One procurement organization, many winners
The foundation for successful procurement is laid by long-range partnerships with suppliers.
An annual procurement volume - excluding transport services - of about EUR 8.5 billion: Deutsche Post DHL, the world's leading logistics company, is also a mover of procurement markets. For the 570 employees of the Group unit set up in 2003 who work in 48 countries around the world, this job creates a huge challenge day in and day out. The global procurement network supports the Group's divisions in every region, purchasing everything from microchips to letter-sorting equipment.
The Group's Chief Procurement Officer, Michael Nießen, describes the magnitude of the responsibility this way: "In the morning, we'll negotiate express shipping envelopes in Asia. At noon, we'll be involved in an advertising campaign for the E-Postbrief in Germany. In the afternoon, we'll deal with temperature-sensitive freight transports in Europe. And in the evening, we'll work on forklifts for Supply Chain in America. There's something to do around the clock."
As a rule, the work involves high volume - and, frequently, sensitive relationships. Many of the suppliers of Deutsche Post DHL are also major customers of the company. "We draw a strict line between sales and procurement," Nießen says. "Every customer has the right to get the best offer at the best price from us. Of course, we expect suppliers to return the favor. This is why mutual transparency is so important," the Group's top procurement officer adds.
Global and local
The merger of the procurement units that were once scattered among individual countries and company divisions has paid off in many ways, and Deutsche Post DHL is increasingly profiting from these benefits. For instance, the combined unit enables international and strategic procurement - or global sourcing - to be carried out. In this process, the variety of requirements that the Group places on a particular product are determined and - whenever possible - standardized. This results in increased order volume for many products. These higher volumes then attract suppliers and generate significant price benefits for Deutsche Post DHL. In one reflection of this payoff, the centrally organized procurement of telecommunication services is to save EUR 190 million in costs over the next five years.
Here is another strength of central procurement: the environmental-protection objectives of Deutsche Post DHL flow into the requirements placed on suppliers. This also includes such energy and CO2 efficiency indicators used in the total cost-of-ownership measurement as global paper guidelines, energy-efficiency upgrading of warehouses and the purchase and use of vehicles powered by environmentally friendly drive systems. By taking this approach, central procurement plays a major role in the Group's push to improve the CO2 efficiency of the world's leading logistics company by 30 percent by 2020 compared with 2007 levels.
Any company that purchases on a global scale cannot limit itself to worldwide procurement strategies, though. It must also be present locally. This is the reason why Corporate Procurement is organized as a matrix, with 16 global category managers as well as four regional procurement heads. The close working relationship with the Group's divisions in the regions is vital. After all, this is the only way to simultaneously bundle the Group's needs around the world while also meeting the business units' local requirements, Nießen says. "As service providers, we have to react to the needs and the businesses of our internal customers. Of course, these differ everywhere. And this is what really adds spice to the job."
For this reason, strategic procurement and its completion are increasingly being handled by regional competence centers. For instance, the DHL Procurement Office China set up in 2009 in Shanghai has successfully carried out a series of projects to generate an optimal balance among costs, quality and risk for local as well as global customers.
The service department's customers can also be found outside the Group: together with the divisions, Corporate Procurement provides purchasing services to external customers. In one reflection of this, it helps the Supply Chain division with the integrated logistics and procurement services needed in supply chain management. Nießen views this as a natural extension of the current range of services: "If Supply Chain can provide the customer with the inventory planning to go along with the tailored delivery of necessary replacement parts, why shouldn't we just go ahead and procure the replacement parts for the customer as well? The customer receives more services from a single source and saves cold, hard cash thanks to our professional procurement operation."
The foundation for successful procurement is laid by long-range partnerships with suppliers, among other things. With Supplier Finance, an innovative financing and payment model for suppliers, Deutsche Post DHL intends to further strengthen its longstanding relationships with suppliers. Following a successful test phase in Germany, the concept, which will pay off for both the Group and its suppliers, will be gradually introduced in other countries.
The model is simple: if a supplier joins Supplier Finance, the company will continue to send its invoices directly to Deutsche Post DHL. A few days later, the supplier will receive a payment from a bank that is settling Deutsche Post DHL's obligations. In exchange for receiving the payment so quickly, the supplier grants the bank a slight reduction of the original invoice amount, totaling well below the percentage rate that the supplier would have had to pay its own bank for intermediate financing of the same total. Deutsche Post DHL then pays the full amount of the invoice to the bank at the later, agreed-upon time.
Everyone profits from this approach: suppliers that become part of the Supplier Finance system receive payment earlier and profit from the excellent financing costs of Deutsche Post DHL. Thanks to the long payment terms with the bank, the Group optimizes the working capital of the individual divisions. "It's a win-win situation for everyone," Nießen explains. Even though Michael Nießen's statement refers to the Supplier Finance program, it also applies to many parts of his area of responsibility.