Study by AMMPL, Deloitte and the Armed Forces University Munich on value creation in purchasing

Great cost reduction potentials by professionalizing non-traditional purchasing areas, such as marketing, travel management and financial services

Frankfurt, 7.7.2005  Corporations that centralize their entire procurement volume may be able to realize cost savings in a magnitude corresponding to the success effect of a turnover increase of 8 to 14 percent. This is the core result of a study jointly implemented by the Association Material Management, Purchasing and Logistics (AMMPL), Deloitte and the German Armed Forces University Munich. 103 German organizations from industry and the field of service providers participated in the study.

Up to now, purchasing departments are frequently not responsible for the entire procurement portfolio of a company. There still exist so-called „non-traditional“ procurement areas, for instance, purchasing of marketing or travel services. These are frequently procured by the individual departments rather than through the purchasing department. „The consequence is, that potentials are not recognized or exploited. By professionalizing purchasing, cost savings could be realized and the value of the business could be increased significantly“, emphasizes AMMPL Managing Director Dr. Holger Hildebrandt.

Main results of the study

• The seven so-called non-traditional traditional procurement areas identified in the study – patents and rights, financial services, marketing services, personnel, consulting services, research & development services as well as travel management – account for up to 28% of the total procurement volume of a „typical“ industrial organization.
• In about three quarters of studied companies the purchasing department is not responsible for these areas.
• Non-traditional procurement areas exist in nearly all German business organizations. In this process, the role played by purchasing department is reduced to issuing the actual „purchase order“ and possibly to price negotiations or renegotiations, but does not include, for example, selection of suppliers.
• In fact, the needs of departments in these procurement areas correspond to an average share of a quarter of the total procurement volume of a company.
• Fewer than 40 percent of businesses organizations today take advantage of the repertoire of strategic procurement tools. In future, an important job of purchasing departments will be to obtain price advantages in heretofore unexplored procurement fields. This requires the utilization of the tools of a modern procurement organization such as, for example, sophisticated procurement controlling, strongly developed management of merchandise groups or total cost analyses of product life cycles.
• Two thirds of respondents expect savings potentials through professionalizing purchasing, a quarter of those in the magnitude of more then 10 percent in individual purchasing areas.
• After centralizing the entire procurement volume in the purchasing department and unchanged costs structures, savings of 5 percent have the same effect as an increase in turnover of 8 to 14 percent.

Success stories of business enterprises such as Lufthansa, T-Mobile or Henkel show how and with what benefit groups of merchandise and costs reduction potential can be developed. For example, at T-Mobile, marketing services are procured by the internal service provider „purchasing“. This service provider bundles needs, prepares basic contracts and simplifies purchasing processes, resulting in enormous cost advantages. Success factors for T-Mobile are, above all, that the purchasing department is involved in procurement processes early on and is able to call upon detailed performance specifications as well as marketing-specific know-how.

The study gives business organizations of all sizes and from all industrial branches helpful hints on how to selectively apply strategic procurement tools in order to increase corporate value.

About the survey

In 2004, AMMPL, Deloitte and the German Armed Forces University Munich conducted a survey of 103 business organizations (cross section of German industry and branches).

32% =  above 1 billion € turnover
41% =  from 100 million € to 1 billion € turnover
27% =  less than 100 million € turnover

„Value creation in purchasing through new procurement areas“

Study for the development of purchasing potentials in non-traditional purchasing areas.

To order your copy (49 Euro token fee):
AMMPL, e-mail: info@bme.de