Enhancing in-house resources
Co-sourcing – the alternative to outsourcing in strategic procurement. How an automotive supplier avoids dependencies and investment in IT and resources while using external procurement expertise and resources.
About the company
As a global market leader for gas springs the automotive supplier faces the same challenge as many other companies – having to reduce costs while its customers, which are primarily in the automotive industry, demand ever more complex products. Procurement plays a key role in striking this delicate balance. It has to map requirements by optimising the supplier portfolio on a sustainable basis, thus safeguarding the company’s successful position on the procurement market for the long term.
At the same time, however, it must also aim to unlock any additional potential that may arise in the future. To achieve this, the procurement function needs to continuously monitor global markets with a view to finding and evaluating suppliers.
Procurement is handled centrally, which has a workforce of 3,100. The modestly sized procurement team is charged with fulfilling its remit quickly and efficiently, but without investing in its own resources or taking on the risks associated with outsourcing. It thus has a key role to play in safeguarding and extending the company’s leading market position in the long term.
Aim of the project
The aim of the collaboration was to systematically optimise the existing supplier portfolio, not just search for potential savings from alternative sources. This involved looking at issues such as which suppliers were used for which products, to what extent and at which sites. From the very start, the automotive supplier emphasised the importance of collaborative decision-making when it came to the supplier portfolio and focussing on the potential that existed for achieving sustainable results.
During a pilot project, a joint co-sourcing team identified the improvements that the collaboration would bring. Working closely with the specialist functions, the team established the basis on which the entire company could work in closer cooperation to boost the effectiveness of procurement operations.
The co-sourcing board – comprising the chief financial officer and head of procurement and our consultants –was responsible for overseeing the pilot project. During monthly meetings, the board discussed the results achieved to date and specified new individual projects. These regular meetings also kept lines of communication open, speeded up decision-making processes and ensured everyone was aware of the project’s progress.
Following the initial results, the co-sourcing project was extended to additional segments of the direct and indirect requirements spectrum and each material field was processed systematically in four stages.
Role as a co-sourcing partner
To get to grips with these crucial tasks, the supplier looked at a number of different approaches, from classic consulting right through to outsourcing. In the end it opted for us as a procurement service provider, which combines the best of both approaches in its co-sourcing model.
As a result, the company could rest assured that it had a dependable partner on side, without having to take the risks associated with outsourcing. Given the small size of the company’s procurement team, its limited IT budget and its inability to fully exploit e-sourcing tools, we have been able to bring numerous benefits. These include experience in the global sourcing of technically advanced products, practical experience and expertise in operational implementation and its own e-sourcing software for systematic, comprehensive tender processes and negotiating.
Because we have an experienced team of procurement managers and business consultants who specialise in procurement, the client could expect rapid results from its co-sourcing partner. Our e-sourcing software provided outstanding support for the strategic procurement process.
This made it easier for the procurement function to link up with decentralised procurement units and specialist functions and access full specification data and information about potential new markets and suppliers.
The collaboration in a co-sourcing team ensures that new competencies are retained and developed within the company, even once a project carried out with an external partner has been completed. Unlike classic consulting, where the emphasis is on using in-house resources to make easy gains, the model rolled out involved training the procurement team to be adept at utilising all relevant tools. This approach ensures they are also able to handle complex tasks in the future.
What’s more, in contrast to outsourcing models, the in-house team retained full responsibility for the requirements spectrum in strategic and operational procurement. It can also now use the available procurement tools such as e-sourcing software and its newly acquired understanding of methodologies to gradually implement improvements across all material groups.
First, the team worked out in detail the future needs of all ten international production sites and the product requirements. Thanks to its extensive technical expertise, we were able to work closely with the specialist functions to develop solutions for the technical details of the specifications. Throughout these discussions, we helped to specify non-formalised requirements for suppliers and was thus able to identify the levers for success –i.e. what was technically necessary and feasible –for the co-sourcing process from the very start.
Various methods were employed during this stage, such as conducting value analysis processes designed to “simplify” products and calculating total costs of ownership (TCO). In parallel, our procurement specialists also identified potential suppliers on all relevant markets around the world. In doing so, the team evaluated the suitability of candidates using a matrix for each material field that included criteria pertaining to company size, industry and customer references and production technologies and capacities.
For example, the team used this approach for one of the key material fields and put together an initial shortlist that still extended to a total of 250 relevant suppliers from eight European, three American and six Asian countries along with detailed company profiles. Each potential supplier was contacted and the required profile data was stored online in the database that had been prepared for subsequent invitations to tender. The initial shortlist was then gradually whittled down until the most suitable suppliers had been identified.
Invitation to tender
The web-based e-contor tender and auction tool was used to give suppliers access to specifications and requirements data. In addition to their prices, potential suppliers were asked to provide information on material-group-specific cost structures, production processes and logistics services, which together formed a basis for subsequent negotiations. Although a large volume of data was requested from the firms involved in the tender process, intensive supplier coaching ensured that numerous detailed tenders were submitted by strong candidates. The team used these offers as a basis for deciding which suppliers should be invited to join initial negotiations.
Negotiations and implementation
A joint negotiation team led the negotiations. A binding guideline was issued ahead of talks that specified the subject of the negotiations and roles were clearly assigned. The circle of potential suppliers was gradually reduced over the course of several meetings until only the candidates for final negotiations remained.
The final negotiations determined the future supplier portfolio. The clear assignment of roles was particularly important for these talks and the CFO, who is responsible for the procurement function at the company, played an important part in this process. Only optimum cooperation between the CFO, the head of procurement and our consultants would guarantee that the full potential could be unlocked for day-to-day operations.
Since then, cooperation has been extended. Work is gradually taking in each and every segment of direct and indirect procurement. The co-sourcing board made up of the CFO and head of procurement and one of our partners continues to meet on a monthly basis. It sets the annual calendar and work schedule, discusses ongoing projects and takes decisions on new projects.
The co-sourcing partnership offer the producer more than just support for optimising its supplier portfolio. The company is building a platform of methods, tools, IT systems, experience and market and supplier data that will enable the lean and efficient team of buyers to conduct procurement activities with the best terms and conditions worldwide – even well after the current partnership has finished.
- Sustainable optimization of the supplier portfolio without one-off effects
- Gradual adoption of cutting-edge e-sourcing technology by the company’s own team
- Effective buyer training with regard to procedures and methodologies such as value analysis, cost structure analysis and tender and auction management
- Avoidance of fixed HR and IT costs thanks to needs-based reinforcement of in-house resources by procurement experts
- No haemorrhaging of expertise due to the outsourcing of skills –full control over all activities rests with strategic procurement
- Co-sourcing partner stands by for the long term –repeated processing of the same material groups ensures sustainable success
- Co-sourcing partner is remunerated using a success-based model, which ensures minimum risk and sound value for money