"It's not enough today to just talk about price reductions."
Beschaffung aktuell: Mr. Kerkhoff, years ago, you called traditional purchasing the Bermuda triangle of business procurement. What is your assessment today? Had all the preaching been successful?
Gerd Kerkhoff: My book (editor's note: "Milliardengrab Einkauf" [The Bermuda Triangle of Business Procurement], 2003) was the first book to deal with professional purchasing, admittedly in a provocative manner. Until then, the area of purchasing and procurement had been neglected. Strictly in terms of business economics, it is actually an extremely important discipline, but it was rather unimportant at universities and faculties. My book showed what the potentials were in purchasing and which opportunities still remained unused. This brought about a critical discussion of purchasing and its relevance in a company. Since then, the professionalization of business procurement and purchasing has made great headway.
Beschaffung aktuell: What will be the further development in purchasing in coming years?
Kerkhoff: It will become professionalized yet further and will continuously scrutinize itself. It's imperative to think about new strategies and also to use novel technological developments and new methodical approaches. A company in the future will need to have highly professionalized purchasing and procurement.
Beschaffung aktuell: Could you explain that by giving us an example?
Kerkhoff: I'd be glad to. For example, Kerkhoff Cost Engineering analyzes the costs incurred with the production of a specific part with suppliers. To this end, our specialists reproduce manufacturing processes to be able to say what the product may cost in purchasing. That's a new approach: Instead of simply squeezing prices in negotiations with the supplier, the buyer's side tries to understand the product and its embedded processes and costs. This also brings about collaboration with suppliers in a spirit of partnership. In the future, a buyer will be judged not so much by the quality of conducting negotiations as such but rather by the quality of being able to properly discuss specific contents with business counterparts.
Beschaffung aktuell: Would a good buyer be rather a technologist or a business economist?
Kerkhoff: A good buyer is a business-minded technologist or a technology-minded economist. It's no longer a question of whether a buyer is able to do one or the other – it's much more about the interaction of the components. A buyer needs to understand the product and the technical process in the product to be able to argue and reason not only in terms of price when talking about the product, but also in terms of value analysis. Buyers will have tools for that in the future. It's not enough today to just talk about price reductions.
Beschaffung aktuell: Where do the figures for such talks with suppliers come from?
Kerkhoff: We as a consultancy offer a tool to our clients which provides a new factual basis for buyer/supplier talks. That tool is based on a huge independently updated database. At Kerkhoff Cost Engineering, people are working every day on generating and updating price- and production-relevant data from various systems. That includes, for example, technical data such as machinery costs, material costs, international wages and salaries databases, etc. Such information is particularly interesting for companies which will purchase a great many parts, systems or components and produce less themselves. We update such data every three months.
Beschaffung aktuell: Can the data be purchased from you?
Kerkhoff: We are using this tool in our consulting work. For us, it's a tool like a ballpoint pen. And should the client want to buy that tool after our consulting process is concluded, that's possible as well. As a supplement, we are offering training courses and workshops for it.
Beschaffung aktuell: Where do you see the advantages for clients when they call in a specialist as a consultant?
Kerkhoff: With specialists, it works as follows: When purchasing consultants are at the client's facilities and the project has been concluded, the consultants' activities will also be concluded. Whereas with generalists, projects will often get "babies" or offspring: After a purchasing problem has been concluded, sales or financing problems and other such problems will often be found. And one day, a company will come to realize that, for several years already, consultants had been continuously in its various departments and divisions. Another advantage of a specialized consultancy is that companies can be sure to always get the best in their field or discipline. Because any purchasing project with a consultancy specialized in purchasing will always use only those people who really know purchasing – as opposed to projects with major consulting firms where, for capacity reasons, employees are used who will also do purchasing for a change.
Beschaffung aktuell: Does the size of the consultancy play a role?
Kerkhoff: Small and medium-sized enterprises are better off with small and medium-sized consultancies because – for them – they are always important as clients, whereas with major firms, SME clients possibly do not get the same attention as major groups. A serious disadvantage with large consultancies is also that they will simultaneously handle competing companies. So it can happen that a consultancy is working in a consulting capacity not only in the procuring company but also in the supplying company and that it will, moreover, even count the commissioned logistics company among its clients at the same time. Such things should be viewed very critically. In contrast, we will offer exclusivity to our client. We guarantee that we will not work either for the client's suppliers or for the client's competitors. The question is whether clients are more impressed by size or by quality. I rather want to be simply the quality leader and not the largest.
