The importance of exchanging information along the supply chain

Fabian | 00:01.38
Welcome to another episode of Procurement Unplugged here at Mercanis. Today we have a female guest for the first time. We are very pleased that this is almost a rarity in procurement. We also discussed this briefly in the preliminary talks. I'm really looking forward to Nina Bomberg. Nina, the stage is yours. Why don't you introduce yourself, how did you get into Procurement? What were the different stages in your career over the last few years?

Career Path in Procurement

Nina | 00:36.13
Yes, I think I came to shopping like the virgin to the child, like many of my colleagues. I stumbled into it a bit and then I liked it and then I just never left. And so all of a sudden 15 years have gone by in Purchasing. I started in retail, then later did it at Fressnapf and later did it in FMCG at MaaS with chocolate bars. It was definitely the company with the best break-time catering we ever had.

And my family was very sad when I swapped that for the chemical industry. I then worked for a speciality manufacturer of adhesives. And now I've switched to the automotive industry and I've always enjoyed indirect purchasing. I'm now globally responsible for indirect purchasing with the team at this current company, SEG Automotive. And we're trying to manage it a bit, to structure it a bit, to bundle what we can globally. And we actually have quite exciting tasks in front of us every day.

Fabian | 01:49.20
Yes, very interesting. I mean, historically, especially at an automotive company or at an OEM, it's more likely to be direct purchasing that's involved. Perhaps it would be interesting to find out, I mean, what does indirect purchasing do at an automotive company? What is the status, the prestige of indirect purchasing and how has it developed over the last five to ten years?

The Importance of Processes and Materials

Nina | 02:16.95
Well, I think what you have to realise with indirect purchasing is that we no longer negotiate the prices behind the decimal point. So that's not the part where the music plays in indirect purchasing, but in many cases you can save a lot more money if you set up a process sensibly, if you work sensibly with your internal business partners and procure the right materials for them. And, of course, it is also incredibly important that things are in the right place at the right time. After all, if production has stopped for some handmade eight-panel screw that is missing in production, then it almost doesn't matter how much this screw cost. And if someone wants five euros for it, if it's not in production, then it's worth buying. In other words, you have to weigh up very, very carefully what compromise you can make.

We are, of course, a first-class service provider - we don't produce anything ourselves. That means we have to somehow generate value for the company. And we do this through the service we offer other departments, such as the availability of goods and the best available price. Of course, we are also incredibly versatile. Indirect purchasing is an extremely broad spectrum. I'll never forget the day when I was supposed to rent elephants in the morning and was looking for tax inspectors in the afternoon. It's not uncommon in direct purchasing, even if I admit that you don't look for elephants all that often.

Fabian | 03:52.09
But comfort.

Nina | 03:53.57
Comfort. Not so much in the automotive now, that was back in my chocolate days, but sometimes Rocket needs an elephant.

Fabian | 04:03.88
Yes, we've also heard of clowns who are occasionally sought out in direct purchasing. So it seems to be a very, very diverse field.

Nina | 04:17.22
That's true. We're a bit of a quartet of curiosities. So every now and then someone comes round the corner with something that makes you think, okay, I don't know exactly where I'm going to get it, but I'll take care of it. And that can be anything. For example, two months ago my colleagues from India came and said, hey Nina. Can you get us some ventilators? Because somehow we promised them to the Indian government, but somehow we can't find them.

Can you get them for us? And then you also start looking for ventilators as an automotive manufacturer. In other words, you're always looking for things that you wouldn't necessarily have known belonged in your own range.

Fabian | 05:00.19
And you mean that it is not the target KPI to negotiate the last decimal place and get even more savings every year, as is now the case in the direct area. What would the target KPIs be? I mean, you've already mentioned a few. Collaboration is important, as is automation. And I mean, on the one hand, what would be target KPIs for you? Secondly, what challenges do you see in indirect procurement at the moment?

Nina | 05:29.41
Of course, savings are part of it, no question about it. And that is still measured. But it's simply no longer the focal point. So if I look at last year, this year and next year, for example, logistics will remain our challenge, by a long way. Everyone is trying to get their goods from A to B somehow. There are too few ships, the ships are travelling too slowly, or they spend too long in the harbours, there are no containers. In other words, there is simply this coordination. is the really tricky part for us, which we have to manage and at the same time generate an understanding within the company as to why some things in logistics, for example, are not currently working the way they usually do.

These are just the special features of this year. But of course, the fundamental issues are to automate things, to take out non-value-added work so that people don't have to deal with repetitive tasks that, to be honest, only bore people and where every minimum-wage worker is really too expensive to actually carry out.

Automation in Indirect Procurement

Fabian | 06:37.15
What would be some examples of automation, for example? I think that might make it a bit more tangible for our listeners. I mean, what could be automated, for example?

