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11/01/2010

A matter of organization

Enterprises in the social services sector are especially able to save considerable time and costs with centralized purchasing. Better terms and conditions are obtained particularly in buyers' cooperatives and through product concentrations.

Michael Kredelbach is highly satisfied. "There are huge benefits in terms of our new purchasing structures", confirms the head of procurement of the Landschaftsverband Rheinland (LVR – The Rhineland Regional Council). His praise not only goes towards improved processes – speaking for itself are € 25 million saved by the Landschaftsverband over three years within the scope of a large-scale project started in 2005. "That's equivalent to about eight millions per year and a savings rate of eleven percent", Kredelbach is pleased.

The organization has a workforce of about15,000 people, also 41 schools for special needs, ten clinics and six museums – thus, it's one of Germany's largest service provider for people with disabilities. Before procurement structures were put to the test, every institution had organized its purchasing matters on its own. Since 2009, seven competence centers have been established now which are bundling all functions and tasks in this area. "Procurement on call thus turned into strategic purchasing which, for the first time, combines the highly differentiated demand for services and goods in framework agreements or collective tenders", explains Kredelbach who now manages himself one of the newly established competence centers. Process costs are thus significantly reduced "since it's no longer necessary that every single institution itself has specialized knowledge about products and the award rights".
 
Bundling and winning
With its new procurement organization, LVR is a trailblazer in the sector. "The procurement issue does not always have high priority in the social services economy", says Jens Hornstein from Kerkhoff Consulting. The consultancy which specializes in purchasing optimizations had managed the large-scale project for over three years. "Especially larger enterprises can save a lot when they scrutinize their purchasing department", the expert explains. Hornstein uses an example to explain which effects are possible. One of the LVR's most important services is the transportation of disabled people to their workplaces and back again. It used to be that every facility employing disabled people separately awarded this service to service companies which scheduled the required routes all on their own. But now, they get professional help through computer-assisted centralized route scheduling. In the test regions of Bonn and Essen with initially five workshop facilities, the shortest routes were simulated and new tender invitations were subsequently issued for the combined services. "Optimized route scheduling saves a lot of time and money, and it reduces the carbon footprint", says Hornstein.

According to the consultant's estimates, 3.5 million kilometers saved per year means 1,000 tons less CO2 output. In the test area alone, costs could thus be reduced by € 782,000. Once the procedure has been introduced for all workshops, expected savings are forecast to be about € 4.8 million per year.
However, the changeover to centralized procurement at one location is not sufficient, and it's also not optimal in all cases. Especially for institutions with special demands, such as clinics, their specialized knowledge about special products must also find its way to central procurement levels. "At the LVR, we therefore introduced a combination of centralized and decentralized purchasing structures where experts of the pertinent institutions can contribute their knowledge about special products", Hornstein explains. "This is tied in with the commercial know-how on the central level, within the competence centers, which then handle the procurement."

Jens Hornstein sees a basic strategy for purchase optimization in a harmonization of products. This means, in concrete terms, "that it's not necessary to have ten different types of text markers in a product range, but only one single type which meets all the requirements." Even small institutions can profit from this strategy. Finally, by negotiating framework contracts with selected suppliers, buyers' cooperatives obtain the best terms and conditions for their members. The required diversity of articles is offered and, at the same time, the focus will be on product concentration. Because the larger the quantities ordered of a particular product, the more advantageous the contracts with suppliers will be.

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