Optimization of the demand structures
The company is a European department stores’ chain that operates over 30 branches. The family-owned company, rich in tradition, decisively determines the European market in the premium segment through its large variety of brands.
Sustainable procurement processes for indirect requirements
With the aim of positioning the company for the future and cushioning the impact of the current Covid situation, the retail chain launched a procurement optimization project for material costs. There was no central procurement department for material costs and the corresponding requirements were procured directly by the respective departments.
For the first time in the company’s history, all indirect requirements, processes in the departments and creditors were to be analysed and optimized. Sustainable savings were to be generated in all areas and best practices from individual departments were to be implemented throughout the company.
Holistic consulting approach of demand management and co-sourcing
The most important question that had to be clarified at the beginning of the project was “Who buys what from which supplier for how much?”. To create company-wide transparency, the project team used various sources. A pure data analysis of, for example, expenditure data, invoices and supplier master data as well as contracts created an initial overview of the expenditure structure. For a comprehensive assessment of potential, which included not only the pure key figures but also the maturity of the procurement functions and a detailed examination of the supplier structure, we also conducted interviews with a total of 25 responsible employees.
The results of this potential analysis revealed various areas for action both in the internal processes and specifications as well as in the “classic” procurement activities. In order to leverage these potentials as effectively as possible, the management and the project team decided on a two-part approach:
Demand management to optimize internal demand structures
In order to increase internal transparency, bundle requirements in the best possible way and optimize quantities, the project team developed a procurement-specific product group structure. If everyone works with the same structure, this will also enable company-wide transparency of procurement requirements in the future. In the next step, the actual requirements for each product group were determined across departments within the framework of classic demand management. Quantities, required qualities, order frequencies and criticality were recorded for each demand and precise specifications were created that are now binding for all departments.
In addition, processes were introduced to secure the results in the long term. For example, the retail company now conducts an annual “spring cleaning” in which all requirements are reassessed and optimized (Continuous Demand Management).
Co-sourcing to optimize the supplier network and improve conditions
Parallel to the demand management programme, the project team scrutinized the supplier network for each individual demand. Here it was noticeable that the client worked primarily with regional suppliers and accepted higher average price levels. The project team expanded the supplier pool to include supraregional suppliers and included the most attractive procurement markets for each product group.
In the next step, the newly determined demand quantities were put out to tender and negotiated among all suppliers.
Optimum efficiency gain through combination of levers
- Full cost transparency through newly created commodity group structure
- Optimization of specifications and quantities
- Improved procurement process through cross-departmental cooperation
- Powerful supplier pool
- Significant savings across all commodity groups
- Continuous demand management