{"id":89577,"date":"2020-10-07T13:27:01","date_gmt":"2020-10-07T11:27:01","guid":{"rendered":"https:\/\/www.KGM Strategy.com\/?p=89577"},"modified":"2024-12-09T18:28:21","modified_gmt":"2024-12-09T17:28:21","slug":"smi-06-cover-story","status":"publish","type":"post","link":"https:\/\/www.KGM Strategy.com\/en\/insights\/smi-06\/","title":{"rendered":"SMI 06 : Reducing costs in procurement"},"content":{"rendered":"<div class=\"anchor-navigation \" style=\"background: #dfb01b; color: rgb(40,40,40);\" data-sticky=\"false\">\n    <ul class=\"list-unstyled\"><\/ul>\n<\/div>\n\n    <aside class=\"related-articles\" style=border-color:#daedea>\n        <span class=\"related-articles-button\" style=border-color:#daedea> Further articles <\/span>\n        <h3 class=\"related-articles-title\"> Further articles <\/h3>\n        <div class=\"related-articles-content\">\n            <div class=\"row horizontal-gap\">\n                                    <div class=\"article-box col-6 col-sm-4 col-md-12\">\n                        <a href=\"https:\/\/www.KGM Strategy.com\/en\/insights\/smi-06\/pe-desk-research\/\" class=\"article\" target=\"_blank\">\n                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/1-icon-heuschrecke-1-325x450.png\" class=\"img-fluid\" loading=\"lazy\" \/>\n                            <div class=\"overlay\"><\/div>\n                        <\/a>\n                    <\/div>\n                                    <div class=\"article-box col-6 col-sm-4 col-md-12\">\n                        <a href=\"https:\/\/www.KGM Strategy.com\/en\/insights\/smi-06\/working-capital-management\/\" class=\"article\" target=\"_blank\">\n                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/icon-kompass-2-325x450.png\" class=\"img-fluid\" loading=\"lazy\" \/>\n                            <div class=\"overlay\"><\/div>\n                        <\/a>\n                    <\/div>\n                            <\/div>\n        <\/div>\n    <\/aside>\n\n\n<p><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><h2><span style=\"color: #dfb01b;\">Reducing costs <\/span><span style=\"color: #000000;\">in procurement<\/span><\/h2>\n<p><span style=\"color: #dfb01b;\"><strong>Politicians and thought leaders have been preaching it for a while: after the pandemic, the economy needs a fresh start. The first virtual World Economic Forum being held under the title \u201cThe Great Reset\u201d is an example of this. But the new start can only succeed if companies set out sustainable cost management measures. A tour de force that the future of many companies rests on.<\/strong><\/span><\/p><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-6\"><p><span style=\"color: #000000;\">The pictures that went viral around the world were astonishing yet frightening at the same time. Planes parked in hangars or on the tarmac. Freight trains halted at stations. And from a bird\u2019s eye view, the world\u2019s oceans looked in some places like a game of Battleships: row upon row of them, anchored in ports across this planet.<\/span><\/p>\n<p><span style=\"color: #000000;\">The months of standstill and lockdown have led to some bizarre situations. What can an airline do if it is not allowed to fly? What can a factory do if it cannot produce anything because it is missing parts that it normally sources from all over the world? What can a restaurant do if no guests are allowed to dine?<\/span><\/p><\/div><div class=\"col-lg-6\"><p><span style=\"color: #000000;\">For many companies, this phase has been an economic disaster. For others, it has meant watching from the sidelines, hoping that their industry will not be impacted next. In either case, it is now as important as ever for companies to streamline their operations and drastically cut costs to protect turnover as well as margins.<\/span><\/p><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><div id=\"own-position\" class=\"anchor\" data-name=\"Own position\"><\/div>\n<h2><strong><span style=\"color: #dfb01b;\">Step 1:<\/span><\/strong><\/h2><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-4\"><p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-64085\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/Reset-Circle-plus-Mann-Montage_RZ_4c_ISOcoatedv2-300-1.jpg\" alt=\"\" width=\"535\" height=\"492\" \/><\/p><\/div><div class=\"col-lg-8\"><p><span style=\"color: #000000;\"><strong>Determine and leverage your own position<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">The pandemic has impacted different industries in different ways. On the one hand, there are industries such as aviation, tourism, and gastronomy, which are suffering extremely from lockdown after lockdown. They depend on cutting costs quickly to survive the current phase reasonably unscathed. To make a \u2018fresh start\u2019 and be well equipped for the long-term, they need to implement both immediate measures (see step 2) and a sustainable strategy that must be continuously reviewed.<\/span><\/p>\n    <div class=\"container py-4 quote-section type-minimalistic-text  \">\n        <div class=\"row\">\n            <div class=\"col-md-8 text\">\n                                    <div class=\"text-container\">\n                        <p><span style=\"color: #000000;\">The winners of the crisis, on the other hand, include tech companies that are profiting from the home office boom, the food delivery trade and, to a certain extent, the automotive industry, which has proven through professional structures that even a difficult market can be mastered during the crisis. The automotive sector came through the crisis relatively well, because supply chains are already very transparent and companies can control not only suppliers but also sub-suppliers. Such professional structures and transparent information help to react quickly and effectively to a changing market situation and to avert possible crises through good risk management.<\/span><\/p>\n<p>\n                        <div class=\"text-collapsed\">\n                            <\/p>\n<p><span style=\"color: #000000;\">Similar reasoning applies toward the supply-base of each company, which also includes winners and losers from the current situation, and where the market situation has changed extremely quickly in some industries. While 2020 saw opportunities for reducing supplier prices in many areas for those who could provide a stable demand, the opposite has also been true in some categories in the beginning of 2021. Recent examples include spikes in steel and other raw materials, container freight, and packaging, as parts of the economy rebound, while supply is slow to catch up to previous levels.<\/span><\/p>\n<p><span style=\"color: #000000;\">Ensuring an agile procurement department is key, acting on opportunities when they arise and protecting the business from increasing costs and supply disruptions when and where demand outweighs supply.<\/span><\/p>\n\n                        <\/div>\n                    <\/div>\n                    <button class=\"btn btn-link text-decoration-none text-uppercase float-none\">\n                        <i class=\"icon icon-plus-rounded fs-65 lh-0 mt-n2 me-2\"><\/i>\n                        Read more\n                    <\/button>\n                            <\/div>\n            <div class=\"col-md-4\">\n                <div class=\"quote fadeIn\">\n                    <i class=\"icon icon-quote fs-1\"><\/i>\n                    <div class=\"text\" style=\"color: #004d91\">\n                        <p>It is now as important as ever for companies to streamline their operations and drastically cut costs to protect turnover and ensure survival.<\/p>\n\n                    <\/div>\n                <\/div>\n            <\/div>\n        <\/div>\n    <\/div>\n<\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-6\"><p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-63201\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/\/animation-neu.svg\" alt=\"\" width=\"800\" height=\"630\" \/><\/p><\/div><div class=\"col-lg-6\"><p>&nbsp;<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-64090 alignleft\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/zitat.svg\" alt=\"\" width=\"50\" height=\"46\" \/><\/p>\n<div class=\"box\" style=\"color: #daedea;\">\n<p><span style=\"color: #004146;\">\u201eWe prepared the current annual reviews strategically and used them to strengthen the partnership with our suppliers. In addition to prices and quality, the main focus was on the further development of our product portfolio and the use of innovative materials. This and the fact that we can offer our partners security despite the crisis ultimately also had a positive impact on cost structures.