Optimisation of procurement processes by the example Sanitärtechnik Eisenberg

Term Paper 2010 18 Pages

Business economics - Offline Marketing and Online Marketing



List of Figures

List of Abbreviations

1 Introduction

2 Theoretical Fundamentals
2.1 Definition of the procurement objects and the pattern of consumption ,
2.2 Process support via e-procurement .
2.3 Key Performance Indicators in e-procurement

3 Procurement optimization in Sanitärtechnik Eisenberg
3.1 Market and procurement situation
3.2 Proposal for the optimisation of procurement processes
3.3 Critical commentary on the proposal.

4 Conclusion


List of Figures

1 ABC-Analysis

2 E-procurement process support

3 KPI process in minutes

4 Ordering Methods

5 Supplier integration plan

6 Definition of the new order process

List of Abbreviations

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1 Introduction

“You don’t got rich by what you earn. You get rich by what you don’t spend”[1]

This quotation from Henry Ford makes clear that purchasing has a direct, elementary influence on a company’s profits.

Purchasing continues to grow in importance, since pressure from global competition makes it unrealistic to raise market prices. Competition between companies is growing more and more intensive, while customer requirements are constantly rising and the potentials for rationalisation in other areas are already largely exhausted,[2]In the area of purchasing, however, there remain many possibilities for optimisation,[3]E- proeurement is one tool for such an optimisation in purchasing,[4]

SAXIT (Sanitärtechnik Eisenberg GmbH) was established in Eisenberg, Thuringia in 1945 and specialises in developing and manufacturing technically demanding sanitary products in plastic. Owing to strong growth together with international, primarily Asian competition, the necessary management strategy has been to reduce costs at SAXIT,[5] To this end an IT optimisation project was initiated in 2003, in which the systems used in the various divisions were replaced with standard SAP R/3 software,[6] In this IT project, however, owing to a shortage of personnel resources, the purchasing processes were not observed or included. Since process optimisation in other depart­ments is now considered to be complete, in mid-2009 the management began to seek ways of cutting costs significantly in purchasing.[7]

This essay discusses the importance of purchasing for businesses. By showing the weaknesses in traditional purchasing methods, it will illuminate the potential for opti­misation through the use of e-procurement solutions. The example of SAXIT is used to contrast the savings potential of traditional purchasing with that available using e-procurement in practice.

2 Theoretical Fundamentals

2.1 Definition of the procurement objects and the pattern of consumption

The goods and services to be procured can be subdivided into various categories us­ing the Pareto[8] or ABC analysis (figure l).[9] A-goods comprise approx. 75% of the procurement volume in terms of value, with a share of approx. 3% of all items in terms of quantity. They flow directly into the products or production processes and are therefore closely related to the core business of the company. Because items with a high degree of complexity requiring explanation can only be catalogued with difficulty, the setting up of an electronic product catalogue for A-goods makes little sense.[10] B- goods comprise about 20% of the purchasing volume in terms of value and make up approx. 12% of all items in terms of quantity. They are of moderate importance for the purchasing company. Such goods are potentially suited for electronic procurement.[11] C-goods comprise up to 85% of all items, whereby they represent only 5% of the pro­curement volume in terms of value. They make use of nearly 75% of all suppliers listed in a company. C-goods are indirect, and thus of lesser significance.[12]

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Figure 1: ABC-Analysis[13]

Traditionally, procurement in the company serves the purpose of ensuring a supply of material goods, as well as raw, auxiliary and operating materials,[14]The Pareto analysis involves a simplified distribution comprising approx, 80% C-goods and a cumulative total of approx, 20% of A- and B-goods, This cost-benefit analysis makes clear the optimisation potential, especially for the procurement of C goods. This is because, although C-goods are of comparatively minor importance for a company, the traditional ordering process usually involves protracted authorisation and administrative tasks.[15]

The XYZ analysis is another method for weighting the segments according to their pattern of consumption. This means that a consumption fluctuation figure is deter­mined for each part. This then indicates the necessity of a minimum inventory level. This means that, for products of category X there is a constant need and thus a high degree of predictability accuracy. In the case of Y products, there is a fluctuating need with moderate predictability accuracy, and with Z products there is an irregular need with low predictability accuracy. The XYZ analysis is usually combined with the ABC analvsis,[16]

2.2 Process support via e-procurement

E-procurement systems (EPS) support the processes of classic procurement in various ways, A process is a defined sequence of a number of activities, which results in a concrete result in economic terms. The diagram 2 shows an overview of the possible procurement variants with e-procurement support.

The activities involved in electronic procurement are mapped in the purchase pro­cess support. The usual process steps include item selection and listing of the items in a basket (1), the purchase request inch allocation to a cost centre (2), as well as comprehensive purchase process monitoring via status messages relating to the delivery or billing for the purchase order (5).[17]' The purchase process support incorporates the corporate procurement rules. This is to ensure that the purchaser cannot circumvent these rules. The system can, for instance, be set up to display system messages as re­minders to ensure that the goods receipt is posted or to have the product range adjusted to the purchaser’s procurement authorisations,[18]Delays in the procurement process in companies are primarily due to waiting times involved in administrative activities.