Beschaffung aktuell: Until about ten years ago, the consulting sector was anticyclic in its development with regard to economic cycles. That means, when business was bad, companies called in consultants. Today, their turnover performance is relatively parallel to that of the producing sector of the economy. What do you think is the reason for that change?
Kerkhoff: It used to be that consultancies were very much in demand during periods of crises because companies tried to overcome a crisis with consultants. But in 2008, they learnt that the global economy can collapse quite suddenly. Cycles have become much shorter so that after a crisis, companies will already prepare for the next. While cycles were still discernible twenty years ago and even plannable to a certain extent, the great concern today is that – for whatever reason – the next crisis will occur virtually at the touch of a button. At present, the economy is plagued by the overall debt crisis; businesses are also unnerved by the banking crisis. Another reason is that even thriving companies will have improvement potentials in some areas. Such potentials are tackled immediately today to be better prepared for day X, the beginning of the next crisis. The objective is to work on weak points in good times and not only when they are really conspicuous in bad times.
Beschaffung aktuell: Has the image of consultants changed?
Kerkhoff: It used to be that purchasing consultants were rather seen as competitors of a company's own purchasing; today, the departments have become professionalized: Consultants are also called in by the purchasing departments themselves. And we will often deal with a new generation of buyers: well educated, 35 to 45 years old, no longer seeing consultants as their competition. The mentality of buyers has changed very much. From being a mere procuring agency, just having to procure the right product at the right place for the right price, purchasing has meanwhile developed to a department which provides its own value contribution to the total corporate profit. We want to help companies – so that they will be overall in better shape and that they become more profitable, thereby ensuring jobs.
Beschaffung aktuell: What are the characteristics of a good buyer?
Kerkhoff: A good buyer must have an analytical mind and an affinity for figures. He must be eloquent and have a basic understanding of technical matters – as a good seller, presenting his company to the world outside.
Beschaffung aktuell: Last month, you received, for the third time, the award "Best of Consulting 2013" from a renowned German business weekly. What do these awards mean to you?
Kerkhoff: This award means very much to me because we were evaluated – in a comparison with many large consultancies – by 1,500 top management executives from various sectors of the industry. We want to be considered the consultancy which provides a high value contribution for enterprises and which professionalizes the purchasing areas. In this respect, we are collaborating very well with purchasing. This award is uniquely about the quality of the consulting performance and the amount of the value contribution which a consultancy was able to provide – it's not about the size of the enterprise. That's why I am proud of it. After 15 years of consulting activities as a medium-sized enterprise, we were able to obtain this award ahead of the large established companies. This award is meant for our dedicated employees as well as for our entire enterprise.
Beschaffung aktuell: What are your next consulting projects in purchasing?
Kerkhoff: The focus of our next projects will be the process efficiency in purchasing and the optimum integration into the supply chain.
Beschaffung aktuell: What needs to be currently improved in industrial purchasing so that it will remain viable and future-oriented?
Kerkhoff: Further training of buyers with regard to a complex technical understanding will continue to gain increasingly in importance.
Beschaffung aktuell: Mr. Kerkhoff, thank you very much for this interesting talk.
In October 2013, WirtschaftsWoche awarded the consulting prize "Best of Consulting 2013". Once a year, the German business weekly honors the best management consultancies. To this end, it measures the quality of consulting work with clients. Kerkhoff Consulting GmbH here ranked first in the category "Supply Chain Management". In 2010 and 2011 already, Chief Editor Roland Tichy awarded Kerkhoff Consulting the prize as the best consultancy in Germany for purchasing and supply chains. This year, with a consulting project for Conditorei Coppenrath & Wiese GmbH & Co. KG, headquartered in Osnabrück in the northern part of Germany, the Düsseldorf-based management consulting firm was able to prevail over such market players and competitors as Ernst & Young J & M Management Consulting AG and MHP - a Porsche Services Company. That evening, the who is who of the consulting scene was present, such as Ernst & Young, Deloitte, A.T. Kearney, PwC, KPMG, Porsche Consulting & Co.
Gerd Kerkhoff, born 1958, is Chairman of the Management Board of Kerkhoff Consulting and one of the best known experts for purchasing and procurement issues. In 1999, he founded the Düsseldorf-based consultancy Kerkhoff Consulting, which is operating today with more than 200 employees in ten locations worldwide. After having completed his studies in business administration, the business graduate was first the managing director of a medium-sized company and then the founder of trading companies for brand articles.