\u201c<br \/>\n<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><strong><span style=\"color: #004146;\">Maryne Lemvik CEO, Skanem AS\u00a0<\/span><\/strong><\/p>\n<\/div><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><div id=\"short-term-measures\" class=\"anchor\" data-name=\"Short-term measures\"><\/div>\n<h2><span style=\"color: #dfb01b;\"><strong>Step 2:<\/strong><\/span><\/h2>\n<p><strong>Managing demand and implementing immediate measures<\/strong><\/p>\n<p><span style=\"color: #000000;\">Demand structures have changed massively due to the crisis, especially indirectly. Under the current conditions, IT departments in many companies, for example, have had to spend more to ensure their digital infrastructure fully supports working from home. Conversely, travel costs have dropped massively. In marketing, on the other hand, larger in-person events have been cancelled, but the costs for online communication have risen.<\/span><\/p>\n<p><span style=\"color: #000000;\">In addition to such involuntary changes in operations and the associated costs, the crisis has forced many companies to implement budget cuts and spending freezes across the board to protect the core business. As the economy begins to recover, opening such budgets may seem reasonable, however this risks missing opportunities to stabilize costs at a more competitive level.<\/span><\/p>\n<p><span style=\"color: #000000;\">Many departments have had to question current practices and demands on suppliers, identifying ways to reduce requirements, volumes, or insource. As an example, budgets for printed sales materials went down in the pandemic, and now this is an excellent opportunity to cement the shift to digital, rather than fall back into old habits.<\/span><\/p>\n<p><span style=\"color: #000000;\">A company-wide re-evaluation of demand management should take into account the latest shifts in operations and customer behavior, as well as the best current view of the rebound for the company\u2019s market. Based on this, budgets should be re-distributed within the company, with the ambition to stabilize them between historical and lockdown levels.<\/span><\/p>\n<p><span style=\"color: #000000;\">The decisive factor here is to not leave this solely to the specialist departments such as IT, or the line business. Procurement can help identify concrete potentials for cost reduction and define measures to accomplish that. The best results will be achieved by combining reasonable top-down budget revisions, with a mandate for procurement to facilitate demand management exercises in relevant departments.<\/span><\/p><\/div><\/div><\/div><\/p>\n\n<div class=\"checklist-modul fadeIn  \" style=\"background: #FFE6B9\" is=\"checklist\">\n    <div class=\"container py-5 py-md-9\">\n        <div class=\"row\">\n            <div class=\"col-lg-2\">\n                                    <img decoding=\"async\"\n                            class=\"main-icon\"\n                            src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/02\/bedarfs-und-budgetmanagement.svg\"\n                            alt=\"Demand &amp; Budget Management\"\n                            loading=\"lazy\"\n                    >\n                            <\/div>\n            <div class=\"col-lg-10\">\n                                    <h1 class=\"title h4\" style=\"color: #000000\">Demand &amp; Budget Management<\/h1>\n                                                    <h2 class=\"title\" style=\"color: #f2910a\">How to avoid unnecessary expenses<\/h2>\n                            <\/div>\n        <\/div>\n\n        <div class=\"section-content\">\n                            <div class=\"row d-none d-lg-flex\">\n                    <div class=\"col-lg-4 offset-lg-8\">\n                        <h3 class=\"offset-lg-3 example title\" style=\"color: #f2910a\">\n                            Examples\n                        <\/h3>\n                    <\/div>\n                <\/div>\n            \n            <div class=\"checklist\">\n                                                                                                <div class=\"row align-items-center item\">\n                        <div class=\"col-lg-8\">\n                            <div class=\"row py-2\">\n                                \n                                                                    <div class=\"col-12\">\n                                                                                    <h3 class=\"item-title\">Demand guidelines<\/h3>\n                                        \n                                                                                    <ul class=\"subitems list-style-\">\n                                                                                                    <li>Introduction or optimization of guidelines demand guidelines for certain materials &amp; services<\/li>\n                                                                                                    <li>Increase\/sensitize cost awareness of employees<\/li>\n                                                                                            <\/ul>\n                                        \n                                                                            <\/div>\n                                                            <\/div>\n                        <\/div>\n\n                                                    <div class=\"col-lg-4 example-content\">\n                                <div class=\"row\">\n                                                                            <div class=\"col-12 col-sm-4 col-md-3 d-flex align-items-center\">\n                                            <img decoding=\"async\"\n                                                    src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/02\/flugzeug-60x63-1.png\"\n                                                    width=\"60\"\n                                                    height=\"63\"\n                                                    class=\"img-fluid\"\n                                                    loading=\"lazy\"\n                                                    alt=\"Beispiel\"\n                                            \/>\n                                        <\/div>\n                                                                        <div class=\"col-8 col-md-9 example-text example-content\">\n                                        <p>4\u20136 h flights: Premium Economy instead of Business Class<\/p>\n\n                                    <\/div>\n                                <\/div>\n                            <\/div>\n                                            <\/div>\n                                                                                                <div class=\"row align-items-center item\">\n                        <div class=\"col-lg-8\">\n                            <div class=\"row py-2\">\n                                \n                                                                    <div class=\"col-12\">\n                                                                                    <h3 class=\"item-title\">Demand control<\/h3>\n                                        \n                                                                                    <ul class=\"subitems list-style-\">\n                                                                                                    <li>Define or adjust approval processes and thresholds for budgets<\/li>\n                                                                                                    <li>Verification of expenses by responsible person<\/li>\n                                                                                            <\/ul>\n                                        \n                                                                            <\/div>\n                                                            <\/div>\n                        <\/div>\n\n                                                    <div class=\"col-lg-4 example-content\">\n                                <div class=\"row\">\n                                                                            <div class=\"col-12 col-sm-4 col-md-3 d-flex align-items-center\">\n                                            <img decoding=\"async\"\n                                                    src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/02\/bestellung-60x60-1.png\"\n                                                    width=\"60\"\n                                                    height=\"60\"\n                                                    class=\"img-fluid\"\n                                                    loading=\"lazy\"\n                                                    alt=\"Beispiel\"\n                                            \/>\n                                        <\/div>\n                                                                        <div class=\"col-8 col-md-9 example-text