Consulting project: Individuality and teamwork belong together at Maxeda
Using network-based procurement management to leverage potential for the entire group
The Maxeda Group is the leading retail group in the Netherlands, with sales of €3.9 billion in 2006 and a workforce of 37,400. In 2004, the Group was taken over by a consortium of financial investors. At the time, the VENDEX Group’s portfolio was made up of a range of different holdings and retail chains including V&D, BIJENKORF, HEMA, HUNKEMÖLLER, M&S MODE, CLAUDIA STRÄTER, PRAXIS, FORMIDO, BRICO and BRICO PLAN-IT. Each of these companies – or formats, as they are known at Maxeda – operates independently, and some even compete against each other for customers and market shares. The group lacked any coordination and joint decisions, which meant that significant potential savings were being missed. The new owner recognised the problem and took the decision in 2005 to introduce a radically different corporate culture and standardise the management of the group. The aim was to tap the existing potential in full and generate Group synergies by working with INVERTO consultants to develop joint strategies for all the formats in the group under the umbrella of the new company Maxeda-Holding.
Procurement as the key to closer collaboration
Procurement is an obvious place to start when trying to encourage the various formats of a retail business to work more closely together and pool resources and requirements. After all, every format has to buy in goods on a regular basis. So what could be more logical than combining purchasing power to secure better conditions and prices for all formats? For a multi-brand company such as Maxeda that comprises a whole array of independently run organisations, this was tantamount to a revolution. Because of the unique identity of the formats, each and every purchase transaction, whether direct or indirect, used to be made locally. As a result, purchasing behaviour varied greatly between the different formats. While some procured their products and services mainly from national wholesalers who also took full control of logistics, others were quick to pursue a global strategy of direct demand fulfilment. In this latter approach, the products that marked out the company’s unique combination of style, quality and value were developed in-house, while suppliers from Africa and Asia were commissioned to mass-produce the goods. Some formats were therefore already utilising the lower labour costs in these regions to make significant savings.
Operating strategically with a new approach for Maxeda
This uncoordinated approach to procurement and the strong identity of the formats meant that, in some cases, formats acted independently and competed with one another on sales markets. Despite being under the common umbrella of the holding company, they regarded each other primarily as competitors. Two key criteria for lowering procurement costs and driving up product quality were missing at Maxeda – the efficient coordination of decentralised procurement functions and the pooling of internal expertise. What’s more, the procurement function made ad-hoc decisions and carried out time-consuming individual invitations to tender. This, and the recognition that purchasing departments can no longer be seen solely as support facilities but have to operate strategically, necessitated a new approach and the introduction of network-based procurement management.
Network-based procurement management
Establishing network-based procurement management to ensure formats were sharing and coordinating information about the various procurement activities, the company worked with INVERTO to implement a broad-based procurement initiative. This in turn was to help establish a central procurement function (Corporate Procurement) under the umbrella of the holding company. Corporate Procurement would be tasked with identifying and quantifying the potential savings and improvements possible in and between the formats. It would also be involved in harnessing this potential and therefore coordinating cross-format synergy projects. Before the desired revolution at Maxeda could succeed, the management teams and the wider workforce first had to be persuaded that the procurement initiative would work in their favour. A steering committee was therefore set up comprising the procurement directors of the various formats. All of a sudden, the Maxeda procurement bosses, who had previously seen each other as rivals, were now sitting around the same table. This new scenario motivated the buyers to identify and implement the necessary changes. After a great deal of work, the previous procurement process was adapted to suit the new state of affairs. In other words, the procurement functions had to adopt a strategic approach in order to combat international competition. Resource markets and suppliers had to be addressed and developed directly in order to achieve long-term savings. The key components of the new procurement process were – and still are – the coordination of cross-format procurement activities in the form of combined invitations to tender and systematic cooperation between all parties during the various synergy projects. The aim was to plan product procurement early on and maximise cooperation between formats.
New corporate culture bears fruit
At first glance, it may seem that introducing a new corporate culture and optimising procurement are two very different things. However, for corporations such as Maxeda, procurement has proven to be the key to collaboration between different formats. What’s more, improving procurement operations has helped to establish a common corporate culture between all formats that is actually put into action. Buying together and selling separately – it is a mantra that works and the first results were quick to materialise. For example, the new coordinated procurement systems delivered savings of up to 35 percent for men’s shirts across all clothing formats. A joint information and supplier database was also set up for the procurement of lingerie and is currently being used by a number of formats that are thus able to utilise the full potential offered by suppliers for the group. Further savings of up to 25 percent are being achieved through the careful restructuring of supplier portfolios, while participation in global procurement markets and the introduction of direct procurement from local suppliers have delivered savings of up to 30 percent in low-cost-country sourcing.
Today, there is transparency throughout the Group regarding which quantities are ordered from which suppliers at which prices. Different prices and terms and conditions between the formats are a thing of the past. The same applies for the delivery of product qualities that do not fulfil the contractually agreed specifications. Following the introduction of the network-oriented system of procurement management, it became clear that the group needed a common quality system based on consistent standards and appropriate action was taken. Moreover, all the formats in the group can now take advantage of the benefits offered by existing supplier contacts in low-cost countries.
Developing a network-oriented procurement process helped Maxeda bring together the areas of the company that logically belong together. However, at all times it was clear that the unique identity of the formats had to be preserved, ensuring that each is as unique as necessary but has as much in common as possible.