Reducing the Total Cost of Ownership of Purchasing at the Muelink & Grol Group Master thesis Final report

Reducing the Total Cost of Ownership of Purchasing at the

Muelink & Grol Group

Master thesis

Final report

Student: S. Quax

Student number: 1849816

Reducing the Total Cost of Ownership of Purchasing at the

Muelink & Grol Group

Performed for:

Muelink & Grol Group

&

University of Groningen

First supervisor University of Groningen:

Prof. dr. D.J.F. Kamann

Co-assessor University of Groningen:

Prof. dr. J. de Vries

Supervisor Muelink & Grol:

W. Spoelstra

Student:

S. Quax

Student number: 1849816

Master of Science Business Administration

Operations and Supply Chain

Profile Production and Distribution & Service

Terms

BM pro Burgerhout Muelink & Grol Production CODP Customer Order Decoupling Point

ISO International Organisation for Standardisation KPI’s Key Performance Indicators

MD Managing Director

M&G BV Muelink & Grol BV Groningen M&G Group Muelink & Grol Holding

MTO Make to Order

NEVI Nederlandse Vereniging voor Inkoopmanagement OEM Original Equipment Manufacturers

OP Operational Purchaser

POP Policies, Organisational goals and Processes

PM Purchasing Manager

PMC Product –Market combination RFQ Request For Quotation

SAP Systemen, Andwendungen und Produkte in die Dataverarbeitung. In English; Systems, Applications and Products in Data processing SLA Service Level Agreement

TCO Total Costs of Ownership

TS Technical Service

Management summary

This research took place at the Muelink & Grol group, a leading manufacturer in Europe of Flue Gas Systems. Muelink & Grol is founded in 1932 and has a revenue of €135 million. They are seen as a total supplier of flue and ventilation systems by its customers. The wide range of products is produced in aluminium, stainless steel and plastic. For many years Muelink & Grol had a very good margin and the market was good, the business was increasing every year with 5 to 6 %. However the financial crisis of the last few years has had a great impact on Muelink & Grol. The company is analysing the business to see what can be improved since the margin is under pressure due to rising costs. The company is focusing on cost reductions and wants to improve the margin. Purchasing has an effect on the total costs of ownership and therefore the objective of this project is to reduce the total cost of ownership at the purchasing department. This project focuses on the purchasing departments of 3 of the biggest divisions in the Netherlands; these are Muelink & Grol BV, Burgerhout and InterActive. The POP (Policies, Organisational goals and Processes of the organisation and the purchasing function) model is used as a framework for this research, together with parts of the purchasing scan. The sub questions are derived from the POP model and are divided in the current situation, the diagnose phase and the design phase. The POP model and the use of the Kraljic matrix are explained in the theoretical background.

The market strategy of the Muelink & Grol group is operational excellence, as they want to be a leading and continuously improving company. The organisation of the Muelink & Grol group has 9 sites in Europe and 1 in America. The company uses ISO procedures and is organised mechanistic and hierarchical. The purchasing mission states that the Muelink & Grol group wants to reduce costs while delivering quality. They want to obtain the goods of the right quality, at the right quantity, at the right place and for the right price. The complete purchasing strategy is added in appendix A. The purchasing function is organised by means of a purchasing matrix. This matrix includes the 5 sites in the Netherlands, they have a monthly meeting about contracts, cost savings and improvements. The matrix has an advising role, but the divisions are responsible and can decide if they want to take this advice. The initial purchasing is done by the purchasing managers and the operational part is done by the operational purchasers. Burgerhout and InterActive use SAP as an ERP system and Muelink & Grol BV uses BM Pro, a internally programmed DOS interface. A time spend analysis was carried out and showed that much time was spend on specification and registration. A creditor analysis only for Muelink & Grol BV was carried out, because the data of Burgerhout and InterActive was not available. This analysis showed that many invoices were received, especially from Burgerhout (2187 invoices in 2009). The ABC analysis illustrates that in group A (80% of the purchases) many invoices were received; on average 161 invoices per supplier. For the C product there are many suppliers; 342 suppliers for 5% of the purchases. The frequency distribution of the invoices showed that 258 times one or two invoices were received from a supplier. The Kraljic matrix showed that most products are in the routine part of the matrix, which says that there are enough suppliers available, but that these represent less than 3% of the purchases.

