Procurement must contribute more to the overall competitiveness

By Lars Lange Andersen, Head of Market & Category, Industry, Solar Group.

The latest financial statements of several Scandinavian food businesses tell the same tale of an industry under pressure.

Ingredients, rent and salaries are difficult to do something about without it having noticeable consequences. Therefore, we need to look elsewhere in order to find some extra value for the bottom line. And this is where procurement comes into play.

I recently visited a company, where they may well have gained a competitive agreements on a range of products, but often, they ended up losing their savings in billing and warehouse costs. We see major successful businesses buying the same way that they’ve always done. I don’t doubt that people are working really hard. But I believe that while you focus on purchase costs, you should also ask yourself; can we address this task in a fundamentally different way?

Purchase costs only make up 15%

In the food industry magazine Plus Proces, Force Technology pointed out that the purchase cost of equipment only makes up 15 to 20% of the total costs. The rest is operations. I don’t agree with that estimate. Not at all.

At Solar, we’re sourcing for all parts of the Scandinavian food industry. That’s why we know that more companies are starting to implement smarter warehouse solutions, consolidate their suppliers and find the right logistic setup.

And it works. Our customers tell us that they typically reduce net working capital by up to 12%. Administration regarding ordering is reduced by up to 30% and their general consumption is reduced by up to 15%. All in all, this may add up to 25% extra value, which can either improve the bottom line or free up working hours that in return contribute with real value instead of administration.

But where to begin?

Of course it depends on maturity. Do you really see the big picture? Some companies struggle to achieve transparency in their total cost of ownership (TCO), and therefore narrow their sourcing focus to the purchase price alone. Here, a couple of easy steps such as simple warehouse solutions and digital ordering services may generate some quick results and make way for even bigger winnings.

Others are in full control. They know their TCO and are strategic in their sourcing setup. So they are skilled at buying in a way that takes all costs in connection with purchase, consumption and disposal of materials into account. Here, it’s possible to implement more comprehensive solutions like standardisation, tail spend consolidation and KPI reporting.

In the end, it all comes down to how far you’re willing to go. It can be a challenge to move in a new direction and it requires the support of the organisation. But if you dare to go all the way, you can become a pivotal part of the total competitiveness of the company, improve the bottom line and not least, take off some of the pressure on the business.