Centralization of purchasing results in efficient and transparent processes

Background
The client was a long-standing public service company owned by one of the largest concerns in Austria. It employs approximately 2,000 people and comprises two legally separate divisions, each of which had their own purchasing department. Within the framework of a pilot project initiated by the parent company, they were to be merged into one central purchasing department for the service company.

Task
During an initial three-week analysis of key processes, the T.A. Cook team provided expertise as to how best to set up a central purchasing department. The team was then awarded the contract to implement and leverage the identified opportunities for improvement.

Approach
The T.A. Cook team set about systematically examining all processes employed by both purchasing departments across multiple organizations to determine the differences, interfaces, responsibilities, and use of IT. Employees from different departments and grades were then interviewed and integrated into the analysis, with the ultimate goal of compiling a report on the different purchasing, warehousing and logistics processes in order to determine the level of cooperation between the two departments.

Solution
The analysis revealed immense differences between the two departments in terms of:

  • the use of IT systems for administrative work;
  • tasks, interfaces and responsibilities; and
  • the process of approving order requests from operative units.

Following the analysis, T.A. Cook immediately began working on the conception and implementation of a central purchasing department.

During the first project phase, the T.A. Cook and client team worked together to realize a successful merger of departments, as well as to:

  • develop a new target procurement process – from the submission of a purchase requisition by an operative unit to its approval and processing by purchasing;
  • determine who was responsible for cost centers and defined approval restrictions for all operative units of central purchasing;
  • establish an overall organization structure and incorporate the two departments into one new central purchasing unit. Work volumes were reorganized and interfaces with other divisions redefined. Proper job descriptions were then formulated for each employee;
  • integrate the entire target purchasing process into an SAP workflow and, in addition, install an archival system (PAM Storage) for all purchasing documents;
  • introduce a more systematic supply management system and define key performance indicators for the evaluation of suppliers;
  • revise the central purchasing department’s storage inventory and define min./max. levels of articles to be stored per product group; and
  • ensure team development and staff coaching requirements were up to date and being addressed.

After the second phase, during which the above improvements were put in place and the new purchasing process was tried and tested in practice, it was integrated into the group directive.

Client benefits
The centralization of purchasing resulted in the following advantages:

Increased process efficiency

The support of the entire purchasing process by SAP including PAM Storage increased the efficiency of internal processes considerably. Purchase requisitions from operative units could now be completed more quickly making paper requests redundant.

The time spent on processing an order request by the purchasing department was reduced by 30-40%.

Furthermore, the use of SAP meant that information could be more precisely evaluated and deployed as a basis for budgetplanning. The electronic archival system reduced the amount of paperwork drastically.

Increased cost transparency and sensitization through budget responsibility

All operative and business departments within the company were able to plan and manage their own budgets, including expenditure. The responsibilities of the cost centers were clearly defined, encouraging cost transparency and awareness via the “four-eye principle.”

Effective organization structures
Thanks to the reallocation of duties and responsibilities, the central purchasing department could focus on its core functions, which also increased employee motivation. Moreover, purchasing could now concentrate on strategic objectives, such as realizing cost advantages and evaluating suppliers. The restructured organization minimized the number of losses through multiple interfaces, and improved overall communication within the company.

The procurement of goods and services became far more effective thanks to the grouping of costs, meaning considerable  advantages could be realized that were not possible before.  

Overall, the purchasing department expects to generate a profit contribution of about 3 million euros in the year of implementation due to the restructuring and subsequent integration of the defined purchasing policies. The client was very satisfied with the project and once the solutions have been implemented, is planning to audit the new processes.