example-content\">\n                                        <p>Order of big mobile phone plan has to be approved by department manager<\/p>\n\n                                    <\/div>\n                                <\/div>\n                            <\/div>\n                                            <\/div>\n                                                                                                <div class=\"row align-items-center item\">\n                        <div class=\"col-lg-8\">\n                            <div class=\"row py-2\">\n                                \n                                                                    <div class=\"col-12\">\n                                                                                    <h3 class=\"item-title\">Operating life<\/h3>\n                                        \n                                                                                    <ul class=\"subitems list-style-\">\n                                                                                                    <li>Reduction of ordering frequencies<\/li>\n                                                                                                    <li>Optimization of operating life<\/li>\n                                                                                            <\/ul>\n                                        \n                                                                            <\/div>\n                                                            <\/div>\n                        <\/div>\n\n                                                    <div class=\"col-lg-4 example-content\">\n                                <div class=\"row\">\n                                                                            <div class=\"col-12 col-sm-4 col-md-3 d-flex align-items-center\">\n                                            <img decoding=\"async\"\n                                                    src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/02\/Austausch-60x58-1.png\"\n                                                    width=\"60\"\n                                                    height=\"58\"\n                                                    class=\"img-fluid\"\n                                                    loading=\"lazy\"\n                                                    alt=\"Beispiel\"\n                                            \/>\n                                        <\/div>\n                                                                        <div class=\"col-8 col-md-9 example-text example-content\">\n                                        <p>Replacement of mobile phones after 3 instead of 2 years<\/p>\n\n                                    <\/div>\n                                <\/div>\n                            <\/div>\n                                            <\/div>\n                                                                                                <div class=\"row align-items-center item\">\n                        <div class=\"col-lg-8\">\n                            <div class=\"row py-2\">\n                                \n                                                                    <div class=\"col-12\">\n                                                                                    <h3 class=\"item-title\">Elimination<\/h3>\n                                        \n                                                                                    <ul class=\"subitems list-style-\">\n                                                                                                    <li>Reduction of required amount or cancellation of budget elements<\/li>\n                                                                                                    <li>Goal: avoid unnecessary operating expenses<\/li>\n                                                                                            <\/ul>\n                                        \n                                                                            <\/div>\n                                                            <\/div>\n                        <\/div>\n\n                                                    <div class=\"col-lg-4 example-content\">\n                                <div class=\"row\">\n                                                                            <div class=\"col-12 col-sm-4 col-md-3 d-flex align-items-center\">\n                                            <img decoding=\"async\"\n                                                    src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/02\/Innen-und-Aussendienst-60x62-1.png\"\n                                                    width=\"60\"\n                                                    height=\"62\"\n                                                    class=\"img-fluid\"\n                                                    loading=\"lazy\"\n                                                    alt=\"Beispiel\"\n                                            \/>\n                                        <\/div>\n                                                                        <div class=\"col-8 col-md-9 example-text example-content\">\n                                        <p>Back office: 3 GB<\/p>\n<p>Field service: 5 GB<\/p>\n\n                                    <\/div>\n                                <\/div>\n                            <\/div>\n                                            <\/div>\n                            <\/div>\n        <\/div>\n    <\/div>\n<\/div>\n\n<div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><div class=\"text-container\">\n    \n<h2><strong><span style=\"color: #dfb01b;\">Step 3:<\/span><\/strong><\/h2>\n<p><span style=\"color: #000000;\"><strong>Re-evaluate your long-term supply strategy<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">Once the tactical situation is under control in terms of reallocating budgets, optimizing prices with current suppliers, and ensuring stable supply, it\u2019s time to look ahead at your long-term supply set-up. Disruptions in supply chains such as steel and logistics have shown which suppliers hold firm under pressure and which ones don\u2019t, as well as which suppliers prioritize your business or not.<\/span><\/p>\n\n\n<p><span style=\"color: #000000;\">Many European packaging producers have recently been prioritizing customers buying high-end products, cherry-picking to enhance margins while consumers order increasingly online. Revelations such as these have been painful for many companies and have taken up a lot of energy over the past year. But as supply and demand catch up with each other in various industries over the coming quarters, it\u2019s also time to broaden the perspective and think long-term based on the latest learnings. Procurement should analyze the current situation together with other departments in the company, such as logistics, production, finance and the specialist departments.<\/span><\/p>\n\n    <div class=\"text-collapsed\">\n        \n<p><span style=\"color: #000000;\">The pandemic has made it clear like never before that processes in the company are interlinked and that a stable supply chain is at least as important as cost-effective procurement. In some areas, this will mean spreading supply among more suppliers and countries to lower risks, while in others, spending may need to be consolidated.<\/span><\/p>\n<p><span style=\"color: #000000;\">After the pandemic, companies cannot simply dust off the plans for 2020 and pick up where they left off. The past year has speeded up several pre-existing mega-trends, such as remote working and sustainability. As a result, the demands on products and suppliers are also changing, which calls for multiple fundamental changes for companies if they want to survive in the future.<\/span><\/p>\n<p><span style=\"color: #000000;\">As an example, companies should dovetail procurement and product development more closely. The earlier procurement knows which innovations the product development team is planning, the better it can take this into account when looking for a suitable supplier and thus reduce costs. And involving the right suppliers at an early stage of product development can shortcut finding cost-efficient solutions.<\/span><\/p>\n<p><span style=\"color: #000000;\">This is also a good time for CPOs and CFOs to reflect on the overall strategy, targets, and measurements for the procurement departments. Some of the recent lessons could be built into\u00a0 steering procurement\u2019s function and potentially the operating model vis-\u00e0-vis the business. The case for looking beyond savings and also accounting for total costs, supply chain security, risk exposure, and sustainability is as strong as ever. And ensuring these targets are mirrored in production and supply chain, for example, can help smoothen transitions between suppliers.