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Case Study

"Fit for Future": Improving performance in procurement 

A road construction machinery manufacturer expands its global procurement organization to new markets and profitable procurement processes. 

An OEM of special machines is already established worldwide in its market segment. As expansion into existing and new target markets in Europe and Asia is imminent, the company management prioritizes the efficiency of the global procurement organization as a success factor for implementing this project. 

The management decided to work with EFESO to get a clear picture of the current situation and, on this basis, to take global procurement to a new level of performance. In just one and a half years, the project team succeeded in redesigning its organization, processes, and IT landscape and aligning them optimally for the future. 

Challenge

High volatility in raw materials, energy, and logistics is increasing the pressure on margins for a manufacturer of specialized machinery that also wants to expand internationally. Together with EFESO, the company is therefore taking its global procurement organization to a new level of performance and aligning it for the future.

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EFESO approach

The project team recorded all the key aspects of professionalizing procurement in five stages. This included a diagnostics/analysis phase, selecting and implementing digitalization tools, and introducing KPI-based performance management.

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Lessons learned

If automated data enrichment is combined with a targeted tool selection, a fast "time-to-impact" can be realized.

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EFESO success model

The special machine manufacturer has modernized its procurement organization in just one and a half years. Our success model for companies in industrial manufacturing played a decisive role in this.

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Challenge EFESO approach Lessons learned EFESO success model

Tight margins increase pressure to transform

With its commercial vehicles for road construction, the specialist machine manufacturer can look back on a success story that began many decades ago in Germany. As part of a group of companies, the OEM is already positioned in its market worldwide with ten locations and 600 dealers in more than 120 countries. To realize expansion plans in Asia and Europe and to establish new assembly processes in the USA, the management initiated, among other things, a further development of the procurement organization. Under the motto "Fit for Future", this ... 

  • ... to increase its efficiency continuously; 
  • ... further digitalize its IT infrastructures and processes; 
  • ... harmonize its entire work processes worldwide; 
  • ... realize cross-functional cooperation beyond the departmental boundaries of procurement. 

In this case, two framework conditions made it difficult to solve these already extremely challenging tasks: 

  • Margins under pressure: The high volatility of raw materials, energy, and logistics in the international markets increased the pressure on OEM margins, particularly in long-term series projects with fixed price agreements. At the same time, its customers demanded consistent unit cost reductions to ensure the success of their own business cases in electrification and exhaust aftertreatment. The core and starting point of the project for the specialist machine manufacturer was to achieve the desired target prices in procurement. Since purchased materials account for 60-70% of its sales invoice, procurement efficiency is a decisive factor in securing the company's profitability. However, the internal procurement and engineering resources were very busy with operational tasks at the start of the project. There was a lack of time, methods, and suitable digital tools for systematic savings projects.
  • Fragmented IT landscape: The global IT infrastructures were not optimally coordinated, SAP S/4HANA conversions were uncoordinated, and several different ERP systems were used. The result was "data/information silos" in the procurement organization: operational procurement, which focuses on logistics and reports to the plant organizations, often came into conflict with central, strategic procurement, which in turn led to uncoordinated goals and responsibilities. In addition, the existing technological tools were not suitable for improving this situation as quickly as possible. For example, the data quality in the “spend cube” was unstructured and offered hardly any approaches for quickly identifying potential savings. 

The special machinery OEM opted for EFESO to overcome these challenges and identify and realize potential savings without long lead times or high internal costs. As an implementation partner, the EFESO team contributed its operations expertise from industry and comparable procurement projects, ensuring that the "Fit for Future" mission was implemented quickly and with strong results.

At 60-70% , the share of purchased materials is included in the company's invoices.

Step by step to a future-oriented procurement organization

The project team consisted of approximately 12 specialists and managers from the company's procurement organization and three consultants from EFESO. All procurement and SCM departments at four locations were analyzed and evaluated so that the company can apply the results to existing and new locations quickly after the project. 

The overarching objective was to enable the procurement organization to achieve and secure the target prices in the long term. The project team focused on reducing interfaces and defining transparent processes and responsibilities. The action steps in the project were divided into the following phases or segments: 

  1. Diagnostics/analysis phase: The project began with a thorough diagnosis of the status quo of the procurement organization. At the heart of this was a detailed functional analysis: the project team recorded how the current workload per employee was distributed - and compared this with a standard best-practice procurement framework tailored to the client's business and industries. At the same time, internal and cross-divisional interviews were conducted with stakeholders to identify hard figures and subjective pain points. In addition, a comprehensive assessment of the current situation was carried out, from the organizational structure to process flows, system architecture, and interfaces through to specific weak points. This meant that inefficiencies, overlaps, and gaps in responsibilities could be quickly and clearly identified.

  2. Target operating model and process design: This formed the basis for a new operating model for procurement - with clearly defined roles, unambiguous responsibilities, and interfaces between strategic and operational procurement. The project team developed over 70 end-to-end processes that including cross-functional touchpoints with clear RASIC assignments. This was complemented by a holistic process and governance framework, including clear responsibilities for processes, roles, and tasks. A new skills matrix - linked to over 50 job profiles - helped to assess the skills of the employees in the procurement teams and align them specifically to the new requirements. Escalation paths and cross-functional routines for rapid problem resolution have been established to ensure smooth processes.

  3. Digitization & tool implementation: Another focus was on the digitalization of the procurement organization. The project team identified gaps and requirements to select, then adapted and implemented suitable digital tools, such as solutions for spend analysis and idea management. Where standards were not sufficient, tailor-made adaptations were developed with software providers to map the processes 100%. The EFESO consultants also support the company in IT enablement and promote cooperation between procurement and IT.

  4. KPI & performance management: The project team developed customized KPIs for the functional area - from management level to individual employees - to ensure that the performance of the procurement department remains measurable and controllable in the long term. Since then, a regular reporting and control system has ensured that progress remains visible in the company, continuous improvements are initiated, and the results of daily work processes are always transparent.

  5. Change management and implementation: A change management program accompanied the implementation. From the initial concept idea to the final launch, there were workshops, training courses, and ongoing coaching. Decisions and solutions were developed closely with the procurement teams and validated on site - this ensured commitment within the company at all times. Thanks to the combination of external best-practice knowledge from EFESO and close internal collaboration, commitment remained high throughout, and the changes initiated also had a positive long-term impact on the procurement organization's ability to act. 

More than 70 end-to-end processes have been created for cooperation between strategic and operational procurement.

Combining data, activating savings potential

During the implementation of the project, the following empirical values proved to be particularly critical to success:

Speed matters!
The combination of automated data enrichment and targeted tool selection enabled a time-to-impact of less than six weeks. This came in the creation of KPIs and the identification of savings. 

Even rudimentary data offers good starting points!
The project team was also able to tap into valid savings potential with fragmented master data through external data enrichment. This was achieved, for example, by linking company data with external raw material information. 

The time-to-impact of newly introduced digital tools is less than six weeks.

Securing and expanding our competitive position

Ultimately, the project team comprehensively modernized the special machinery OEM procurement organization in just one and a half years and restructured it in line with the "Fit for Future" concept. This gives the company an advantage in terms of its competitive positioning and supports its growth and the increased profitability of its products. 

The approach also illustrates EFESO's successful model: in procurement and all other direct and indirect areas of the value chain, the right solutions are found together with the company, to, for example, reduce costs and increase efficiency to improve business processes and optimize cost structures. In companies in the commercial vehicle industry (off-highway), other productive fields of action in addition to the procurement organization are, for example: