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08/23/2016

The digital way to modern purchasing – Procurement 4.0

A systemic solution that guarantees long-term best price certainty and transparent cost trends for all commodities? What buyer would not want that? The Procurement 4.0 one-solution concept by Kerkhoff Consulting meets these demands and offers a sustainable approach to implementing the best price guarantee for years to come.

The digitisation megatrend enables a wealth of new developments that offer countless opportunities for optimisation, while redefining the parameters and, therefore, the buyer repertoire. These opportunities need to be identified and managed professionally so as to achieve the projected potential and not to get bogged down by the diversity of options.

Producing companies see the digitisation hype as an opportunity to create more flexible production processes for the manufacture of individual products, but at the same time face more closely linked supply chains, shorter lifecycles and faster times-to-market. For the purchasing department, these developments imply reduced procurement times, an increase in product quantity and diversity, and greater dependence on suppliers and strategic partners. As a result, buyers are confronted with ever more complex tasks and agendas, and an unmanageable workload.

Skilled buyers are obviously keen to achieve best prices for top quality. Fixed methods and processes conflict with an effective concept that responds to the opportunities of digitalisation and incorporates all components involved in purchasing. Systematic procurement controlling with maximum scope for action, which considers all material, operates on the basis of 100% compliance and integrates future acquisition costs in view of the market price development. A system that incorporates all aspects of commodity group management and raises even “second fiddle” products to the level of best price guarantees. For some buyers this may still be pie in the sky, but this exactly is the scope offered by Procurement 4.0.

Procurement 4.0 as a one-solution concept

This systemic concept solution combines various digital tools developed on the basis of the experience and know-how of the individual specialist companies in the Kerkhoff Group.

In a first step, some three to five reference products are selected from a commodity group which are examined in terms of material and production specific requirements using the Kerkhoff cost analysis tool. The pricing of these reference products is considered for determination of the prices of all other products in the commodity group using mathematical methods and algorithms. This results in a fixed correlation of the reference products to the remaining portfolio, on the basis of which only the selected product is managed and the price level of the remaining range is merely adapted at the click of a button.
The next step involves work in the market in cooperation with the Kerkhoff consultants. This includes tenders and negotiations, but also supplier workshops based on the results determined. These reflect the current “best price at the market” and can calculate the effect based on the previously defined correlation to the remaining products for the whole range.

For the purpose of transparent procurement controlling, the price trends of the reference products are regularly tracked and where necessary checked on a daily basis. Extrapolation to the whole product range ensures that previously non-transparent developments and atypical market price demands become apparent. This additional information can mean instant monetary improvements for the company. During implementation, the prices of the core product range are also optimised and adjusted to the market trend. While retrospective quantity changes in the commodity groups and their future development projections will determine the future purchasing volume based on ACTUAL prices, projected market price trends will affect the ACTUAL prices and, therefore, this model. This helps to identify and pre-empt factors such as risky movement vectors in the range (e.g. preventing inaccurate orders and purchases of commodities, which are subject to volatile price movements themselves).

Harmonising and structuring the order, product and supplier data is essential for methodical analysis functionality. Big data analyses are carried out applying systemic and mathematical approaches using modern methodical applications, resulting in improved efficiency and return as well as a clear differentiation from the competition as key advantages in terms of increased profitability.

Procurement 4.0 by Kerkhoff Consulting acts as a complete, systemic solution concept that is focused on best price guarantee for all products, as a procurement controlling tool delivers valuable and up-to-date information on market prices, passes a compliance health check, and enables forecasts of future price developments.

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