<\/span><\/p>\n\n\n\n    <\/div>\n<\/div>\n<button class=\"btn btn-link text-decoration-none text-uppercase text-blue float-none\">\n    <i class=\"icon icon-plus-rounded fs-65 lh-0 mt-n2 me-2 text-orange\"><\/i>\n    Read more\n<\/button><\/div><\/div><\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-64096 size-full\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/iStock-807166122.jpg\" alt=\"\" width=\"2500\" height=\"857\" srcset=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/iStock-807166122.jpg 2500w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/iStock-807166122-800x274.jpg 800w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/iStock-807166122-1400x480.jpg 1400w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/iStock-807166122-768x263.jpg 768w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/iStock-807166122-1536x527.jpg 1536w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/iStock-807166122-2048x702.jpg 2048w\" sizes=\"auto, (max-width: 2500px) 100vw, 2500px\" \/><\/p>\n<div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><div id=\"long-term-optimization\" class=\"anchor\" data-name=\"Long-term optimization\"><\/div>\n<h2><strong><span style=\"color: #dfb01b;\">Step 4:<\/span><\/strong><\/h2>\n<p><span style=\"color: #000000;\"><strong>Optimizing costs throughout the supply chain in the long-term<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">Having set the long-term strategy, now you have to find the actual solutions, changes, and so on. The factors impacting the success of operational procurement are endless, but there are four which should apply to most companies.<\/span><\/p>\n<p><span style=\"color: #000000;\"><strong>Transparency is fundamental<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">Transparency in the supply chain is currently the most important factor. It allows companies to plan better and possibly even reduce costs they didn\u2019t even know about. Digital data pools make it possible not only to trace the supply chain, but even to control it. Let\u2019s look at one example: a large furniture maker purchases risers from one supplier. Procurement does not simply order them, but has also contracted tier 2 suppliers to supply edges, cardboard, and foils to the risers supplier. Orders are sent by the furniture company to both the tier 1 and tier 2 supplier at the same time.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<div class=\"icon-boxes  \" data-moduleID=\"64620\" is=\"summary-box\">\n    <div class=\"summary-box-padding overflow-visible\">\n        <div class=\"icon-box has-icon  fadeIn\" style=\"border-color: rgb(223, 176, 27);\" data-animated-icon=\"true\">\n            \n                <div class=\"icon\">\n                    <div class=\"inner\">\n\n                                                                                    <svg id=\"animatedIcon-0f9d75b9d9583095b936d16475c330c9\" data-id=\"0f9d75b9d9583095b936d16475c330c9\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" xmlns:xlink=\"http:\/\/www.w3.org\/1999\/xlink\" x=\"0px\" y=\"0px\" viewBox=\"0 0 120 120\" xml:space=\"preserve\" width=\"75\" height=\"75\">\n                                    <path fill=\"none\" stroke-width=\"20\" stroke-miterlimit=\"10\" stroke=\"#a0d60a\" class=\"st0\" d=\"M36.7,40.1c0-9.9,7.6-20.7,17.6-22.7c0,0,14.5-5.6,27.1,7.3c4.4,4.5,6.2,11.1,5.5,17.3C86,49,81.9,54.7,76.9,59.3C76,60.2,75,61,74,61.8c-3.4,2.7-7.7,4.6-10.3,8.2c-3.3,4.6-2.4,10.7-2.4,16v1.2\"\/>\n                                    <line fill=\"none\" stroke-width=\"20\" stroke-miterlimit=\"10\" stroke=\"#a0d60a\"  class=\"st0\" x1=\"61.2\" y1=\"94.3\" x2=\"61.2\" y2=\"109.5\"\/>\n                                <\/svg>\n                            \n                        \n                    <\/div>\n                <\/div>\n\n            \n                            <div is=\"accordion\">\n                    <div class=\"accordion-item\">\n                        <div class=\"accordion-header\" id=\"heading-0f9d75b9d9583095b936d16475c330c9\">\n                            <button class=\"accordion-button collapsed\" type=\"button\" data-bs-toggle=\"collapse\" data-bs-target=\"#collapse-0f9d75b9d9583095b936d16475c330c9\" aria-expanded=\"false\" aria-controls=\"collapse-0f9d75b9d9583095b936d16475c330c9\">\n                                <span class=\"accordion-button-label\">\n                                    <span>Total Cost of Ownership (TCO)<\/span>\n                                <\/span>\n                            <\/button>\n                        <\/div>\n                        <div id=\"collapse-0f9d75b9d9583095b936d16475c330c9\" class=\"accordion-collapse collapse\" aria-labelledby=\"heading-0f9d75b9d9583095b936d16475c330c9\">\n                            <div class=\"accordion-body\">\n                                <p>is a method of cost calculation that takes into account all the costs incurred during the lifecycle of a product or service. This includes both acquisition cost, running costs such as maintenance and repair, and end-of-life costs. The goal is to identify all relevant and potentially hidden costs in order to take better business decisions.<\/p>\n\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                <\/div>\n\n            \n        <\/div>\n    <\/div>\n<\/div>\n\n\n    <div class=\"container py-4 quote-section type-minimalistic-text  \">\n        <div class=\"row\">\n            <div class=\"col-md-8 text\">\n                                    <div class=\"text-container\">\n                        <p><span style=\"color: #000000;\">During the last oil crash, many companies were persuaded by their suppliers that the savings would arrive later and settled for smaller price reductions, even though they could have secured more. This means it\u2019s a good year for granules manufacturers \u2013 at the expense of customers.<\/span><\/p>\n<p><span style=\"color: #000000;\">Suppliers have a tendency to cite rising indices in times of increases, but keep silent when they are falling. Adopting a long-term perspective can balance the situation, as can digging into the specific circumstances of the supplier.<\/span><\/p>\n<p>\n                        <div class=\"text-collapsed\">\n                            <\/p>\n<p><span style=\"color: #000000;\">Labor costs are sometimes cited as a reason for pushing through price increases. This can look plausible based on country indices, but the supplier\u2019s specific situation may tell a different story, e.g. if they change the skill level of employees or shift their mix of permanent versus temporary workers. Companies that keep an eye on the relevant data and are willing to dig into their suppliers\u2019 annual accounts and other indicators can achieve a better negotiating position. Because knowledge is power. Digital solutions can help in this regard, such as a common approach for modeling suppliers\u2018 cost developments, based on raw material developments, energy, labor costs etc.<\/span><\/p>\n\n                        <\/div>\n                    <\/div>\n                    <button class=\"btn btn-link text-decoration-none text-uppercase float-none\">\n                        <i class=\"icon icon-plus-rounded fs-65 lh-0 mt-n2 me-2\"><\/i>\n                        Read more\n                    <\/button>\n                            <\/div>\n            <div class=\"col-md-4\">\n                <div class=\"quote fadeIn\">\n                    <i class=\"icon icon-quote fs-1\"><\/i>\n                    <div class=\"text\" style=\"color: #004d91\">\n                        <p>Adopting a long-term perspective can balance the situation, as can digging into the specific circumstances of the supplier.<\/p>\n\n                    <\/div>\n                <\/div>\n            <\/div>\n        <\/div>\n    <\/div>\n<\/div><\/div><\/div>\n    <div class=\"container px-0 quote-section type-image-textbox-overlayed py-6  \">\n        <div class=\"row\">\n                            <div class=\"col-12 text is-content mb-n4 mb-md-n8\">\n                                            <p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-63821 size-full\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-cost-optimization-teaser.jpg\" alt=\"\" width=\"2200\" height=\"750\" srcset=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-cost-optimization-teaser.jpg 2200w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-cost-optimization-teaser-800x273.jpg 800w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-cost-optimization-teaser-1400x477.jpg 1400w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-cost-optimization-teaser-768x262.jpg 768w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-cost-optimization-teaser-1536x524.jpg 1536w, https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/smi-cost-optimization-teaser-2048x698.jpg 2048w\" sizes=\"auto, (max-width: 2200px) 100vw, 2200px\" \/><\/p>\n\n                                    <\/div>\n                        <span class=\"animation-trigger animate-inview\"><\/span>\n            <div class=\"animated-card col-10 col-md-7 p-4 p-md-5 mx-auto\" style=\"background-color: #daedea\">\n                <i class=\"icon icon-quote\"><\/i>\n                <div class=\"text\" style=\"color: #004d91\">\n                    <h3><span style=\"color: #004146;\">&#8220;With the help of extensive auctions, we were able to stimulate competition between our suppliers and succeeded in breaking up previous structures. In addition, we were also able to win over new suppliers and integrate them into our portfolio.