To reorganize the procurement system – centralize procurement, separate operational functions from the strategic ones, implement transparent business processes and procedures. To achieve savings of 10% or 80 mln EURO per year, to reduce FTE by 15% (14 FTE), to reduce inventory by 10%, to increase the payment grace period from 20 to 30 calendar days upon the project implementation. The Vice President for Procurement and Logistics decided to bring the independent consultants on-board, as there were resources available in the company to complete the tasks.
A large international FMCG company
Consulting in Procurement
February 2011 – March 2012
During the period of 5 years the company bought several plants in Russia and combined them under one brand. The procurement expenses for all the facilities amounted to 800 mln USD per year. Just 60% of all raw materials were purchased centrally. The contract conclusion and settlements were performed at the plants, therefore the prices and commercial conditions varied. The management considered financial and labor costs were excessive. When trying to analyze the costs, it appeared that the ERP system did not ensure reliable analytics and statistics on procurement. The managers at the central office were not aware of the actual structure of procurement departments on sites and their responsibilities. At many facilities, the procurement specialists were distracted by non-core tasks – planning and organizing transport, customs services, arranging payments, managing inventory, selling waste.
We analyzed the processes at 8 plants, conducted 55 interviews with the employees and found out that 25% of procurement specialists actually did not work at the procurement department, but at other departments. We found out that there was no coordination and uniformity between the plants. Each plant had its own tender procedure, inventory policy, procurement, and supply process in place. ERP system analysis demonstrated that the module of contracts, requests and orders was not used. The orders were introduced into the system after the materials had been supplied only to settle the invoice from the supplier.
Based on the analytics results, we described the current process model and organizational structure and developed the new organizational structure and model.
We coordinated with the management and did the following:
We presented the results of the project to the management of the company and the plants, got approval, and agreed to extend the project to indirect procurement categories.
Due to the limited budget and insufficient application of IT systems, we decided to improve the existing tool. As a next step, we planned to introduce a more advanced cloud-based automation system.
The project brought not only the direct benefits in the form of cost reduction, but also allowed to restructure the procurement system completely.
Other achievements from the project:
Vice President, Procurement and Logistics
“It was the most strategic and complex project in the history of our company. There was a lot of resistance from different departments, as we had all the functions involved in procurement. We had no idea that the project would affect so many areas and that there would be so many traps and pitfalls. We implemented the project thanks to the solid support of the management and owners of the company, as well as the expertise of PrECA specialists. The next step is the automation of strategic sourcing processes and putting things in order in indirect purchases.”
Procurement Methodology and Best Practices
Knowledge and experience in reengineering and procurement automation
Business Process Consultant
“The FMCG sector is very competitive, therefore the managers pay great attention to procurement. The cost of raw materials forms a considerable share of the total cost of the final product, so cost optimization greatly affects the company’s profit. However, to achieve results, you need a strong procurement department, not burdened with operational stuff, urgent and low-cost projects. We need the employees who can think strategically, analyze data and lead projects to implement changes.”
Submit a request if your company faces similar issues. We will conduct express diagnostics of your procurement process and, will explain what can be improved at a consultation.