Only Excellent Teams Will Be World Champions

A survey among buyers in the German machinery industry provides a sharp analysis of challenges. At the same time, however, purchasing departments seem unable to adequately react to these challenges. Reasons are provided by Gerd Kerkhoff, founder and managing director of Kerkhoff Consulting.

Interview by Rudolf Schulze.

VDI nachrichten: How come buyers know about the challenges but are quite unable to react adequately?
Especially during the economic and liquidity crisis, the purchasing department had been discovered as an important management area, albeit frequently underdeveloped. What it lacks are excellently trained, modern purchasing managers and thus the time resources and technical competences to operate proactively.

What's your conclusion when you hear that about 32 % of the machinery companies have more than 1,000 suppliers?
Especially considering the factors of dwindling raw material resources and developing oligopolies, it's a good thing to rely today on a multiple supplier strategy for important product groups. Otherwise, a company will be on a permanent support system of individual companies which will thus gain unbridled and high negotiating powers. But: In our projects, we can see that, time and again, different company locations for example use different suppliers for the delivery of identical parts. This is where the purchasing staff must always ask: Is that economically sensible?

What do you recommend to company management?
Order your buyers to identify risks and challenges and subsequently develop solution scenarios. In addition, you will also have to check whether you have the right people for these jobs. It's like soccer: Only if you have an excellent team, you will be able to become world champion!

What are your tips for more purchasing efficiency?
Today, the purchasing department should be involved in all of a company's procurement processes: It should have a seat at the negotiation table whether the deal concerns large-volume non-recurrent investments or the procurement of paper clips. Yet, it will not decide on its own but always together with the technical departments. Buyers provide the negotiating and price competence; the technical departments decide about the product quality.

What's bad about other departments ordering without involving the purchasing department?
One example from our consultancy practice: Two departments buy one and the same product. From the same supplier. But: At a different price. Yet, nobody had ever noticed it at the company because there had been no transparency whatsoever about who orders what, and in what quantities at which price. The supplier thus took advantage of such non-transparency and earns more with one department than with the other. A purchasing department must ensure that this will not happen.

But the management board buys consulting services without the purchasing department?
Today, that's just about nowhere the case anymore. The decision for consulting is only rarely made without the technical department concerned. In many cases, the purchasing department also has a place at the table. We have repeatedly accompanied our clients in their purchase of consulting services.

Don't central purchasing departments cost more than they bring in with their negotiated percentages?
Let me give you some simple arithmetic: A machinery manufacturer has € 60 million in annual sales and € 2 million in profits. He buys products for € 25 million.
If he reduces his purchasing costs by 10 %, profits will thus increase by € 2.5 million to a total of € 4.5 million. To realize such a result through his sales department, he would have to increase sales by 125 % while ensuring that costs will remain constant! So you just need to lower your costs by a few percent to lastingly increase your revenue!

Consultants are generally not very popular because they and their proposals cause changes and anxieties. How do you counter that?
Our consultants not only provide smart tips but will also subsequently implement them – jointly with the staff of the purchasing department. We don't cut down on staff but help buyers make their corporate relevance clear to the company's management board. Moreover: We are down-to-earth professionals who not only know the language of medium-sized business people but also speak that language. That usually helps to form a joint team for the project period.

How do you communicate planned changes in companies to reduce anxieties?
We don't simply introduce changes but rather develop them jointly with the purchasing staff. This will guarantee high sustainability. Because buyers will only support over the long run those changes in which they had participated themselves.

What makes you different from major internationally operating consultancies?
We don't just talk, we also act. We thus develop measurable values. We speak a clear, understandable language. Last but not least: We are simply such a nice troop!