\u201c<\/span><\/h3>\n<p><span style=\"color: #004146;\"><strong> Michal Sv\u00e1tek Director Global Continuous Improvement, United Initiators<\/strong><\/span><\/p>\n\n                <\/div>\n            <\/div>\n        <\/div>\n    <\/div>\n\n<p><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><h2><span style=\"color: #dfb01b;\"><strong>Be open to new solutions<br \/>\n<\/strong><\/span><\/h2>\n<p><span style=\"color: #000000;\">Since the pandemic began, the downside of low-cost, but possibly long and vulnerable supply chains has made itself painfully clear. A fledgling electronics manufacturer previously sourced a large proportion of its parts from China, which was initially cost-effective. Considering the long supply route, some variability in quality, but primarily the uncertainty of sourcing from only one supplier, the company has since decided on a dual-source solution, with new suppliers in Eastern Europe. This has stabilized the supply chain, put the company in a better negotiating position with other suppliers, and had a positive side effect: not only is the new production currently more cost-effective considering landed cost, but the new supplier also actively plays a part in product development.<\/span><\/p><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-6\"><p><span style=\"color: #dfb01b;\"><strong>Introduce new negotiation strategies<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">When it comes to procurement, the pandemic has once again underscored how important it is to engage in regular exchange with your own suppliers. Provided there is a high degree of transparency, both the winners and losers of the crisis can\u00a0 significantly improve their cost base and supply security. Procurement should see its own position as a strength. If, for example, retailers can guarantee their suppliers a certain level of demand or even increased sales, this can be mutually beneficial and will definitely be reflected in cost savings.<\/span><\/p>\n<p><span style=\"color: #000000;\">In addition to classic negotiations, auctions in particular are becoming increasingly important in times of remote working. They were sometimes frowned upon, unpopular or not accepted by suppliers in years gone by. In practice, however, it has been shown that companies that conduct auctions can save a lot of money. They also reduce the amount of time and travel costs spent on negotiations, and shorten the timeline to close a deal. The key is to do the proper preliminary work to ensure that the price is the final variable left to be closed, avoiding any potential counter-sourcing situation further down the line.<\/span><\/p>\n<p><span style=\"color: #000000;\">Here\u2019s a real-world example: a leading chemical company has achieved total savings of almost 7% through auctions compared to the traditional negotiation method. In other categories, savings can be as high as 40%, always depending on the number and density of suppliers.<\/span><\/p><\/div><div class=\"col-lg-6\"><p><span style=\"color: #000000;\">An extended form of auction is a so-called \u201cSuppliers\u2019 Day\u201d. Instead of negotiating individually with suppliers, a Dutch healthcare company met with its suppliers on one day to explore potential cost savings. The product, which had risen sharply in price due to the pandemic, would have been too expensive in the long run. By negotiating simultaneously, the company wisely created a fair real-time situation in which suppliers had to react quickly in order to compete. This led to considerable savings.<\/span><\/p>\n<p><span style=\"color: #dfb01b;\"><strong>Sustainable results through regular follow-up and controlling<\/strong><\/span><\/p>\n<p><span style=\"color: #000000;\">Even the best measures need to be reviewed regularly. Companies should frequently monitor and control its activities after implementation. In addition to regular supplier contact, procurement needs to stay close to the line and specialist departments. By following up performance and development activities, as well as re-negotiating, significant added value can be unlocked in the long-term.<\/span><\/p><\/div><\/div><\/div><div class='container  py-3'><div class=\"row \"><div class=\"col-lg-12\"><p>&nbsp;<\/p>\n<div class=\"icon-boxes  \" data-moduleID=\"64619\" is=\"summary-box\">\n    <div class=\"summary-box-padding overflow-visible\">\n        <div class=\"icon-box has-icon  fadeIn\" style=\"border-color: rgb(223, 176, 27);\" data-animated-icon=\"true\">\n            \n                <div class=\"icon\">\n                    <div class=\"inner\">\n\n                                                                                    <svg id=\"animatedIcon-905776c7d96f58bc846b354a731acd9e\" data-id=\"905776c7d96f58bc846b354a731acd9e\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" xmlns:xlink=\"http:\/\/www.w3.org\/1999\/xlink\" x=\"0px\" y=\"0px\" viewBox=\"0 0 64 64\" xml:space=\"preserve\" width=\"75\" height=\"75\">\n                                    <path fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" d=\"M43,16.4c-3.2-3.1-7.4-4.6-11.8-4.4C23,12.4,16.3,19.2,16,27.4c-0.2,5.1,2.1,10,6.1,13.2C24,42,25,44.1,25,46.2V47h6V34.5l-5.5-3.7c-0.5-0.3-0.6-0.9-0.3-1.4c0.3-0.5,0.9-0.6,1.4-0.3l5.4,3.6l5.5-3.6c0.5-0.3,1.1-0.2,1.4,0.3c0.3,0.5,0.2,1.1-0.3,1.4L33,34.5V47h6v-0.8c0-2.2,1-4.2,2.9-5.7C45.8,37.5,48,32.9,48,28C48,23.6,46.2,19.5,43,16.4z\"\/>\n                                    <path d=\"M27,49h-2v5c0,0.5,0.5,1,1,1h1.1h9.8H38c0.5,0,1-0.5,1-1v-5h-2H27z\" fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\"\/>\n                                    <path d=\"M32,60c3,0,4-2,4-3h-8C28,58,29,60,32,60z\" fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" \/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"9.9\" y1=\"10.5\" x2=\"16.4\" y2=\"15.6\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"47.9\" y1=\"36.6\" x2=\"54.4\" y2=\"41.7\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"9.5\" y1=\"41.4\" x2=\"15.8\" y2=\"36.1\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"48.2\" y1=\"15.7\" x2=\"54.5\" y2=\"10.4\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"32\" y1=\"1.8\" x2=\"31.9\" y2=\"10\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"14.1\" y1=\"26\" x2=\"5.8\" y2=\"26\"\/>\n                                    <line fill=\"none\" stroke-width=\"2\" stroke=\"#a0d60a\" stroke-miterlimit=\"10\" class=\"st0\" x1=\"58.1\" y1=\"26\" x2=\"49.9\" y2=\"26\"\/>\n                                <\/svg>\n                            \n                        \n                    <\/div>\n                <\/div>\n\n            \n            \n                <h3 class=\"title\" style=\"color: rgb(223, 176, 27)\">\n                    CONCLUSION\n                <\/h3>\n\n                <div class=\"content\">\n                    <p><span style=\"color: #004146;\">The coronavirus pandemic has hit companies hard in some cases, either on top-line, on supply, or both. Whether a company has lost or gained from the crisis, now is exactly the right time to reorganize and optimize cost management. This includes immediate measures as well as long-term strategies. In addition to establishing a stable and cost-effective supply chain, procurement must also anticipate how markets will change in the future and take trends such as digitalization and sustainability into account. This is only possible if the internal arrangements are right, procurement is based on sound analyses, and the best possible use is made of the company\u2019s own position, for example through classic negotiations or auctions. Only those who position themselves correctly now can hold their own in the long-term.