improvement. Many invoices were received, which results in administrative handling. If the number of invoices would be reduced, less time would be required and the total costs of ownership can be decreased. In the invoice booking process steps could be eliminated and it could be simplified. The results of the Kraljic matrix showed that most product groups are routine products. However, because the market strategy is operational excellence the product groups should be in the leverage part. The product groups can be combined; so the % of purchases increases and there is moved to the leverage part. If this is not possible the processes ought to be simplified.

In the design phase the invoice booking process was looked into and there was found that time can be saved when the invoices are scanned so they can be paid right away. The number of invoices can be reduced, starting with the top 10 invoice senders, which will reduce the total cost of ownership. Potential cost savings are calculated and explained in this chapter. A guideline for the reduction of the number of suppliers is included, which highlights the importance of the process. Vendor managed inventory (VMI) and Service level agreements (SLA) can be used to avoid organisational costs for routine products.

The total costs of ownership in the purchasing matrix of the M&G group can be reduced by; • Scanning the invoices for the invoice booking process;

• Reducing the number of invoices;

• Sending letters via the internet instead of post;

• Reducing the number of small suppliers by combining the items, or simplify the process by using a purchase card;

• Standardisation and modularisation of the facility goods;

Table of contents

Chapter 1 Introduction ... 8

1.1 Muelink & Grol ... 8

1.2 The M&G group ... 8

1.3 The research motive ... 8

1.4 The structure of the report ... 8

Chapter 2 Methodology... 9

2.1 Introduction ... 9

2.2 Problem background ... 9

2.3 Research question, objective and limitations ... 9

2.4 The conceptual model ... 10

2.5 The method and sub questions ... 10

2.6 Concluding remarks ... 12

Chapter 3 Theoretical background ... 13

3.1 Introduction ... 13

3.2 The POP model ... 13

3.3 The Kraljic matrix ... 14

3.4 Concluding remarks ... 16

Chapter 4 The current situation ... 17

4.1 Introduction ... 17

4.2 The market and the strategy ... 17

4.3 The organisation and the processes ... 18

4.4 The purchasing strategy ... 19

4.5 The organisation of the purchasing function ... 19

4.6 The purchasing process ... 21

4.6.1 The process ... 21

4.6.2 Time spend analysis ... 23

4.6.3 Creditor analysis ... 24

4.6.3.1 M&G BV ... 24

4.6.4 The Kraljic matrix ... 26

4.7 Summary ... 27

5.1 Introduction ... 28

5.2 The processes and organisation ... 28

5.3 The organisation of the purchasing function ... 28

5.4 The purchasing processes ... 29

5.5 Concluding remarks ... 33

Chapter 6 Design ... 34

6. 1 Introduction ... 34

6.2 Process invoice handling ... 34

6.3 Number of invoices ... 35

6.4 Suppliers / Kraljic ... 36

6.5 Vendor Managed Inventory and Service Level Agreements ... 38

6.6 Conclusion ... 39

Chapter 7 Conclusion & Recommendations ... 40

7.1 Introduction ... 40 7.2 Conclusion ... 40 7.3 Recommendations ... 40 7.4 Reflection ... 41

References ... 42

Appendix A Purchasing strategy ... 44

Appendix B Important suppliers M&G group ... 47

Appendix C Enquête inkoop proces ... 48

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Figure 1 Muelink & Grol group source: muelink-grol.com (2010)

source: muelink-grol.com

Chapter 1 Introduction

This research was carried out at the Muelink & Grol (M&G) group as part of a master thesis project. M&G BV, based in Groningen, is founded in 1932. Two plumbers started up the manufacturing of the fitting products they needed for their own installation work. Soon they further developed this part of their business and started to sell the products to other installers through wholesalers in the Netherlands. From the late fifties on they separated the installation business and concentrated on the manufacturing of installation and building products. The company was very successful and grew to become the major producer of flue systems in the Netherlands during the sixties and seventies, while benefiting from the fast growing application of natural gas.

