Raise hidden savings potential in the company

All costs that are associated with operational processes and can be attributed to them can be booked as process costs. So much for the theory of business administration. But in practice, process costs in companies often go unnoticed. Particularly in the procurement of C-parts, however, it is worthwhile analyzing the process costs, because in many cases these significantly exceed the value of the goods and articles required on a daily basis. A comparison of the process costs in the classic procurement process with those using a procurement platform shows the drastic contrast.

Cost trap of the classic procurement process

C-parts usually have only a low commodity value, but are essential for operational processes. Their procurement often leads to extremely high process costs. In many companies, the procurement process is still carried out in the traditional way with numerous manual activities. An example from operational practice illustrates the effort involved:

A lathe operator urgently needs square-head bolts. He does a quick search in the catalog (printed or online). But before he can order, he has to create a purchase requisition in SAP. This takes the lathe operator about 15 minutes of working time. Unfortunately, the square-head screws are more expensive than usual - due to current delivery problems. Therefore, the lathe operator's supervisor has to check and approve the purchase. This requires at least five minutes of working time. Now Controlling checks whether all the data (for example, the account assignment) is correct before triggering the requirement in SAP, which also takes five minutes. The requisition is now converted into a purchase order and checked by Purchasing for price and delivery date. In addition, Purchasing inquires with the supplier regarding availability and delivery date. The time required for these steps is at least 30 to 45 minutes, sometimes longer if the requested party is not directly available or responds promptly.

Now the supplier has to send an order confirmation. If he does not do this, the purchasing department sends him a reminder, which adds another five to ten minutes to the clock. A few days later, the goods arrive. The goods receiving department checks whether the correct screws have been delivered in the ordered quantity. The receipt of the goods is booked in SAP and the lathe operator confirms that his screws have arrived. These operations take about 15 minutes of working time. Finally, financial accounting checks the invoice and posts it. For release, discrepancies regarding the price and other factors may need to be clarified, which takes at least 10 to 15 minutes of effort.

All in all, the total processing time for all process steps is around 105 minutes - a staggering 1 hour 45 minutes per order! If you multiply this by the internal hourly rate, the process costs add up to insane amounts. These exemplary costs are - depending on the goods and the effort involved - open to an upper limit.

Procurement platform as an operational savings miracle

If the costs that companies have with a procurement platform are calculated in a direct comparison, the following picture emerges: The requesting lathe operator quickly finds the suitable square-head bolts by means of a search term in the online catalog of the procurement platform and places them in the shopping cart. This is transferred directly to the ERP together with the account assignment data. There, a BANF is automatically generated. The entire process takes less than five minutes. The square-head bolts are - due to current delivery problems - more expensive than usual. Therefore, the supervisor has to check and approve the purchase, which certainly takes five minutes. However, since the account assignment data has been transferred automatically in the system, Controlling no longer has to check it. The BANF is automatically converted into a purchase order by the system - all important data for this has already been transferred from the online catalog. Purchasing only has to check the delivery date of the order confirmation, which only takes them five minutes of working time. The goods arrive a few days later. The goods receipt check is carried out in SAP. The lathe operator is informed that his screws have arrived. We estimate the working time for this at 15 minutes. The invoice is checked automatically in ERP. This is possible because prices and conditions have been transferred from the online catalog directly into the system. This relieves the financial accounting department of the check.

Thanks to the automated process, the total processing time for all these order steps is around 30 minutes. This means that companies working with a procurement platform can save around 70 percent in time and process costs.

Identify and exploit cost optimization potential

The sample calculation makes it clear that it is worth taking a close look at internal procurement processes and reassessing them. It is not only in terms of lower costs that it can be worthwhile to use a procurement platform.

To make procurement agile and keep it as lean and cost-efficient as possible in the ordering departments, companies today use eProcurement platforms. With a sensibly implemented solution, savings can be made across the entire purchasing process:

• Demand requestConsumers should be able to order their goods quickly, independently and from selected system partners. Manual and lengthy processes - still frequently paper-based in 2022 - are a huge cost driver in procurement.
• Order processing and data managementDigital order processing is the foundation of many optimization measures in procurement. The fewer interfaces to suppliers that need to be maintained, the lower the recurring expenses associated with digital orders. Synchronized order data in the eProcurement solution and in the ERP is even more important than the pure digitization of the order path. Only if the data is identical can order data from the ERP be used meaningfully for strategic decisions and further applications and processes such as spend analytics or category management.
• Logistics: Goods receiving and the entire intralogistics benefit from the electronically available data: The orderer can be quickly determined, including the destination where the goods are to be transported. The recording of new goods inventories in warehouse management also causes less effort in the digitally networked environment. Automatic goods issue machines or scanners can be used here, for example.
• Accounting: Invoice verification, approval, and payment processing should be done with purchase order reference to minimize follow-up and research in accounting.

Valuing and retaining skilled workers

Many factors are currently contributing to the shortage of skilled workers. These include demographic change, the imminent retirement of the boomer generation, rising job requirements, more students but fewer skilled workers, and many other aspects. Skilled workers not only ensure innovation and growth, but also prosperity and quality of life, which makes them essential not only for the economy. It is therefore important that small and medium-sized businesses react and present themselves as attractive employers in order to find and retain skilled workers. Promising working conditions include not only flexible working hours or opportunities for further training, but also smart and digital work processes. In addition to reducing costs, this also leads to smoother processes and more satisfied skilled workers.

In times of a shortage of skilled workers, a procurement platform can therefore make a decisive contribution to simplifying processes and reducing processing times. Employees in the individual departments can devote themselves more precisely to their core business, as many nerve-racking redundant processes are eliminated. As a result, companies benefit not only from lower costs and a more dynamic procurement system overall, but also from more satisfied employees, since their working time and expertise are much more highly valued.

Author:

Michael Petri Since 2021, together with Sebastian Wiese, has been responsible for the operating business of simple system and, as Chief Commercial Officer (CCO), heads the Commercial business unit of the indirect procurement platform of the same name. The 35-year-old's focus is on the strategic and sustainably successful further development of the company: Under Petri's leadership, simple system is to be scaled to become Europe's leading B2B procurement platform.