Optimization of GNFR purchases for a major grocery retailer

Task

The company's CFO set a task to review procurement process and introduce a new IT-solution that would reduce labor costs and make the processes quick and usable. As part of the project, it was necessary to automate sourcing, P2P (procure-to-pay), and contract management. Changes in procurement processes should have helped to outperform a competitor in terms of profitability.

Client

Major Russian food retailer. The company operated several retail chains, including “corner stores”, supermarkets, and hypermarkets. Over 5,000 stores in total.

Type of service

Consulting in Procurement

Period

October 2013 – November 2013

Case

For non-market purchases, SAP ERP system and the in-house e-trading platform were used. At the same time, procurement process was complicated, time-consuming, and bureaucratized. Manual operations and paperwork took a lot of time. Most of purchases were performed by business units. In one category, there were 5-7 customers who purchased a similar range from different suppliers. No volumes consolidation took place. There was no single system where all specification requirements, bids, and contracts would be accumulated.

The client used SAP ERP system and own-developed E-trade platform for procurement
Procurement process was complicated, time-consuming, and bureaucratized
In one category, there were 5-7 customers who purchased from different suppliers

The Process

1. Analysis

With the current ERP system, obtaining all the data on purchases was impossible. During the audit, we collected information from several sources. We conducted 52 interviews with the employees and reviewed 26 procurement regulations. We found out that the regulations were not respected, they contained duplications and contradictions. We assessed procurement expenses, staff time, procurement terms, and identified the categories critical for business.

We described the current process and pointed out the shortcomings – duplication of functions, incorrect distribution of responsibilities, implementation of processes on paper, but not in the IT-system. We revealed systemic problems – only 20% costs coverage by the department, absence of a single procurement department for retail chains and functions, a large amount of one-time purchases – over 50%.

We reviewed the existing IT-systems and found weaknesses in terms of usability and functionality. We reviewed procurement expenses in the context of suppliers, categories, and contracts. We defined the potential for consolidation and cost optimization for specific categories.

We suggested that in that situation, the company was not likely to get the desired effect from automation. Therefore, we proposed to develop and then to automate the procurement process. The company’s CFO agreed with this approach.

We conducted 52 interviews and reviewed 26 procurement regulations
We described the existing process and identified the weaknesses
We reviewed IT-systems and work with suppliers
We suggested first to develop and then to automate the procurement process
2. Process optimization

We developed an alternative procurement process model. We indicated optimal functions’ distribution. We identified the categories to be covered. We introduced basic principles for procurement operations and then determined optimal organizational structure for procurement function. We set up a schedule for deployment of a new process model regarding automation. We identified pilot units, project team, budget.

3. Automation

Due to the limited budget and incomplete use of IT-system, it was decided to update the existing tool. As the next step, we planned to launch more advanced cloud systems for automation.

Outcome

The project revealed deep-seated problems, so the recommendations were aimed at bringing the procurement system in order.

 

Recommendations made:

  • On procurement automation without involving high costs (max. 3-4 mln rubles) and time (2-3 months)
  • On creating optimal process and organizational structure of procurement, and implementing category management
  • On distributing functions, reducing the time to find a supplier, and making decisions on major purchases from 6 to 3 months

We revealed potential to reduce the costs by 11% or 5 billion rubles a year

Customer Feedback

Chief Financial Officer for Retail Company

“First, we wanted only to automate procurement. But after the analysis phase, we realized that the problem was much deeper. You cannot automate the chaos – you must first put the processes and structure in order, establish basic principles in terms of indirect purchasing. Our colleagues from PrECA helped us discover the problems that we did not see. And they showed us the functionality that we had but did not use. We realized that first you need to fully use what you already have before introducing something new”.

Tools

Procurement Methodology and Best Practices

  • Methodology for auditing and consulting in the field of procurement
  • Best practices applied at multinational companies
  • Process automation methodology
  • Survey templates for the client’ employees

Knowledge and experience in reengineering and procurement automation

  • Knowledge of non-market procurement specifics: business processes, principles, roles, bottlenecks
  • Experience in implementing 8 major procurement reengineering projects
  • Experience in conducting 12 large projects on procurement automation.

Skills

  • Tasks and project management
  • Communication with management stakeholders
  • Strategic thinking
  • Standardization, unification, and optimization
  • Collection, structuring, and data analysis

IT tools

  • Macros and tables for big data processing and analysis
  • Experience in implementing procurement systems: SRM, eSourcing, P2P
  • Experience in implementing ERP-systems: SAP, 1C

Project Team

Zelimkhan Suleymanov

Project Manager

Anatoliy Tsypkaikin

Business Process Consultant

Anton Smorodin

IT Consultant

Stakeholders about the Project

Zelimkhan Suleymanov

Project Manager

“In a big company, purchases are always cumbersome and complex. They are associated with involving many employees who seek to control everything. We tried to simplify the processes and approvals, set up a clear chain of decision making. It was difficult to understand how things were arranged, so we took data from the ERP system and conducted interviews. When we had the total picture, we developed and proposed a new procurement model. This project demonstrated that procurement reengineering is a story about the company on the whole. The procurement department is responsible for a small part of procurement cycle, so the changes apply to all departments.”

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