1.2 The M&G group

The M&G group has taken over many companies over the year and now includes 10 companies. M&G group is the leading manufacturer in Europe of Flue Gas Systems with a revenue of €135 million. Figure 1 shows the major companies in the group,

including the corresponding numbers; 1. Muelink & Grol BV

2. Burgerhout 3. Slagter 4. InterActive 5. Anjo 6. Altecnic (UK) 7. Sa Isoleco (Belgium)

8. Cheminees securite (France) 9. Ant Kalip (Turkey)

10. M&G Italia

1.3 The research motive

The motive for this research were the changes due to the economic crisis; these had an effect on the revenue of the M&G group. The margin has decreased and therefore the company is focusing more on cost reductions as they want to improve the margin. Purchasing has an effect on the total costs of ownership (TCO) and therefore the objective of this project is to reduce the TCO at the purchasing department. This project focuses on the purchasing departments of 3 of the biggest divisions in the Netherlands; these are M&G BV, Burgerhout and InterActive.

1.4 The structure of the report

9 The research objective: Provide insight in the current situation of the purchasing matrix to

be able to see how the total cost of ownership can be reduced. The research question: How can the total cost of ownership in the purchasing matrix be

reduced?

Chapter 2 Methodology

In this chapter the background of the problem is explained. Also the research question and objective are defined, including the limitations. The sub questions are defined and per sub question there is explained how this research was carried out.

2.2 Problem background

For many years the M&G group had a very good margin and the market was good, the business was increasing every year with 5 to 6 %. For this reason they were not continuously improving the business, because there was no reason to do this. Due to these circumstances the processes were not written down in detail, so there was not a good overview of how people exactly worked. The financial crisis of the last few years however, has had a great impact on the group. Their products are used as part of new houses or replacements within the house. Less new houses were build due to the financial crisis, which has an effect on the revenue of the M&G group. Since the margin is under pressure, due to rising costs, there is more focus on improving the business. Many improvement projects are currently undertaken and are planned to be started in the near future with a focus on cost reduction. The current focus of the company is on cost reduction and at the same time they want to maintain the delivery performance to the customers. Purchasing has a great effect on the margin, because each euro saved at the purchasing price is an euro profit according to the Du Pont chart. This research therefore focuses on the improvements within the purchasing matrix of the M&G group. This research is part of and contributes to the planned improvements at the M&G group.

2.3 Research question, objective and limitations

This project is part of a master thesis project of the study Business Administration Operations & Supply Chain and has a length of five months. Therefore the scope of this project is limited to the M&G group in the Netherlands. The focus is on M&G BV, Burgerhout and InterActive, because these companies generate the biggest part of the revenue within the purchasing matrix; the consultative committee of purchasing in the M&G group.

10

Figure 3 the POP model

source: Kamann and Karásek (2001) modified by S.Quax (2010)

Figure 2 The conceptual model

source: own design (2010)

2.4 The conceptual model

This research takes place at M&G BV in Groningen as part of a master thesis project and is a practical research. According to De Leeuw

(2003) a practical research results in information, insights, methods, concepts (and other knowledge) that are useful for specific management problems. In figure 2 the conceptual model for this research is shown. The three white circles; the purchasing strategy, the purchasing processes and the purchasing organisation, are part of the purchasing function according to Kamann (2001).

The objective of this research is to reduce the total cost of ownership of the purchasing matrix. TCO is a purchasing tool and philosophy aimed at understanding the relevant cost of buying a particular good or service from a particular supplier (Ellram & Siferd, 1998). This includes the selection, scanning and contract costs; the invoice price; administrative processing of the invoices; maintenance, removal and decommissioning. Costs which can be reduced are the initial purchasing costs (specification, selection, contracting and evaluation), consultation between employees and the completion of the invoice.

2.5 The method and sub questions

To clarify the current situation of the organisation and the purchasing function the POP (policies, organisation and processes) model was used. To be an effective working system, congruence theory states that the elements have to fit each other well as they have to be congruent with external context (Nadler & Tushman, 1979). Therefore, policies and organisational goals (P), organisational structure (O) and processes (P) – with their corresponding activities- should be in congruence with each other (Kamann, 1988).

