One for one and all for one – procurement in a multibrand organisation
Market independence and shared procurement targets are not mutually exclusive in multibrand organisations
About KION Group
The KION Group is a leading global supplier of forklifts, warehousing technology and other goods handling vehicles – and the market leader in Europe. With the Linde, STILL, OM and Baoli brands under its roof, the KION Group covers the relevant markets and segments extremely effectively and offers customers a wide range of alternatives through its broad multibrand portfolio.
But what customers see as an advantage has not always been as enthusiastically appreciated by the group. Independence and individuality were considered all-important for the brands and they had little, if anything, in common. Naturally, the same was true of their procurement operations, which meant that each brand had a procurement function that operated entirely independently of all the other brands.
Wasted potential – every brand buys for itself
In this set-up, each site defined and designed its own specific procurement processes. While procurement at one site operated solely on the basis of IT-supported needs requirements and mapped its entire process with system support, another site had no clear specifications whatsoever for passing on requirements to procurement. It was primarily down to individuals to manage any collaboration between procurement functions in the different business units. Indeed, requirements were only pooled when the organisation felt it was faced with a virtually monopolistic supplier structure.
The procurement teams at the various sites also had very different sets of requirements to meet. As a result, the teams often differed greatly in terms of age omposition, remuneration and training. The sites also used different IT systems that were not networked.
The biggest problem, however, was that the procurement functions were simply far too small. For example, while major productions sites had seven or eight strategic buyers, smaller sites had just two or three – even though all the sites had to buy in virtually the same range of materials.
Consequently, the teams were not able to deal with individual material groups to anything like a uniform standard. Even at the larger sites, procurement markets were far too large for a single buyer to cover in any great depth.
Furthermore, the various business units tolerated – and in some cases even promoted – a complete lack of transparency in their procurement processes for the various brands. Because a multibrand strategy dictates that products produced for the various brands have to be different from each other, this same logic was applied directly to procurement.
Learning by Doing - developing a common KION vision for procurement
The management team at KION decided to overhaul the Group’s organisational structure in order to leverage cross-brand synergies and implement best-practice principles across the corporation. This involved creating a central procurement organisation that could offer cost benefits for the entire group by pooling procurement volumes.
To strike the right balance between brand independence on the one hand and requirements pooling on the other, the project was carried out in multiple stages, with INVERTO actively supporting the process.
The starting point and the initial challenge in the project was to identify sourcing potential in the various brands and then to express it in terms of target values. A balanced scorecard model was used to analyse fixed target values for financial results, customer and supplier relations, processes, employees and systems and to specify benchmarks. This process also went hand in hand with the gradual development of a suitable procurement organisation.
Typically for a multibrand organisation, procurement had initially been arranged on a local basis and so this set-up was restructured in two stages. Before each stage, projects were first created that took account of the organisational changes and demonstrated through actual savings that greater coordination in procurement could indeed prove successful.
The “GoIPO” project at KION showed that a three-pronged organisational approach involving a mix of central and local procurement was the most promising solution. In this model, a central procurement function at group level purchases selected categories of goods that offer extremely good potential for synergies and do not need to be located close to the customer. If there are potential synergies, but closer proximity to the source is required, goods are be purchased by brand lead buyers whilst site procurement functions are responsible for purchasing goods in all other cases.
Interdisciplinary teams, which involved both procurement and other specialist functions from each of the brands in the process, were given the task of working through categories of goods that had been identified as having cross-brand significance. For example, the teams coordinated suppliers and neutral parts for all of the various brands so as to pool requirements and improve the negotiating position vis-à-vis suppliers, thereby achieving significant cost reductions.
The various goods category teams then used a number of approaches to optimise their procurement conditions. Some teams simply issued new invitations to tender and focused in particular on identifying new, as yet unknown suppliers. They also took low-cost countries into account, since one of the project’s aims was to extend the share of goods procured from these sources.
Other teams staged “technical expert workshops” that aimed to identify potential improvements by comparing the technical solutions employed across the various brands and suppliers. A third approach focused in particular on the categories of goods that accounted for a large share of the procurement volumes at the sales companies. In these cases, improvements were achieved by standardising terms and conditions, enhancing the information processes and bringing the sales function on board to implement the results of negotiations.
Joint procurement is a reality at KION
Together, these measures did more than just significantly reduce procurement costs and improve communication between specialist functions and brands, they also boosted the acceptance and therefore the status of procurement at KION on a long-term basis. For example, procurement now plays an important part in development projects in the various business units.
Although the success of the optimisation projects is clear to see, KION’s procurement organisation is still developing. There are plans for every company in the KION Group to have a buyer who is responsible for strategic procurement issues.
The structural changes are being further enhanced by the introduction of a Corporate Sourcing Committee charged with reducing the workload involved in coordination and, last but not least, the group-wide implementation of valid processes and methods in procurement. This will help deliver additional cost benefits and further optimise the process as a whole.