Nina | 06:48.75
So a lot of stupid things, like creating new suppliers. Everything that concerns master data, whether it's suppliers or material master data. Converting requests into orders, processing order confirmations that come back from suppliers. Checking invoice discrepancies, because these are often banalities, such as why an invoice is stuck. For example, a classic example, the invoice comes in rolls and the order was in metres. The computer can also check whether the conversion factor is correct. I don't need a person with a calculator to check whether there really were three metres on a roll.

Fabian | 07:28.24
Yes, I could also imagine that this would also be part of the whole topic of sourcing. I could imagine that in the sourcing process you have a lot more topics. So that means RFI, questions and so on and so forth, pricing sheets.

Nina | 07:48.13
Of course, to a certain extent, especially when we're talking about C-parts, it's much, much more effective than when I have really complex things. But a classic M6 screw, which is also specified three times, there's not much more to it. This means that I can also further automate procurement. We had already talked briefly about this in the preliminary discussion, about catalogue orders, which are already common practice in many large companies, and of course in our company too. We also have catalogues to handle all these things.

And that's why it's not the biggest challenge for us now, but I think it's still a big challenge for the industry as a whole. It has long been standard practice for many very large companies, but not for many smaller ones. The last company I worked for, where I started nine years ago, had no indirect purchasing at all and was a two billion dollar company. They just had so much margin that it wasn't important and they didn't have to worry about it and, strictly speaking, they didn't have to bend over backwards for the money that was lying on the street, so they just left it there. They didn't even have orders.

Fabian | 09:00.15
Could you perhaps formulate this by saying, okay, the smaller the company is, the more the indirect purchasing is still in the specialised department?

Nina | 09:07.89
Definitely. In the specialist department or, classically, with the managing director's assistant. These are the classic people who procure things. So if the company is still small and needs three new desks, they don't put them out to tender. So it's not a traditional tender, they just call the two or three local offices and maybe someone looks online at Ikea to see how much it costs. And then three desks are purchased and that's that. But if I buy 300 desks, then that's a slightly different matter and then I also have a different negotiating potential and other opportunities to get involved.

Fabian | 09:44.89
Yes, I mean, indirect purchasing is also a bit of a cultural issue. So do I want to have this budget mentality, where perhaps the specialist department buys and the user cooks his own soup as long as he stays within budget? Or do I really want to have a purchasing mentality where indirect purchasing also drives value? How do you see it?

Indirect Procurement as a Value Driver

Nina | 10:07.45
I actually always see this as a relatively close partnership. Because in most companies, budgets are of course on the brink of collapse every year and are questioned every year, but the number of projects increases every year, it is actually indirect purchasing that can help the specialist department to manage its budget. And to realise what they have planned with their budget. Because yes, of course... It's true that if the purchasing department makes a saving, this is quickly offset against the budget. But it's also the case that people are quick to say, hey, watch out, if you still have a budget, you can still do the project you needed.

Fabian | 10:45.89
Yes, and has Covid caused a kind of rethink, that people are looking more at the budget and then see purchasing more as a value driver since Covid?

Impact of Covid on Procurement Priorities

Nina | 10:58.94
I think what was actually much more important for us in Covid times was the security of stock and delivery. Even more than the price, because it's relatively difficult to negotiate the price for some things at the moment. So it doesn't matter which precious metal I'm looking at or even steel. So it doesn't have to be precious metals, but also steel and copper. Everything is going through the roof. That means I only have a moderate amount of room to negotiate prices. I can now... to be better than the market, but I won't make any big savings. But if I can say that I have material when it's hard to get material, then I've actually already won. So anyone you ask at the moment who buys chips is happy for all the chips they get.

Fabian | 11:46.30
Yeah, sure. Yes, I mean, that seems to be a diverse field of challenges. I mean, on the one hand, I can see what you're saying, it's also a challenge somewhere that you have to deal with a wide variety of topics and have to buy in a wide variety of topics, so to put it bluntly, from the elephant to the screw to perhaps the cleaning lady. And I could imagine that it would be difficult to do this in standardised software, on the one hand. On the other hand, it is difficult to develop the right culture for a company so that the user actually sees purchasing as a value driver. And I think the third thing, I would imagine, is probably also the skills and abilities that the buyer needs.

I mean, I probably can't focus so specifically on one category. So I don't think there will be an elephant category. Or am I wrong in thinking that this is the challenge? Or are there other key challenges? Or how has it been for you in recent years?

Nina | 12:57.41
I think there are definitely more generalists in indirect purchasing than in direct purchasing because you simply have a broader spectrum. And even if we now have a dedicated buyer for logistics, for example, it's quite possible that they will buy something else in the future. This is relatively common in indirect purchasing. But I also believe that many negotiations in indirect purchasing are very similar. I would perhaps exclude logistics and IT to some extent because they have a slightly different mechanism and work a little differently.

But if I stay with service providers, for example, they all actually have the same price drivers. And once I have understood the price drivers in a particular area that I buy, the negotiation is always the same. So if, for example... machines and systems and once I have understood that the steel is only a minimal price driver, but the price driver is actually the engineering hours that go into developing the drawings.