<\/span><\/p>\n\n                <\/div>\n\n            \n        <\/div>\n    <\/div>\n<\/div>\n\n\n\n    <div class=\"container authors-section fadeIn  \" is=\"authors-and-partners\">\n        <div class=\"description row\">\n            <h2>\n                                    Authors\n                            <\/h2>\n        <\/div>\n\n        <div class=\"row\">\n                            <div class=\"mb-5 col-md-6 mb-md-0\">\n                    <div class=\"author\">\n                                                    <figure>\n                                <img loading=\"lazy\" decoding=\"async\" width=\"250\" height=\"250\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2021\/08\/MD_Marcus_Schwarz_350x440-250x250.jpg\" class=\"img-fluid\" alt=\"\" \/>\n                            <\/figure>\n                        \n                        <h3>Marcus Schwarz<\/h3>\n                        <p class=\"person-position\">Managing Director<\/p>\n                                                    <div class=\"short-desc\"><\/div>\n                                                <div class=\"contact-information\">\n                                                                                                <a href=\"mailto:contact@kgmstrategy.com\" class=\"mail-link\">contact@kgmstrategy.com<\/a>\n                                                                                                                                                <\/div>\n                                                    <a href=\"https:\/\/www.KGM Strategy.com\/en\/insights\/smi-06\/\" class=\"btn btn-outline-secondary text-terciary\">Contact<\/a>\n                                            <\/div>\n                <\/div>\n                            <div class=\"mb-5 col-md-6 mb-md-0\">\n                    <div class=\"author\">\n                                                    <figure>\n                                <img loading=\"lazy\" decoding=\"async\" width=\"250\" height=\"250\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2021\/08\/daniel_gilek_neu_350x440px-250x250.png\" class=\"img-fluid\" alt=\"\" \/>\n                            <\/figure>\n                        \n                        <h3>Daniel Gilek<\/h3>\n                        <p class=\"person-position\">Managing Director<\/p>\n                                                    <div class=\"short-desc\"><\/div>\n                                                <div class=\"contact-information\">\n                                                                                                <a href=\"mailto:Daniel.gilek@kgmstrategy.com\" class=\"mail-link\">Daniel.gilek@kgmstrategy.com<\/a>\n                                                                                                                                                <\/div>\n                                                    <a href=\"https:\/\/www.KGM Strategy.com\/en\/insights\/smi-06\/\" class=\"btn btn-outline-secondary text-terciary\">Contact<\/a>\n                                            <\/div>\n                <\/div>\n                    <\/div>\n    <\/div>\n\n<div id=\"expert-interviews\" class=\"anchor\" data-name=\"Expert-Interviews\"><\/div>\n<div class=\"componentPadding container pop-up-boxes multipleLayout fadeIn  \">\n    <div>\n                <h3 class=\"title text- main-title \" style=\"color: #282828\">Experts on Cost Reduction<\/h3>\n                        <div class=\"row row--multiple\">\n                                                            <div class=\"col-md-6 mb-4 mb-md-0\">\n                                            <div class=\"box \" aria-title=\"\" title=\"\" data-toggle=\"collapse\" data-target=\"box-c82f3d76dde6ec985b9be0f181497188\">\n                            <div class=\"image-container\">\n                                <div class=\"holder\">\n                                    <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/restrukturierung-teaser-400x420.png\" class=\"img-fluid\" loading=\"lazy\" width=\"400\" height=\"420\" \/>\n                                    <div class=\"overlay\"><\/div>\n                                <\/div>\n                                <div class=\"title\" style=\"color: #f2910a\">\n                                    Restructuring\n                                                                    <\/div>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                                                            <div class=\"col-md-6 mb-4 mb-md-0\">\n                                            <div class=\"box \" aria-title=\"\" title=\"\" data-toggle=\"collapse\" data-target=\"box-4fc6e8f2c904c96d403a3883d27cad5a\">\n                            <div class=\"image-container\">\n                                <div class=\"holder\">\n                                    <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/platzhalter-inv-interview-1-400x420.jpg\" class=\"img-fluid\" loading=\"lazy\" width=\"400\" height=\"420\" \/>\n                                    <div class=\"overlay\"><\/div>\n                                <\/div>\n                                <div class=\"title\" style=\"color: #f2910a\">\n                                    Spare Parts Management\n                                                                    <\/div>\n                            <\/div>\n                        <\/div>\n                    <\/div>\n                            <\/div>\n                            <div class=\"popup-box\" id=\"box-c82f3d76dde6ec985b9be0f181497188\" class=\"collapsed\" style=\"background-color:#2a3235;\">\n                    <div class=\"overlay\" style=\"background: linear-gradient(to top, #2a3235, transparent);\"><\/div>\n                                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/restrukturierung-teaser.png\" class=\"bg-image img-fluid\" loading=\"lazy\">\n                                        <span class=\"close-btn\" data-toggle=\"collapse\" data-target=\"box-c82f3d76dde6ec985b9be0f181497188\"><\/span>\n                    <div class=\"popup-inner\">\n                                                                                    <h1 class=\"popup-title h4\" style=\"color: #a0d60a\">Interview with BCG Senior Partner Dr. Ralf Moldenhauer<\/h1>\n                                                                            <div class=\"popup-content-header\">\n                                                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/ralf-moldenhauer-350x360.png\" class=\"header-image\" width=\"350\" height=\"360\" loading=\"lazy\" alt=\"Interview with BCG Senior Partner Dr. Ralf Moldenhauer\" \/>\n                                                        <div class=\"popup-content-header-textbox\">\n                                                                    <div class=\"quote h2\" >\n                                        <span style=\"color: #a0d60a\">\n                                            \"The Partners in the Ecosystem Need to Pull Their Weight\"\n                                        <\/span>\n                                    <\/div>\n                                                                                                    <div class=\"quote-text\" style=\"color: #01aead\">\n                                        <p>Dr. Ralf Moldenhauer is a Managing Director and Senior Partner at BCG. He supports companies when restructuring and helps them to become more competitive. In this interview he discusses the best way forward for companies during the coronavirus pandemic and what that has to do with a North Star.<\/p>\n\n                                    <\/div>\n                                                            <\/div>\n                        <\/div>\n                        <div class=\"main-content\">\n                            <p><span style=\"color: #ffffff;\"><strong>The IMF is already predicting setbacks for the global economy, with many countries still in the middle of a lockdown. What main problems are companies facing?<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">That varies from sector to sector. The automotive industry and its suppliers are doing much better in the second lockdown than in the first, for example, while sectors like retail, hospitality, and services have lost the bulk of their income. So, companies in these areas are having difficulty finding financing and counterfinancing for their current and noncurrent assets.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>Does that mean companies can learn from the first lockdown?<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">Generally speaking, companies were far better prepared for the second wave than for the first. Back in April, many companies had no idea of how to plan their liquidity against the backdrop of such a crisis.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Cash management was the dominant topic on my projects. Now it\u2019s about more strategic questions, like how to maintain our supply chain in the long-term. Right now, companies need to make sure that they can access their goods quickly once the lockdown is lifted\u2014ideally without tying up too much capital.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>You advise companies facing the challenge of completely restructuring. How exactly do you approach that?