By Chris Löwer, Berlin
For Fred Kapella, price is not decisive. He is the Regional Managing Director of the construction material dealer Bauking for Berlin and Brandenburg and, in purchasing, he'll first look for other things. He selects his suppliers according to defined criteria and improves processes together with them. "We also set great store by innovative products so that we won't slowly propel ourselves from the market with obsolete merchandise", says Kapella. In that case, even a good price wouldn't help him anymore. But through long-term cooperations and optimized cost structures, he says he can still realize purchase benefits from three to eight percent.
Kapella is an exception. "In many medium-sized companies, the purchasing department has a rather low standing. It's just considered as the place for order processing", says Thorsten Makowski, member of the managing board of the Berlin-based purchasing consultancy Valueneer. Basically, it would be true that the smaller the company, the worse its purchasing. "There is a sharp break at the turnover size of 100 million euros. Up to that limit, only very few companies are able to efficiently set up their purchasing", he says. That's one of the results of the global purchasing study by Valueneer of which an advance copy is available to Handelsblatt.
Makowski reports that the biggest problem would be that the heads of companies fail to see or simply ignore the potential of efficient purchasing. "While the medium-sized company's concept dominated by sales and production is advantageous overall, it's a drawback for purchasing", explains Makowski.
Everything around procurement is often assigned to the head of production. This concept proved to be very bad in the Valueneer study. Because the production managers have their focus on quality requirements, and costs will hardly be considered. "Yet, savings of four percent are possible on average", says Makowski.
Procurement should be a top-level priority
Accordingly, it would be better that buyers report to the general manager or the commercial manager, explains the consultant. Small and medium-sized businesses are far away from the ideal of their own purchasing board member, as has been demonstrated by the Siemens Group. Often, the lack of organization even results in a kind of proliferation in ordering. In that case, foremen, secretaries and production managers will simply buy what they just need. Robin Lemke, partner at the management consultancy Brain-Net, also sees these problems. "We find totally encrusted structures and ignorance regarding suitable organizational forms", he says. Lemke sees at least a small tendency towards improvement. More and more small and medium-sized companies provide a clear framework, for example with purchasing guidelines.
However, according to Lemke, there are rarely more in-depth interventions in the organization. "Cost reduction approaches are not holistically pursued because the company's buyers are more involved in playing fire fighters in the crisis and generally ensure supplies. It's simply more than they can cope with", says the consultant. Any long-term purchasing strategy could thus not even be contemplated. Accordingly, some of the small and medium-sized companies could soon be caught unawares by the rising raw material prices which are looming already.
Department without career opportunities
Moreover, industry experts can see a qualification problem which must be taken seriously. "It used to be that those who went into the purchasing department didn't want to have a successful career; and those who wanted to end their career life also went into purchasing", explains Gerd Kerkhoff, founder and managing director of Kerkhoff Consulting. That phenomenon is still reflected in academia today, says Kerkhoff. According to him, there are hardly any academic chairs for training industrial buyers; in contrast, there are countless marketing chairs. Without innovative buyers, companies would remain stuck in their old behavioral patterns: "Purchasing structures have frequently organically grown", says Kerkhoff. Thus, for example, the secretary would be the one to order the fleet of cars, and the lab assistant would order all chemicals. "What we can see time and again: A company with several locations will buy, at these locations, from the same supplier but at different conditions – incredible", says Kerkhoff.
Accordingly, the most important task would be to bring new structures into the purchasing department. "This allows the deduction of what the volume of purchasing really is – which many don't even know at all", the consultant explains. With key figures thus obtained, the product groups can be reclassified. The company can then properly put its orders up for tender and negotiate with potential suppliers. Kerkhoff calculates that producing businesses could thus save between eight and twelve percent in purchasing; service providers could expect up to 20 percent. The savings potential for service companies would be so high because many of them are not even aware that they actually make purchases. Yet, they are paying for transportation services, for cleaning services or flower and ornamental plant care.
The purchasing study by Valueneer shows that, in bidding procedures, the companies' actions will frequently be unstructured and sluggish. While major companies use broad-range tender invitations to thus secure attractive prices, good quality and generally also sound and reputable suppliers, small and medium-sized companies are not very resourceful in this respect. They often just contact pro forma a few candidates which they have known already for many years. The survey by Valueneer showed that only two to four suppliers participated in one half of the tender invitations. In one fifth of the tender invitations, there was not a single new supplier. Makowski from Valueneer finds it hard to consider such narrow gauge procedures as tender invitations at all.
Negotiation skills wanted
"The purchasing staff lacks motivation because – unlike in sales – there are no incentive systems, such as results-oriented remunerations", which is his explanation for the inflexibility of buyers. Moreover, there is frequently the crisis-related fear of supply bottlenecks which is one reason not to talk about prices at all.
Small and medium-sized companies often have their suppliers set the conditions. After all, they frequently obtain goods or services from companies more powerful on the market than they are. "That presents different problems for them than for major group companies which can dictate purchasing conditions in many cases", says Kerkhoff.
Accordingly, small and medium-sized companies all the more urgently need buyers with negotiation skills who understand their suppliers' structure of conditions and, with that in mind, will then able to negotiate margins. "But that's only possible if the purchasing team is top motivated and trained", says the expert and pleads for an incentive system: "Those who save money for the company should also be rewarded for it."
Fred Kapella from Bauking understands this. He makes sure that his buyers are very well integrated in the business. "We keep a close three-way relationship of general management, sales and purchasing", he says. He gives his buyers a share in the company's sales results.
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