consulting market. Additionally, in 2013, you received the award "Best of Consulting" in the areas of supply chain management for the third time already by the German business weekly Wirtschaftswoche: What's your winning formula?

Kerkhoff: The winning formula is to constantly develop further. As consultants, we are forced to find ever more professional solutions for the ever more complex problems of our clients. At the end of the day, the quality of consulting counts more for clients than the size of the company. Awards will be good indicators for your being the quality leader of your sector, but you should not rest on your laurels.

Personal details: Gerd Kerkhoff is Chairman of the Board of Kerkhoff Consulting. He is responsible for strategic business development nationally and internationally. After having completed his studies, the business graduate (Diplom-Kaufmann) was first the managing director of a medium-sized company and founder of trading companies for brand articles. In 1999, he founded Kerkhoff Consulting. He is also the author of various publications, such as Milliardengrab Einkauf" [The Bermuda Triangle of Business Procurement] and Global Sourcing.