<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">Here at BCG, we break down the turnaround into two phases\u2014the first phase is about making sure the company can survive in other words, liquidity management. In the short term, having access to financial resources is the sole focus. Companies don\u2019t just become insolvent if they have negative equity or returns are poor; they have to declare insolvency if they are no longer able to finance or refinance themselves and their value creation.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Once this critical phase is over, the focus switches to becoming competitive; in other words, how companies can achieve good returns again in the long-term. In the current crisis, it\u2019s also important that companies don\u2019t simply look after themselves\u2014the partners in the ecosystem needs to pull their weight. In an ideal situation, companies will reach separate agreements with each of their suppliers, which is why procurement also plays such an important role within the company. The objective of procurement is to communicate proactively, identify the current economic status of crucial suppliers, and find ways for the various parties to support each other. One potential strategy, for instance, could be to place an order and make an (partial) advance payment now but not purchase the goods until a later date, because these strategic suppliers will become vital once business picks up again.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>In other words, everything is scrutinized first?<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">Exactly; nothing is sacred. On that point, far too many companies fall back on routine, whereas external consultants who step back and try to create necessary transparency can usually identify areas for improvement pretty quickly. Let\u2019s say a department orders the same quantity of components month in, month out. The obvious question is whether they actually need that level of stock, as every penny counts in this phase, so it can make sense to run stocks down initially. Another example is recruitment: New appointments might have to be put on the backburner for a while under some circumstances.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Taking tough action right at the start is better for staff as well; there\u2019s nothing worse for them than a turnaround that drags on and on for years. They\u2019ll burn out and lose the will to actively support the transition.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>How long does a turnaround like this normally take?<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">The actual restructuring takes place in the first year. The more steps a company works through in that period, the earlier it will achieve positive results. It has to implement 80% of the measures in the very first year, so that the effects are visible quickly. The second phase is then about looking further ahead, making the company competitive again in the long-term and setting overarching goals\u2014we refer to that as a North Star.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>A North Star?<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">Yes, it\u2019s all about shaping the strategy and communicating it, so that everyone in the company can be guided by it. On the one hand, it\u2019s important for motivating all the staff and, on the other hand, it\u2019s important for the financiers as well\u2014after all, they have to believe in the mission, too. Specifically, the company must define what its future business model will look like and where performance improvements are required.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">That then determines the products it will offer in the future and what organizational structure makes sense. We use standard competitive returns to predict a target balance sheet and give a top-down definition of what cost components can be generated and where. Then we lay the groundwork step by step, so that the company is successful and stronger when it emerges from its turnaround.<\/span><\/p>\n\n                        <\/div>\n                    <\/div>\n                <\/div>\n                            <div class=\"popup-box\" id=\"box-4fc6e8f2c904c96d403a3883d27cad5a\" class=\"collapsed\" style=\"background-color:#2a3235;\">\n                    <div class=\"overlay\" style=\"background: linear-gradient(to top, #2a3235, transparent);\"><\/div>\n                                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2022\/03\/platzhalter-inv-interview-1.jpg\" class=\"bg-image img-fluid\" loading=\"lazy\">\n                                        <span class=\"close-btn\" data-toggle=\"collapse\" data-target=\"box-4fc6e8f2c904c96d403a3883d27cad5a\"><\/span>\n                    <div class=\"popup-inner\">\n                                                                                    <h1 class=\"popup-title h4\" style=\"color: #a0d60a\">KGM Strategy Senior Project Manager Dr. Christoph Diermann<\/h1>\n                                                                            <div class=\"popup-content-header\">\n                                                            <img decoding=\"async\" src=\"https:\/\/www.KGM Strategy.com\/wp-content\/uploads\/2021\/08\/Dr_Christoph_Diermann_400x400-1-350x360.jpg\" class=\"header-image\" width=\"350\" height=\"360\" loading=\"lazy\" alt=\"KGM Strategy Senior Project Manager Dr. Christoph Diermann\" \/>\n                                                        <div class=\"popup-content-header-textbox\">\n                                                                    <div class=\"quote h2\" >\n                                        <span style=\"color: #a0d60a\">\n                                            \"Spring cleaning that can pay dividends\"\n                                        <\/span>\n                                    <\/div>\n                                                                                                    <div class=\"quote-text\" style=\"color: #01aead\">\n                                        <p>Dr. Christoph Diermann is a Senior Project Manager at KGM Strategy in Cologne. The procurement and supply chain specialist supports manufacturing companies from a range of industries with extensive optimization projects in procurement, production, and logistics.<\/p>\n\n                                    <\/div>\n                                                            <\/div>\n                        <\/div>\n                        <div class=\"main-content\">\n                            <p><span style=\"color: #ffffff;\"><strong>Spring cleaning that can pay dividends<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\"><em>Many companies fail to organize their spare parts stock and either ignore or neglect key parameters for inventory management \u2013 even though structuring their spare parts management can save millions, as the following example from food production demonstrates.<\/em><\/span><\/p>\n<p><span style=\"color: #ffffff;\">There\u2019s nothing glamorous about spare parts. Not only do they cost money and take up storage space, but their owners actively hope that they will never actually be needed. So it\u2019s no wonder that many companies simply don\u2019t pay any attention to spare parts management. What they fail to realize is that implementing a coherent system to record their spare parts stock, manage it in the long-term and adjust it to suit changing circumstances can deliver significant savings potential and efficiency gains. This can involve huge sums, even in mid-sized companies.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>Spotting the problems on the balance sheet<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">The biggest problem in spare parts management is often the lack of an overview of what parts have been purchased and stored \u2013 as was the case at the major food producer in our example. Rather than one person in the company having overall responsibility, the managers at the individual production sites purchased the spare parts they required from different suppliers independently, without following a uniform standardization strategy. This resulted in spare parts with the same function but slightly different designs being stored in 30 locations across the six plants.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Although the company did record everything that was on the shelves, the overall system was rather informal and based on experience, instead of following a systematic plan. Once spare parts were purchased, the process was completed. But parts were not categorized by various criteria, even though this is essential for ongoing management of spare parts stock. This meant the food producer was also missing the opportunity to sort parts by criticality; in other words, how important they were for keeping production running smoothly, as a shortage of highly critical parts could bring the entire operation to a standstill.