The Four Pillars of Sustainable Purchasing Transformations

HelgeJordan, Nicolas Reinecke, and Khosro Ezaz-Nikpay 

Improving purchasing performance remains one of the most important levers for chemical companies to boost profitability according to the German Chemical Industry Association (VCI), in 2002, chemical companies in Germany spent more than 50 percent of their gross production value at third party suppliers 31 percent went to purchase raw materials, 13 percent was spent on re-sale items, three percent on energy, and another three percent on maintenance services. 

For an average chemical company or business unit with sales of EUR one billion, an EBITDA margin of ten percent, and a purchasing volume of EUR 500 million, reducing its overall spend by ten to 15 percent will result in an EBITDA margin improvement of five to seven and a half percentage points, if sustainable. 

In our experience, savings opportunities in double-digit figures can be identified through purchasing improvement programs. Typically, 30 to 50 percent of opportunities identified can be captured within the first year, and 80 percent within the second year following implementation. 

Value Creation Strategies for the Chemical Industry. 2nd Edition. F. Budde, U.-H. Felcht, H. Frankemolle (Eds.) Copyright 2006 WILEY-VCH Verlag GmbH Co. KGaA, Weinheim ISBN 3-527-31266-8 

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Shifting successfully away from a narrow and short-lived approach, however, opens up the potential for purchasing to become a valued and trusted partner for the other functions. A sustainable purchasing performance transformation initiates change that penetrates deep into the heart and mind of the organization. To be successful in the long term, it has to rest on four strong pillars ... 

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