Problem
The company operates in the mechanical sector of components for transmissions with companies in 20 foreign countries, over 1500 employees and sales mainly abroad, and a turnover of more than €300 million.
As with most non-account mechanical manufacturing industries, the purchase volume exceeds 50% of the value of turnover. With the increasingly difficult search for operating margins in a highly competitive market, it is therefore becoming crucial to optimize purchases, made difficult by low volumes, albeit interesting, and by the fragmentation of buyers.
The Management has decided to standardize the purchasing policies of the various establishments and for the different product lines, and in particular has decided to:
- unify the purchases of establishments in a single Central Purchasing Directorate.
- develop the purchasing marketing activity with particular reference to the so-called “Low Cost Country”, especially where there are significant presences of the company.
The purchasing function, which is also subject to heavy pressure from the raw materials market, has seen an increase of about 32% in the last 24-30 months, it has become the crucial crossroads of a series of activities that condition the good results of the company.
The Management, seeing that both from the inside and from the outside, it was not possible to draw in a short time the resources necessary to put into place the procurement and develop the renovation project, has decided to contact Contract Manager s.r.l. to implement the changes decided.
Solution
A Contract Manager s.r.l. resource enters the position of Group Purchasing Director, supporting the function in current practice (but the volume acquired in the meantime has still increased by about 10% over the previous year, after taking into account the effects of inflation) and preparing the change of structure for a transition from the existing organization (responsibility for purchases located on the establishment) to one more suitable for corporate models.
Together with the Management, the contract manager builds the future organization scheme, having identified in the matrix arrangement, through the activity of “commodity leader” and that of purchasing marketing, the operational chain that can optimise the performance of the facility without overloading its resources.
During the year of intervention, the contract manager selects (external) resources that can meet the requirements and then development projects are set up, while abroad, in “low cost” countries – and in particular where various establishments already exist –, important scouting/trading units are established in local markets.
Today the volume of purchases from “low cost” countries is around 15% of the total purchased, and it is estimated that it can double over three years.
This increase may take place by direct commitment of the purchasing structure, but it also must involve at the same time the other functions such as Quality, Design and Production. In other words, it is already clear that the project to modernise the purchasing organisation may involve the “re-engineering” of other business processes equally involved, if we want to exploit the full potential of centralised management of “commodities”.
During the period of “temporary management” the contract manager did not only devote himself to so-called ordinary administration, in which he achieved significant savings in purchasing, even under the pressure of raw materials prices, but he also set up an interesting process of external control and collaboration with a selected pool of suppliers, which did not fail to give significant economic and technological results.