Simplifying the authorisation procedure (3) has a direct impact by streamlining the administrative activities and results in significantly shorter throughput times. Possible realisation options are the four-eyes principle and the eo-ealled value limit,[19]

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Figure 2: E-proeurement process support[20]

With the four-eyes principle, authorisation is required for all procurement objects that are part of a certain product range or come from one supplier,[21]Another authori­sation procedure option is the definition of a value limit at item or purchase order level. In this ease, the purchaser can transact purchase orders by his or her own authority up to a certain limit without having to obtain authorisation. This relieves the admin­istrative workload of managers at higher levels, since authorisation is rarely refused for low-value purchase orders,[22]

By using EPS, payment for purchase orders can also be simplified and sped up (7 and 8), Data that is already present can be used to transact payments,[23]One possibility of optimising the payment process is the so-called self-billing,[24]Credit notes created by the recipients of deliveries are based on the goods receipt postings (6) by the pur­chasers, Thus, responsibility for invoice monitoring is transferred to the supplier. This method is particularly efficient, since doing away with the manual cheeking process and having credit notes created automatically helps to realise a particularly large savings potential,[25] In addition, e-procurement can also be used to support classic billing. In that case, both billing by the supplier and payment by the customer are effected by electronic means. The supplier transmits an electronic invoice to the customer’s e-procurement system, which matches the invoice to the posted goods receipts (4),[26]

2.3 Key Performance Indicators in e-procurement

Key Performance Indicators (KPI) allow success and process optimisation to be mea­sured compared to traditional procurement. The reduction of procurement costs, stor­age costs and process lead times are the relevant key indicators for e-procurement.

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Figure 3: KPI process in minutes[27]

Indirect procurement costs are directly associated with the order transaction but are not dependent on the order quantity (e.g, staff, telephone/fax, online charges and so on) as opposed to direct procurement costs (order quantity * order price — additional procurement-related costs). Indirect procurement costs also include stockout costs arising as a result of delivery shortfalls or delays. Indirect procurement costs can be significantly reduced by using an automated process to send purchase orders electronically to the suppliers inventory management system. Direct procurement costs can also be reduced using e-procurement as ordering larger quantities from selected suppliers means that better cost prices can be obtained,[28]Making purchases outside framework contracts, also known as “maverick buying" or “off-contract purchasing",


[1]Ford, Henry I. (1863-1947), American automotive industrialist

[2]cp. u. a. (2006), e-fhcts BMWi Nr. 4, p. 1

[3]cp. Wannenwetsch, H. (2002), p. 7

[4]cp. Woelfle, R. / Tanner, C. (2006), p. 29

[5]cp. u. a. (2007), Image Brochure Sanitärtechnik Eisenberg GmbH

[6]cp. u. a. (2005), ShPReport - Success Story Sanitärtechnik Eisenberg GmbH

"cp. Groß, M. (2009), Protocol Sanitärtechnik Eisenberg GmbH 27. August 2009

[8]Pareto, Vilfredo (1848-1923), Italian economist and sociologist

[9]cp. Wannenwetscli, H. (2002), p. 96

[10]cp. Neuburger, R. (2003), p. 86

ncp. Wannenwetsch, H. (2002), p. 92

[12]cp. Budde, L. (2007), p. 13

[13]own illustration according to Möhrstädt, D. G. et al. (2001), p. 12

[14]cp. Stölzle, W. (1999), p. 1

[15]cp. Appclľdlcr, W. / Buchholz, W. (2005), p. 2

[16]cp. Appclľdlcr, W. / Buchholz, W. (2005), p. 28

[17]cp. Schubert, P. et al. (2002), p. 11

[18]cp. Schubert, P. et al. (2002), p. 12

1Bcp. Nckolar, A.-P. (2003), p. 25

[20]own illustration according to Budde, L. (2007), p. 223

[21]cp. Wannenwetsch, H. (2002), p. 50

[22]cp. Nckolar, A.-P. (2003), p. 26

[23]cp. Schubert, P. et al. (2002), p. 12

[24]cp. Nckolar, A.-P. (2003), p. 145

[25]cp. Budde, L. (2007), p. 33

[26]cp. Appelfeller, W. / Buchholz, W. (2005), p. 165

[27]own illustration according to Nokolar, A.-P. (2003), p. 9

[28]cp. Schubert, P. et al. (2002), p. 77


ISBN (eBook)
ISBN (Book)
File size
3.2 MB
Catalog Number
Institution / College
Prifysgol Cymru University of Wales
Procurement E-Procurement Geschäftsprozesse Optimierung EProc E-Commerce Operations Management



Title: Optimisation of procurement processes by the example Sanitärtechnik Eisenberg