11 can be reduced. The creditor analysis gives insight into the top 10 suppliers and who sends the most invoices compared to the turnover. The time spend analysis shows how much money is spent per step in the purchasing process. In the central vs. de-central analysis there is shown how the product groups ought to be purchased and this can be used to see were improvements can be made. According to Van Weele (2008) central or de-central purchasing can have an effect on the costs and the length of the purchasing process. Kraljic (1983) stated that the general idea of the purchasing portfolio approach is to ‘‘minimize supply vulnerability and make the most of potential buying power’’. With the help of the portfolio matrix, professional purchasers could optimize the use of capabilities of different suppliers (Nellore & Soderquist, 2000) and thereby effectively manage suppliers (Caniels & Gelderman, 2007). More information about the Kraljic matrix is given in the theoretical background.

The sub questions that were derived from the POP model and the purchasing scan are shown down below in the current situation. For this research a method for problem solving, the Diagnose Design and Change (DDC) model by De Leeuw (2003) was used as a framework which is incorporated in the scheme of the sub questions. The change phase was integrated in the design phase as this only includes recommendations, because the limited time frame. Underneath each sub question there is briefly explained how this question was answered.

C u rr e n t si tu a ti o n

What is the (market) strategy of the organisation?

Interviews with the sales department and the Commercial Director were held. How is the company organised and what are the processes?

The employees were asked for how they work and how the company is organised. What are the strategies / policies of the purchasing function?

Data from the intranet was looked into and the purchasers were interviewed. How is the purchasing function organised?

The chairman of the purchasing matrix and the purchasers were asked to explain the organisation. The central vs. de-central purchasing matrix was filled in, using data from the product groups.

What are the processes of purchasing?

The purchasers were asked who is involved in the process. These employees were asked to clarify their function in the purchasing process. For the creditor analysis data was gathered about the suppliers and for the time spend analysis a survey was carried out. The Kraljic matrix was done with data about the product groups and the turnover.

D ia g n o se p h a

se What are the bottlenecks in the current situation?

12 D e si g n p h a se

What are the possible scenarios for the M&G group where costs are reduced?

Using literature and expert interviews possible scenarios were looked for. The possible savings were calculated and the pros and cons were looked for.

For the theoretical part of this research, relevant literature was looked for on Google Scholar, Business Source Premier, ISI Web of Knowledge, Purple Search, Elsevier Science Direct and the library for books and magazines. The POP model for an operational excellence situation is explained in the theoretical background, including parts of the purchasing scan that were used in this study.

2.6 Concluding remarks

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Chapter 3 Theoretical background

Looking at the objective of this research, relevant literature was searched for this research. The POP model was used to clarify the current way of working and is therefore explained in this chapter. Furthermore there is explained how the Kraljic matrix can be created and the purchasing strategies of each box are clarified.

3.2 The POP model

The product-market combination (PMC) and the market strategy decide on how the organisation and thus the purchasing function are organised. The market strategy is operational excellence, as M&G wants to be the leading and continuously improving company. According to Kamann (1988) policies and organisational goals (P), organisational structure (O), and processes (P) – with corresponding activities – should be in congruence with each other to be an effective working system. In figure 4 the POP model for M&G is shown as it should look like when a company is operational excellence and it gives an overview of the organisation and the purchasing function.

In the desired model the organisation is mechanistic central and uses procedures and protocols. The purchasing function is also mechanistic centrally organised and the strategy is being a squeezer. Most of the suppliers of an operational excellence company are in the leverage part of the portfolio, which is shown in the figure on the right side. The grey part is where the suppliers ought to be. Operational Excellence Mechanistic central Squeezers Mechanistic central

Figure 4 POP model operational excellence and type III Squeezers

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Figure 5 The Kraljic matrix

source: Kraljic (1983)

Kamann & Karásek (2001) state that with a low cost strategy the purchasing policy should be obtaining products of the right quality, right supplier, and right time at the right price. Focused on improvements of efficiency. The organisation of the purchasing function is centralized, mechanistic, training/education needs are average and the specialization of staff is average to high.

