Establishment of a procurement organization and improved supplier collaboration

Objectives: Improve profitability and establish a procurement organization

The cooperative did not have a dedicated procurement department. All direct sourcing activities were per-formed by the product managers, but their focus were mainly on sales activities, leaving any procurement activities down-prioritized. Within the scope of the project, our client wanted to gain transparency regarding its procurement activities and, on this basis, build an organization that would drive margin optimization. In addition, the joint project was intended to exploit potential savings in the areas of direct spend – tractors / agricultural machinery, spare parts and accessories.

Methods: Cooperative supplier management and professional structures

We started the project with an intensive 2 months potential analysis, in which we made the spend visible and identified a significant savings potential.

Based on the results, we started a co-sourcing program together with the client. Within the framework of this program, we carried out tenders and conducted negotiations. Since the industry is brand-sensitive in the area of agricultural machinery and we negotiated directly with the manufacturers, any new suppliers had to be introduced selectively.

Therefore, we relied on negotiations with existing suppliers / supplier management and where possible tried to create win-win situations to achieve our goals. In many cases, through strength-ened cooperation and joint activities such as trade show appearances, advertising and exclusive contracts, we were able to significantly improve conditions. Added to this was the involvement of the C-level of our client.

The project was a political undertaking, as there are close relationships between the farmers who own the cooperative and the agricultural machinery manufacturers. Due to the importance of the project and the political situation, the CEO was directly involved in the negotiations with the most important suppliers. This ensured that our client gained an awareness of what a professional procurement organization can achieve.

In the areas of spare parts and accessories, we were able to use competition as a lever. For example, for tires, we invited not only manufacturers but also distributors to take part in our tenders. In the accessories area, we bundled our requirements; since the suppliers in this area have broad portfolios, we were able to shift the total demand from the original three to one large European supplier. This strong partnership has enabled us to exploit economies of scale and reduce costs considerably.

In order to make sustainable use of the project results, the company has hired a CPO on our recommenda-tion who will bundle all procurement activities, set up a procurement organization and thus also unburden the product managers in the future.