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02/09/2017

Procurement 4.0 - Digitalisation of Procurement

The purchasing process at small and medium-sized enterprises (SMEs) has seen itself confronted over the years with ever-increasing challenges: greater variety, the integration of supply chains, market volatility and tighter time-to-market periods. The factors influencing procurement are growing all the time – with the result that the complexity of the purchasing process is increasing as well.

In most cases the basis of purchasing decisions is still the performance of calculations using spreadsheet software. However, errors often creep into these calculations which can cause enormous costs for companies.

Possibility of reducing errors in the purchasing process with a systematic solution

The use of a system that is aligned on the entire procurement process and which has been designed by specialists specifically for this purpose would prevent these errors. This would create transparency, which would in turn reveal inconsistencies in the calculations and allow them to be corrected – i.e. a systemic solution that ensured that the prices achieved were guaranteed over the long term, as well as transparent cost behaviour patterns for all materials. Which purchaser would not like such a solution?
For several years, the standard repertoire of modern Purchasing Departments has included various instruments for price analyses and product cost calculations, although these have only been available as isolated applications on the market. What has been missing up to now has been a tool which combines the different approaches and creates new value as a "one solution concept". With Procurement 4.0, Kerkhoff Consulting has now developed an integrated system solution – and therefore a long-term best price guarantee for the articles.

This is how it works: through the use of software, the market price of a selected, representative article of a product group is determined and compared to the price actually paid or a specific offer that has already been submitted. With this method, complex data can be analysed with respect to the price. After a product cost analysis, the various cost items that have been recorded are then compared with the values from an index database – i.e. with up-to-date information about all raw materials, energy and logistics costs, as well as industry-standard wages, which affect the market price of the article. The calculated value of the selected reference article is then related to the prices of the remaining articles in its product group.

Then, on the basis of the transparent price and cost analysis, Procurement 4.0 enables the system-supported implementation of the price on the market and ultimately offers a long-term best price guarantee for the article.

Practical example

A plant manufacturer requires several hundred different sheet metal parts for their various products. Up to now it has not been possible to obtain transparent and up-to-date information on the costs. Procurement 4.0 now performs reference calculations, whose data is then incorporated into the so-called costing cloud. This means that a stored database of over 25,000 variable indices from the market forms the basis for sustainably guaranteeing the price over the long term. The result is that it is clear at all times what this article may cost. For the prices determined in this way there is therefore a best price guarantee.

The plant manufacturer can therefore compare their stored price data at any time with all of the indices which result in a change to the price – be they fluctuations in raw material costs, changes to wage levels or logistics costs. This reduces complexity and various areas of the company benefit from this system.

Advantages at a glance

The special feature of this solution is the integrated digital recording of the procurement process, which eliminates the likelihood of errors that otherwise repeatedly occur at the interfaces. Because the current major trend towards digitisation it is not very useful if the individual systems cannot communicate with one another.

Accordingly, Procurement 4.0 provides detailed information at the press of a button to the procurement management team, but not only simplifies the work of the Purchasing Department, but also other areas of the company, such as Sales or Controlling. Sales is provided with a transparent basis, e.g. for forcing through justified price increases, while Controlling can regularly compare the current purchase price with the optimum price.

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