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Although the high number of storage locations is understandable \u2013 given that production managers want short distances between the machines and the spare parts they need \u2013 managing spare parts by location increased the variety of parts and, in turn, the costs in the long run. And naturally, stock levels mounted higher and higher. A glance at the company\u2019s figures quickly identified the source of these inefficiencies. We linked the value of the spare parts in stock with the corresponding annual procurement volumes to give a rough comparison showing how many years\u2019 worth of annual spare parts requirements were in stock. If this value is significantly greater than 1, then the company has more than a year\u2019s worth in stock \u2013 which usually means there is potential for optimization. This information is a quick and easy way for companies to estimate the rough potential for reducing their inventory.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>Getting your spare parts inventory in order<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">The first step is to identify the proportion of dead stock; the parts that are useless because the corresponding machines are no longer in use or parts that have been in storage for too long to be suitable for use. In total, this category was worth around 2,5 million euros.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">The ideal stock level for each item depends on how often it is used, how easy it is to predict its use, and how important it is for production capability (criticality). Regular demand for wearing parts (maintenance parts) is typically easy to predict, so a comparatively low stock level is enough here. Items that fail without notice (repair parts) and that are critical for production capability, on the other hand, need to have higher stock levels. Optimizing stock levels here identified a further 4 million euros in potential savings.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Comparing the actual and target stock levels showed which items wouldn\u2019t need to be ordered in the near future, as enough spare parts were in stock to cover the remaining run time for the corresponding systems. Procurement can be reduced or even halted for specific items until enough parts are drawn from stock to reduce inventory to target levels (cost avoidance). In tandem with that, the amount of capital tied in spare parts can be reduced on an ongoing basis.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>How to achieve long-term results<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">As well as optimizing operational processes, it is important to implement lasting processes and work instructions, so that spare parts procurement is transparent and traceable in the long-term. This involves a certain amount of centralization of spare parts management, as achieving the desired results will be harder if each site continues to manage stock itself.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">That shouldn\u2019t be interpreted as unconditional support for centralization, however; having one central spare parts warehouse is often not the best solution for a company that has a high level of vertical manufacturing and operates a lot of different machines. A central warehouse typically only makes sense if a new plant is being planned, as implementing one retroactively is normally far too expensive. But the same or similar setups should already be managed centrally, so implementing virtual centralization for decentralized storage is an important step here. Simply bringing in \u201cvirtual pooling\u201d reduced the inventory of standardized items used across locations by another 26%.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Centralizing how spare parts are ordered is another important step, as the fact that individual plants are no longer placing their own orders means there is no chance of them accidentally working against the overarching spare parts strategy. Implementing a new structure and assigning clear responsibilities enables staff to see what items are in stock and where they are held. They also now know when specific items have to be reordered for all storage locations and what quantities are required.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">In addition, we have specified which parts should be used preferentially in the future and where they should be ordered from \u2013 in other words, a standardization strategy. Not something that was possible previously with 30 different storage locations, each with someone different in charge, with spare parts for the same machine purchased from different suppliers or even different manufacturers, making it impossible for the company to move parts between locations where necessary. Thanks to the new measures, the company is now in a stronger position to negotiate with suppliers, because it is placing orders in line with the standardization strategy and for larger quantities (as requirements are grouped centrally) delivering significant savings.<\/span><\/p>\n<p><span style=\"color: #ffffff;\">Reducing storage capacities has also freed up space that can be used to expand production capability and increase profit; yet another indirect positive effect of proper spare parts management.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><strong>Conclusion: Continuity is critical<\/strong><\/span><\/p>\n<p><span style=\"color: #ffffff;\">The final step in projects involving spare parts management is to make sure that new mechanisms are embedded in the long-term. Falling back into old habits is often a danger when external parties bring in new ideas and then leave the company again after a certain period. In order to avoid this, we have defined strict processes and rules, and implemented a stringent and transparent monitoring system for inventory management, in addition to the setting up the spare parts strategy and determining ideal inventory levels.<\/span><\/p>\n<p><span style=\"color: #ffffff;\"><em>Continuously following the procedure described here will identify dead stock and further inefficiencies at an early stage, to avoid stock levels gradually building up again.<\/em><\/span><\/p>\n\n                        <\/div>\n                    <\/div>\n                <\/div>\n                        <\/div>\n<\/div>\n<\/div><\/div><\/div><\/p>\n<div class='container  py-3'><div class=\"row \"><div class=\"col-lg-6\"><h3>By subscribing to our newsletter, you will receive the current issue of our customer magazine Supply Management Insights three times a year:<\/h3>\n<p><script charset=\"utf-8\" type=\"text\/javascript\" src=\"\/\/js-eu1.hsforms.net\/forms\/embed\/v2.js\"><\/script><br \/>\n<script>\n  hbspt.forms.create({\n    region: \"eu1\",\n    portalId: \"143321638\",\n    formId: \"df71e96e-8cfd-4765-b2a2-caeb009369b4\"\n  });\n<\/script><\/p><\/div>\n<div class=\"col-lg-6\"><p><iframe loading=\"lazy\" src=\"https:\/\/player.flipsnack.com?hash=RTk4RjhEODhCN0EreG5scm0za3Z4bg==\" width=\"100%\" height=\"600\" frameborder=\"0\" scrolling=\"no\" seamless=\"seamless\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p><\/div><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>A new start can only succeed if companies set out sustainable cost management measures. A tour de force that the future of many companies rests on.<\/p>\n","protected":false},"author":10,"featured_media":63813,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"During economic hardships, prioritizing sustainable cost management is vital. Streamlining operations and cutting costs safeguard turnover and margins.","_seopress_robots_index":"","footnotes":""},"categories":[700,702,714,394],"tags":[],"class_list":["post-89577","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-article","category-magazine","category-procurrement-transformation","category-general-en"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/posts\/89577","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/comments?post=89577"}],"version-history":[{"count":1,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/posts\/89577\/revisions"}],"predecessor-version":[{"id":107256,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/posts\/89577\/revisions\/107256"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/media\/63813"}],"wp:attachment":[{"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/media?parent=89577"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/categories?post=89577"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.KGM Strategy.com\/en\/wp-json\/wp\/v2\/tags?post=89577"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}