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Consulting project: Procurement optimisation at Siteco lowers raw materials costs and boosts planning certainty

Due to the growing move towards this relatively new technology, lighting manufacturers are having to adapt existing products and develop entirely new solutions.

Siteco worked with INVERTO to develop a comprehensive programme designed to optimise the procurement function. The experts were tasked with scrutinising both semi-finished products such as steel strips and sheet steel and complex bought-in components such as aluminium castings.

About Siteco GmbH

Siteco is one of the leading suppliers and manufacturers of indoor and outdoor technical lighting and customer-specific lighting solutions. As a leading supplier, Siteco stands for innovation, quality and service in lighting technology. Its range of outdoor lighting solutions includes everything from street lighting and lighting of public areas to airport and stadium lighting. Siteco’s range of indoor lighting solutions are used for applications in office and industrial environments, as well as in sports facilities, public buildings and shopping centres. Recent reference projects include lighting systems for Die Gläserne Manufaktur car plant in Dresden, Barajas airport in Madrid, the Allianz Arena in Munich and the world’s tallest skyscraper, the Taipeh Tower.

The company was established in Traunreut/Chiemgau in 1949 as a domestic appliance and lighting plant run by Siemens Electrogeräte GmbH and was spun off from Siemens in 1997. Today, the Siteco Group is represented worldwide by more than 20 sales companies and production sites in Germany (Traunreut), Turkey (Istanbul), China (Lang Fang Hebei Province) and Malaysia (Puchong). It employs an international workforce of 1,250 employees, around 1,000 of whom work in Germany. The Group is owned by Osram GmbH.

The project

Starting from significant short-term price demands and low planning certainty

Although semi-finished goods are naturally associated with very high material costs, analysis showed that this also applied to the other categories of goods. The increasingly complex raw materials scenario presented major challenges for the procurement team, which had to fend off high price demands from suppliers and deliver planning certainty by achieving longer fixed-price periods – a key issue for the important project business that Siteco conducted.

The situation was further compounded by Siteco’s sometimes weak negotiating position –due to its relatively small procurement volumes for materials such as steel –and the fact that it was unable to substitute materials.

The first thing that the teams of INVERTO consultants and Siteco buyers did was to analyse the items being put out for tender. This enabled them to gain a better understanding of the cost structure. To boost the company’s negotiating position by achieving far greater transparency, these cost structures were checked in tandem with existing strategic suppliers and potential new suppliers and compared against benchmarks.

Invoices were then simulated in cooperation with raw materials experts from INVERTO to investigate how future fluctuations in raw materials prices might impact on procurement volumes. When a specific case had particularly significant consequences or price volatility, the project team checked whether indices could be incorporated into longer-term contracts so as to cushion these effects.

Starting with a prognosis of how prices might develop, Siteco was then able to choose the best approach – spot purchases, short-term contracts with fixed material prices or longer-term, index-linked contracts. These measures enabled the teams to harmonise pricing between the procurement and sales functions. What’s more, implementing multinational procurement for key products, acquiring new suppliers and pooling requirements also helped to lower raw material costs.

The results

Eliminating short-term cost increases and improving the long-term procurement scenario at Siteco

With the help of raw materials experts from INVERTO, the project team succeeded in avoiding cost increases and improving the overall procurement scenario. By putting in place an extended supplier pool, Siteco was able to boost its purchasing power on the procurement market. But, first and foremost, harmonising pricing between the procurement and sales functions enabled the company to make its results less dependent on raw materials prices and therefore increase planning certainty.

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