And that if I can create a frozen status relatively early on with my drawing, I can actually gain in the price of the machine. But not whether the machine is 500 kilos heavier or lighter afterwards. That's not the part where the price is decided, for example. If I know these things for the different categories, then I can basically negotiate them all across the board.

Fabian | 14:21.66
No, of course that makes complete sense. And on the subject of automation and software, which software players do you see in the indirect sector at the moment? Because I mean, catalogues, that's nothing new, they've theoretically been around for ten years. Theoretically, there are already established players or the one, two or three top dogs that come from the direct sector, who also do something here and there for the indirect sector. I mean, in the preliminary discussion you said that you sometimes have to take the first step before you take the second and third. It would be interesting to hear your opinion here.

Nina | 15:00.60
Yes, I think we always talk a lot in the industry in general about digitalisation and how we take the next steps, etc. and I think we're missing the point a bit that many people haven't even started yet. As I said, the company where I started nine years ago doesn't even have orders and there are still companies today that don't even have orders or companies where we talk about whether they can automate orders and if you were to ask them whether they have managed to clean up their master data in the last 20 years, that would be on the nice-to-have list. And I can't automate anything with bad master data.

So if I no longer have someone to look over it afterwards, because with their five years of experience they know that it contains the wrong conversion factor between rolls and metres, because they simply have it in their head, because they do it every time they order, then it's no use to me. Then I can't automate it. In other words, I have to take this step for as long as it takes, because then it sounds good. But I just have to go through it. We now have the advantage, okay, we come from a large corporation and have been bought out. That means we've already gone through this step. We also already have our catalogues.

And yet, of course, master data is always an evergreen. It's never perfect and it's never right, because it's alive. It's living data and so as soon as it's uploaded, it feels like it's already wrong somewhere. But I think that the companies that are ready now will be able to take the next steps. And the next steps will at some point go in the direction of using an RPA, which processes, let's say, stupid macros, to move on to automated orders, to truly automated planning and not just that someone triggers something, that an order has to be triggered, but that in principle my system is already talking to the supplier's system and my supplier actually already knows that they will probably order in four weeks, because if I look at their stock now, we can manage.

And at the moment these are still extremely privileged supplier relationships that you have, that you allow to look so far into your own systems. And I believe that this will become much more common, that we will become more closely interlinked in order to be able to optimise better, for example, when we see, as we have now seen in the Covid situation, that the global supply chains are all coming under a lot of pressure.

Fabian | 17:41.97
So a kind of interlinking across the various links in the supply chain, that is of course more of an issue now, probably in the next five to ten years, that Tier 1, Tier 2, Tier 3 are integrated in such a way that the order quantities are then automated. But what I mean now is more obvious, how do you see the issue of perhaps creating automatisms within the company itself between the requisitioner and indirect procurement? This is still largely very manual.

Nina | 18:11.699
That's true, and I think there is definitely still potential to make things simpler, where there are recurring requirements that all need to be clarified again today, or where things need to be specified completely clearly and unambiguously and you don't necessarily have to intervene completely manually. Especially when it comes to C-parts, it's the case that at the moment, as soon as it gets a little out of the ordinary, it's still somehow done manually and that will certainly no longer be necessary in the medium term.

Fabian | 18:51.639
And how do you think the demands on buyers will change in indirect purchasing over the next five years?

Nina | 19:00.625
I think they have to become even more flexible, we have to become even more flexible. When I look at the speed at which we are introducing innovations in the area of tools. Ten years ago, it was just the case that we somehow had to endure the introduction of SAP. And that was really horrible and everything was terrible, but then at some point you got over it and then SAP ran for ten years after you had trained all the users. And today it's more like saying, hey, watch out, I've seen a startup up ahead that fills the gap we have.

Let's take it with us. And maybe that's the right solution for the next two years, maybe for the next three years and then maybe not anymore because we've filled this gap with another tool or because this need no longer exists because it's been replaced by the next one, whatever.

Fabian | 19:54.973
Yes, we've now talked a lot about innovation, including automation and how indirect purchasing has developed over the last 10 or 15 years. What would be your vision for purchasing in the future? I think that would be quite exciting to conclude the whole thing here.

Nina | 20:11.786
I think it's really all about becoming much more networked, that these supply chains grow much closer together and that we simply work much more together instead of against each other. Because at the end of the day, this entire supply chain is interlinked and there is a certain amount of added value that can be generated throughout the supply chain. And if you get a little further away from... I have to get the absolute maximum for myself and I don't care whether the others survive, then I think you have a better chance of maintaining a stable supply chain, which I think will be much more important in the future than it has been up to now.

Fabian | 20:59.121
Yes, Nina, it was very exciting talking to you. Thank you very much for joining us on the podcast. We really enjoyed it and once again it was an exciting insight into purchasing.

Nina | 21:10.966
Thank you, I had a lot of fun and wish you much success.