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Bahlsen Project: Financing growth internally by reducing procurement costs

The “fit” project at Bahlsen lays the foundations for a state-of-the-art procurement organisation

For generations of Germans, the name Bahlsen is synonymous with sweet treats – and the company’s international fanbase is also rapidly expanding. Bahlsen GmbH & Co. KG has been in business since 1889, when Hermann Bahlsen established a small shop with a team of ten under the name “Hannoversche Cakesfabrik H. Bahlsen”.

Today, the company is an international operation that employs 2,800 people at five sites. Distinctive taste, consistent quality and confidence in the products – these are the three things that have made Bahlsen what it is today, a modern, successful family company.

 

The challenge

Bahlsen is the market leader in Germany and one of Europe’s biggest confectionery suppliers. As Germany’s confectionery market becomes ever more hotly contested, the company is increasingly coming into competition with discounters, whose brands are proving to be strong rivals to its own branded products. To continue to thrive, it needs to boost growth and expand its market share.

Bahlsen took up this challenge back in 2003, when it began carefully reviewing its product range and examining the organisation as a whole to find out where it could improve its operations. The results were promising, but meant major changes for the company. While it prepared to embark on these far-reaching changes, Bahlsen, a family business, was very conscious of its responsibilities towards its team and its own tradition.

To finance the modernisation without endangering its independence, it would have to find the funds from its own resources. The only way of doing this was to make processes within the company simpler, more efficient and faster and achieve a significant reduction in costs.

And that was the aim of the “fit” project, which was launched in 2005. The project centred around nothing less than a complete makeover that would transform the company from a traditional, functional business to a modern, process – oriented organisation. And procurement specialists from INVERTO were brought in to support Bahlsen in this major undertaking. During the course of improvement activities, it became clear that optimising the procurement function could help free up a large share of the financing that was required. Every saving achieved by driving down procurement costs and improving procurement processes would make a concrete contribution to improving results.

Strategic realignment focuses on umbrella brand concept and product innovation

In view of the challenging developments in the confectionery market, Bahlsen took the decision to realign its strategy based on two key pillars.

Firstly, the “Bahlsen” and “Leibniz” brands would be strengthened and developed into umbrella brands. A massive advertising campaign would be rolled out for both in order to boost market growth, a strategy that would require significantly larger levels of investment in marketing and sales.

Secondly, the company would use the funds at its disposal more selectively and only for very promising product innovations, to ensure they could be launched as quickly as possible. That meant that productivity needed to be increased, which would require significant investment to expand production capacities and modernise old plants.

Bahlsen gets “fit” for the future

The tens of millions of euros needed to finance the company’s strategic realignment between 2006 and 2009 had to come from within the organisation. The first step in the “fit” project was therefore to conduct an in-depth analysis of the current situation at Bahlsen. Greater transparency was introduced in the company’s various control, core and supporting processes and the corresponding process costs were also analysed.

The second step involved working with INVERTO consultants to clearly define, optimise and streamline processes before finally allocating clear-cut responsibilities. The overall aim was to achieve lean and efficient processes, shorter throughput times and lower process costs. During the project, it became clear that improving the procurement processes would result in significant savings that could help finance the company’s growth. The “fit” approach and the resultant organisational changes at Bahlsen are outlined below with reference to the “Procurement Management” subproject.

Procurement as a driving force for organisational changes in the procurement optimisation subproject

The first step in the subproject involved looking into who exactly purchased goods and services for Bahlsen. The project team found it was not just the procurement function that issued orders to suppliers. In fact, numerous specialist functions were accustomed to placing orders with no involvement on the part of the procurement team at all.

As a result, the procurement activities of the entire company – not just the procurement function – had to be analysed to ensure the strategic procurement process could be implemented consistently. What’s more, collaboration between the procurement function and specialist functions had to be remodelled in numerous cases so that the majority of procurement activities could be pooled in the procurement function.

Roles and responsibilities had become mixed up between the various units within the company – to no benefit whatsoever for the procurement function or the business as a whole. To resolve the situation, procurement tasks were organised in line with the process chain. For the specialist functions, these new processes meant they would have to limit themselves to their core competencies by focusing exclusively on technical project planning and implementation, for example. In contrast, the procurement function would in future be responsible for the entire strategic procurement process.

This meant that procurement would have to be involved in project work at a much earlier stage than in the past, i.e. during the planning phase. Changing how procurement responsibilities were allocated and organising the procurement process in line with the value added chain helped ensure that the full expertise and potential of procurement management could benefit the whole company.

“fit” gives procurement a new status

If the newly overhauled procurement processes were to work in practice then the procurement and specialist functions had to fundamentally change how they worked together. The technical functions in particular had to be convinced that bringing the procurement team in on projects early on would boost added value. But the procurement function also had to take on new responsibilities.

For example, the team had to build up greater technical expertise so that they could work with specialist functions, suppliers and planners on the same level. In the end, the changes worked well and the specialist functions and procurement started to communicate with each other more openly and intensively. Potential suppliers are now also involved early on and help develop innovative solution proposals that give projects a valuable boost.

This collaborative project work has brought procurement and the specialist functions closer together, enabling them to discuss technologies and new developments on equal terms. That in turn has changed the way that procurement is viewed within the company and it is increasingly being seen by specialist functions as a close partner in the search for innovative solutions.

And, last but not least, the “fit” project and the comprehensive optimisation of procurement ensured that the strategic realignment and essential changes at Bahlsen could be financed directly from the company’s own cash flow.

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