Organization – Strategic Purchasing

In the past, strategic purchasing was not exactly a key issue in the banking sector; attention was much rather focused on regulation, turnover and customer acquisition. Meanwhile, however, there has been the widespread realization that profits or earnings may also be excellently increased through optimizations in purchasing. Traveling, telecommunications, energy supply and facility management – nothing will escape the ax. Eli Hamacher

Jürgen Kern knows all about purchasing. For 13 years, he has been dealing with procurement. Now he is facing a new major challenge. As of January 1, 2015, his employer – the major French bank BNP Paribas – appointed him as Chief Procurement Officer for Germany. At the same time, Mr. Kern is responsible as a global program manager for "Simple & Efficient Germany". In this function, the 47-year-old is to develop purchasing advantages and efficient purchasing structures in a country which the French count among their key markets and for which they defined an ambitious target. In the future, BNP wants to grow by eight percent annually in Germany. To this end, the corporate management established in 2013 – and since then responsible for the entire group in Germany – aims at a better integration or intermeshing of all German companies. Due to numerous takeovers – the most recent addition being Münchner Direktbank DAB Bank AG – the Group meanwhile has 13 units with about 4,200 employees. Its major Group-wide projects also include central purchasing. "It used to be that every German subsidiary usually handled procurements on its own, from now on all 13 units are to cooperate more closely in the future", emphasizes Mr. Kern.

Since the onset of the financial crisis, Germany's banks have been racing from one stress test to the next. Record-low interest rates and regulatory interventions, such as the increasing requirements regarding the equity base, put massive pressure on all banking institutions – whether they are private, cooperative or established under public law. But not only the aftermath of the Lehman bank collapse has been forcing bankers to change their way of thinking. "The competitive battle for future customers is being waged with such dynamic intensity that many banks are not yet adequately prepared for", states the trend study "Bank & Zukunft" ("Banks & the Future") for which executives from the financial sector are annually surveyed by the Fraunhofer Institut für Arbeitswirtschaft und Organisation (Fraunhofer Institute for Labor Economics and Organization). In order to stand their ground in tough competition, banks must become more customer-oriented, more innovative, more agile and more efficient. For these challenges, the institutions are hoping to find solutions, inter alia, in technological and organizational approaches. And with it, the focus is now shifting ever more to strategic purchasing.

As a partner at Kerkhoff Consulting – the Düsseldorf-based consultancy specializing in procurement and supply chain management – Markus Heidrich is observing a change in the way of thinking at financial institutions. "Strategic purchasing had so far not been a key issue in the banking sector; the banks' attention was much rather on turnover and customer acquisition. Now, however, corporate boards have increasingly come to realize that profits or earnings may also be increased excellently through optimizations in purchasing." (see interview)...    (excerpt)

"Empowerment is important"

In 2012, Markus Heidrich came as a partner to Kerkhoff Consulting, a consultancy specializing in purchasing, procurement and supply chain management. Before that, the graduate in business management, now 48 years of age, was Vice President of the Frankfurt-based management consultancy Driving Growth Group where he controlled international projects for cost optimization and efficiency increases with the focus on the area of indirect purchasing. He provided, moreover, consulting for companies in their strategic realignment.

diebank: How far has the issue of strategic purchasing optimization come to stay overall in companies?

Heidrich: The industry in general copied its steps in the learning process from those in the automotive and the food industries, and it has also essentially taken these steps already. The service sector is lagging behind. Aside from savings in purchasing, the greatest potentials are in the process however.
Potentials are plentiful – in the industry as well as in the service sector.

diebank: How well do banks have their purchasing under control?

Heidrich: "Strategic purchasing had so far not been a key issue in the banking sector; the banks' attention was much rather on turnover and customer acquisition. Due to rigid rules and regulations, banks are well set up in their key processes or have them permanently in their focus of optimization. In contrast, there are often considerable development potentials in adjacent corporate processes.

diebank: In view of the tense competitive situation, interest should be great in utilizing these potentials.

Heidrich: The degree of maturity in purchasing which we, as consultants, have in the focus of our work is not very pronounced in comparison with that in the producing sector – regardless of small or large. Basically, the major private and public-law institutions with their decentralized structures actually are aware of the synergy potentials but still have to take their steps in development. In individual branch offices, "fiefdoms" frequently exist which, due to other priorities in key processes, are not yet addressed (or cannot yet be addressed) or tackled – so we often hear.

diebank: Fiefdoms not wanting anyone to meddle in their affairs?

Heidrich: Precisely. Accordingly, a first step will be to make great efforts at persuasion in order to raise awareness regarding the advantages from process efficiency and savings of strategic purchasing. In a second step, it is important to crosslink and interconnect the central purchasing department and the special departments. This procedure is successful especially if top management is behind the project and supports it. In our projects, we pay particular attention to continuous internal communications which is the basis for any willingness to change and for the success of the project since it is necessary to win over the workforce.

diebank: Which are the areas where savings potentials can be empirically realized the fastest?

Heidrich: Quite naturally, a bank's IT and marketing departments are the areas with the largest cost factors – accordingly, that's also where the greatest potentials are. However, precisely because of the key competence and expert knowledge in these specialized fields, a major challenge is presented by the establishment and integration of strategic purchasing as an internal service provider. Moreover, 'the ordering process' and 'the right organization' provide elementary levers for efficiency and savings.

diebank: What are the most important criteria for success so that the desired savings will actually be realized?

Heidrich: First of all, those involved must all be aware that there is a need for change and that this is also wanted by the company's top management. And only if central purchasing and the specialized departments will then work together instead of against each other will savings be realized. The most convincing argument is always provided by beacon projects showing what is possible.

diebank: What are the most frequent mistakes?

Heidrich: Top down decisions without integration of the consumers or essential users; also, solo actions by individual purchasing departments without backing and support by management – both will result in a lack of understanding and at best short-lived changes. Sustainability will then not be given.

diebank: Kerkhoff also accompanies many purchasing projects at banks and works closely together with the responsible employees. How well are they qualified for this complex function or assignment?

Heidrich: Experience has shown: Competence and motivation are there; important is the empowerment, i.e. management support. Through complementary consulting, it is our task and objective to restore motivation, to bring together management, purchasing and the specialized departments.

diebank: What is the role of e-procurement – today already and in the future? What can digitization accomplish here?

Heidrich: E-procurement is increasingly gaining in importance – for banks as well. Digitization simplifies ordering and control processes in purchasing. Yet, quite frequently there are already electronic ordering catalogs for example; however, they are poorly accepted by employees since they are considered to be too complicated or because it happens time and again that you cannot find what you are looking for. Once they have been set up, such support systems must be continuously updated and adjusted to the changing demand structure. Specialized departments and purchasing must here work hand in hand.

Mr. Heidrich, thank you very much for your time. Eli Hamacher conducted the interview.

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