Buyers in the long run

Purchasing – child's play? Far from it. Companies proceeding strategically in the procurement of products and materials will save a lot of money. Consultants from Kerkhoff Consulting of Düsseldorf know how it's done.


"Today, buyers are no longer order processors“, says Dirk Schäfer, Vice Chairman of the Management Board of Kerkhoff Consulting. "Instead, they are taking on the role of value creators in the enterprise.“ Because in many businesses, the share of the cost of materials is between 40 and 60 percent. When buyers are able to successfully reduce costs, it will have a direct bearing on the corporate result. For a comparable effect, companies would have to realize double-digit sales increases. "That's why it's important to provide the purchasing department with greater standing and organize it strategically. That is our function“, says Schäfer.

On location at Hüttenes-Albertus
Kerkhoff Consulting provides services, inter alia, to numerous small and medium-sized enterprises (SME). One of them is Hüttenes-Albertus, an internationally leading manufacturer of chemical products for the foundry industry. For seven months, Dirk Schäfer and his colleagues endeavored to optimize the field of purchasing at Hüttenes-Albertus: They analyzed the purchasing organization and the supplier management on location, uncovered improvement potentials and kicked off changes and also accompanied them. The situation at the outset: Purchasing at Hüttenes-Albertus is organized from the locations of Düsseldorf and Hannover. "As frequently happens in such cases, there was no clear distribution of tasks“, says Dirk Schäfer. "It was a matter of setting up purchasing both more efficiently and company-wide.“ Among other things, this ultimately means: "Today, it's no longer a matter of everybody doing everything but rather doing what he or she does best.“ Thus there are lead buyers who are relieved from operative duties and use established framework agreements and ratio systems.

Strategy instead of gut feeling
What's challenging with agreements: The responsible buyer must decide whether he will make long-term plans with fixed prices, integrate index models or acquire raw materials at respectively valid commodity exchange prices. "That should not be any gut decision", emphasizes Schäfer. "For a strategic approach, buyers will much rather need meaningful chart analyses.“ Basis for such analyses is a database in which Kerkhoff Consulting stored, in the case of Hüttenes-Albertus, about 8,000 index curves and developments of recent years – e.g. for wages, materials and fuel prices. All these ratios are incorporated in the price calculations for raw materials. The buyer’s advantage: The database helps him analyze price developments, make strategic purchasing decisions and set up forecasts. He will thus be able to estimate when the cost of logistics for purchases in China will be so high that raw material procurements from the People's Republic are no longer worth it. "At the end of the day, it's about making prices transparent“, explains Schäfer.

Negotiations with a clear insight
All in all, transparency plays a crucial role in purchase optimization – also with regard to the supplier management. Thus, the possibility of following up and tracing the suppliers' calculations is an essential basis in reducing procurement costs. For example, what's the cost of those plastic containers in which chemicals are transported to Hüttenes-Albertus? The answer to that is well known to the engineers and production specialists of Kerkhoff Cost Engineering – network partner of Kerkhoff Consulting. Because they broke down a container into its component parts. For every process step or for the additional purchase of a specific article, it is thus possible to determine what the container actually costs in production. "With that knowledge in the back, the buyer will be able to talk quite differently to his supplier“, explains Schäfer. The objective is a "strategic supplier partnership“ with both sides profiting from it. That's the case, for example, if suppliers have more favorable sources of procurement for input materials. "We develop such solutions with our clients and their suppliers in joint workshops“, explains Schäfer. It is part of the corporate philosophy of Kerkhoff Consulting to accompany the entire process – from tender invitations via workshops all the way to negotiations. "During that time, we will slip into the role of strategic buyer“, says Schäfer. "We will leave only when people in the company are living the changes and when such changes have an impact on the profit and loss account.“ In figures, it will mean for the classical SME: six to ten percent lower procurement costs.

Upon its foundation in 1999, Kerkhoff Consulting GmbH was the first consultancy for purchasing, procurement and supply chain management. In 2009 and 2012, the trade journal Capital awarded the Düsseldorf-based company the title of "Hidden Champion of the Consulting Market“. A total of 145 persons is working for Kerkhoff Consulting in nine countries.