Procurement transformation of indirect costs in the renewable energy engineering sector

The first step consisted of a data request sponsored and conducted on behalf of the CEO with the respective cost centre managers. In this way, information was collected on the "what" and "what for" for all expenditure. At the same time, cost responsible managers identified which of the indirect costs they considered to be critical, less critical and not necessary, as well as the consequences to be expected from not purchasing said item or service. For each identified cut, the managers were also asked to make suggestions as to what they would recommend as a replacement, if necessary.

Together with Controlling and Procurement, the resulting expenditure plans were then evaluated in terms of their savings potential and required budget. As a result, the planned budget could be adjusted in line with requirements and savings targets could be defined for each cost centre. The transparency achieved was the basis for identifying and initiating further cost reduction and procurement transformation measures.

The next step involved the preventive avoidance of "maverick buying" as well as indirect costs that went unmonitored in terms of content, budget, and procurement process. The analyses revealed inefficient and non-existent approval processes as the cause, which is why these processes were optimised and transferred to transparent workflows.

The newly developed approval processes included a technical, budgetary, and procurement check and, above a certain level of expenditure, approval by management. A semi-automated process was established on an ad hoc basis using predefined approval formats and guidelines communicated throughout the company, and invoices – and the associated suppliers - that fell outside of the now approved expense list were blocked (supplier blacklist).

Control over newly placed indirect costs could be gained within a few weeks.due to the newly gained transparency for management and the enforced compliance with 3 approval points (specialist department: necessity, finance: budgetary, procurement: price efficiency).

Following the savings targets identified in Measure #1, the cost centre managers were tasked with developing savings measures in coordination with Controlling and Procurement. The concepts developed were then presented in so-called cost centre workshops and, if approved, put into practice. The workshop participants were the CFO, the cost centre manager, the cost centre controller, and the buyer responsible for the cost centre.

The levers for increasing savings ranged from consolidating roles through in and outsourcing initiatives, specification changes, supplier negotiations, and price model changes. The measures adopted were monitored by Controlling and Procurement and the actual implementation of the new measures was ensured through a monthly PMO.

The final step was to ensure the long-term success of the new measures of the procurement transformation initiative and to prevent the situation recurring. To do this, future indirect costs had to be made measurable and controllable, and the processes automated.

The general ledger accounts and procurement categories were still disorganized. In this step, these were finally restructured and integrated into the new SAP approval processes and workflows. In cooperation with Procurement, Accounting, and Controlling, clear and comprehensive general ledger accounts, procurement categories, and cost centres were agreed and then implemented in the corresponding systems.

In addition, the approval processes in SAP were redesigned. Also, external workforce management software was selected and implemented for the freelancers and temporary workers category. Thus, processes became more efficient and workforce management outcomes could be significantly improved. Another result was the increased data transparency, which made budgeting more needs-oriented and improved the control of indirect costs.