How Procurement Can Achieve Its Annual Goals In 2024
In 2024, procurement faces a range of challenges, particularly in cost reduction, risk management, supply chain management, and digitalization. Issues such as the Supply Chain Act and the shortage of skilled workers are also critical. To address these goals, procurement consulting firm KLOEPFEL CONSULTING offers concrete approaches and measures for companies.
1. The Shortage of Skilled Workers as a Central Challenge
In many companies, operational processes occupy procurement teams so heavily that there is little time left for strategic tasks such as digitalization, risk management, or implementing the Supply Chain Act. Restructuring job tasks can help by outsourcing less value-added activities to external service providers. This frees up resources for a more focused risk management approach. Companies should also invest in employee training to build a strong and competent procurement team. The use of experienced interim managers can also help lead the procurement team into the future.
2. Identifying and Eliminating Cost Drivers
A central question for any company is: Do you know the factors driving up the costs of your products? Identifying these cost drivers is essential to protect margins and minimize supply risks. Cost drivers can vary—energy prices for energy-intensive productions, or high-quality raw materials like stainless steel or copper for other materials. Since procurement often has limited time to analyze these factors, digitalizing processes and outsourcing simpler procurement activities can provide valuable relief. Such measures can enable savings of three to four percent on direct materials. Procurement consultants can also help optimize procurement and relieve buyers.
3. Effectively Managing Energy Price Risks
Companies heavily dependent on energy prices should carefully review their strategies for hedging against price increases. It is crucial to find ways to avoid unexpected price adjustments in the coming months. This requires a well-thought-out risk management strategy.
Reducing Supplier Numbers and Utilizing Benefits
As part of cost optimization, it may be beneficial to reorganize the supplier structure and reduce the number of suppliers. This allows for larger orders with fewer suppliers, which can lead to price advantages. At the same time, valuable time is saved due to reduced administrative effort.
5. Critically Reviewing Inventory Levels
Many companies have increased their inventory levels in recent years to minimize supply risks. However, this ties up capital and should be regularly reviewed. Close coordination between procurement, sales, and production is necessary to optimize inventory levels and reduce unnecessary stocks.
6. Risk Management through Nearshoring, Insourcing, and Outsourcing
Effective risk management begins with a thorough analysis of suppliers and their sub-suppliers. Companies should assess the risks in the supply chain and whether the supplier is capable of managing these risks. Considerations may include whether it makes sense to integrate parts of the supply chain into the company (insourcing) or to outsource certain production peaks. The possibility of relocating production closer to the home market (nearshoring) also plays a role.
7. Reducing Product Costs through Efficiency in Risk Management
Risk management involves not only monitoring suppliers but also optimizing product policy and development. Costs can be reduced by using alternative materials or standardizing products. It is also important to check if products are overly complex and if simplification is possible. Open exchange between technology, sales, and procurement based on transparent data can lead to innovative solutions.
8. Considering Alternative Sourcing Markets
For a long time, sourcing focused on so-called Best Low-Cost Countries, but the risks associated with these markets were often underestimated. Dependence on certain countries, such as the production of sunflower oil in Ukraine, can lead to significant problems. Therefore, it is advisable to examine alternative sourcing markets to reduce such dependencies and spread the risk.
9. Utilizing Purchasing Communities and Cooperations
Purchasing communities and cooperations can be particularly beneficial for companies whose purchasing volume is not large enough to benefit from volume effects alone. By joining forces with other companies, better conditions can be negotiated. A successful example is Austrian ski lift and cable car operators who, through a purchasing community, secure joint service contracts and thus save costs.
10. Aligning Supplier and Company Roadmaps
Active supplier management requires regular reviews to ensure that the company’s long-term goals and the strategies of suppliers still align. It is worthwhile to match the company’s product roadmap with that of suppliers to ensure both parties are moving in the same direction. This alignment can also provide valuable insights by leveraging suppliers’ innovation efforts.
11. Implementing the Supply Chain Act Requirements
The Supply Chain Act aims to protect human rights along the supply chain and motivate companies to invest in sustainable supply chain management. Companies are required to fulfill certain due diligence obligations and implement measures to improve working conditions in their supply chains. This requires a comprehensive analysis and adjustment of existing procurement practices to meet the new legal requirements.
Conclusion:
The year 2024 presents numerous challenges for procurement, but by employing strategic measures such as optimizing supplier relationships, digitalizing processes, and implementing a smart risk management strategy, companies can achieve their annual goals. It is essential to remain flexible in response to market changes and to continuously train employees to build a foundation for long-term success.
Author
If you would like a maturity analysis of your entire procurement department and landscape to identify risks and opportunities, or if you have any questions on the subject, please contact us at:
Contact:
Kloepfel Group
Damir Berberovic
Tel.: 0211 941 984 33 | Mail: rendite@kloepfel-consulting.com