3.3 The Kraljic matrix

According to Kraljic (1983)a firm’s supply strategy depends on two factors: (1) profit impact and (2) supply risk. In figure 5 the Kraljic matrix is shown.

The products can be allocated to one of the quadrants. These are leverage (high profit impact, low supply risk), strategic (high profit impact, high supply risk), bottleneck (low profit impact, high supply risk) and routine or non-critical (low profit impact, low supply risk). Kraljic (1983) says a company should first classify all its purchased materials or components in terms of profit impact and supply risk. Next it analyses the supply market for these materials. Then it determines its overall strategic supply position. Finally, it develops materials strategies and action plans.

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Figure 6 Purchasing strategies for portfolio quadrants

source: Gelderman and Van Weele (2003)

(1) Moving to another position: ‘de-complex the product, find a new supplier’.

(2) Holding the position: ‘accept the dependence on a supplier, assurance of supply’. If no other options are feasible, then the category remains the same.

(3) Moving to another position: ‘pooling of requirements’. Preferably, non-critical items are put together in large quantities, increasing the buying power of the firm.

(4) Holding the position: ‘individual ordering, efficient processing’. Whenever it is not possible to pool the purchasing requirements, the only remaining option is some type of individual ordering, for instance by means of a purchase card.

(5) Holding the position: ‘exploit buying power, maintain a partnership of convenience’. The generally preferred leverage position can be used for a rather aggressive supplier management.

(6) Moving to another position: ‘develop a strategic partnership’. Exceptionally, the leverage position is abandoned in search for a more strategic partnership with a supplier.

16 (8) Holding the position: ‘accept a locked-in partnership’. On the other hand, a position in the

strategic quadrant may be due to unchosen, unfavourable conditions.

(9) Moving to another position: ‘terminate a partnership, find a new supplier’. A partnership may develop in an undesirable way. A supplier’s performance may become unacceptable and incorrigible. The firm will have to search, develop and contract another supplier, while bringing the relationship with the non-performing supplier to an end.

3.4 Concluding remarks

17

Market Revenue Characteristics Products Country

OEM’s 75% Boiler manufacturers, industrial

heating and ambiance heating manufacturers.

Flue gas outlets and ventilation

Mainly export within Europe

Wholesalers 25% Gamma, etc. Flue gas outlets and

ventilation

Benelux Table 1 The markets of the M&G group

source: Commercial Director M&G BV (2010)

Chapter 4 The current situation

4.1 Introduction

In this chapter the current situation is described using the sub questions. Per paragraph the sub questions are answered. First the market and the strategy of the M&G group are described. Then the organisation and the processes, including the customer order decoupling point. The purchasing strategy and the organisation of the purchasing function are described. The purchasing process includes the process, the time spend analysis, the creditor analysis and the Kraljic matrix.

4.2 The market and the strategy

The market of M&G nowadays is primarily in Western Europe, however the market in Eastern Europe and even the Mid East are developing. America is a new market and at the moment the M&G group tries to enter this market with their products. The M&G group together with the 3 biggest competitors holds approximately 90% of the market. These competitors are Cox Geelen, Ubbink and Centroterm. The customers of the M&G group are Original Equipment Manufacturers (OEM’s), which produce end products. They have boiler manufacturers as customers, the three biggest customers are Bosch, Remeha and Vaillant. The market can be divided into two groups, as shown below.

95 % of the revenue is generated in the flue gas outlet systems. Secondly 3% of the revenue is generated by industrial heating manufacturers in mainly Germany and France. Finally 2% of the revenue is generated by the ambiance lightning manufacturers mainly in Holland.

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Figure 7 Customer Order Decoupling Point

source: own design (2010)

performance to the customer is important, so the inventory that is not required can be eliminated, but the inventory for the important items is kept to safeguard delivery.

4.3 The organisation and the processes

In figure 7 the customer order decoupling points (CODP) are shown for the three divisions. At Burgerhout the products for the wholesalers are made to stock, because they request delivery within 2 days. However the wholesalers do not provide a forecast. Therefore Burgerhout uses Slim4 to calculate a forecast using historical data. The rest is make to order (MTO). InterActive uses the forecasts to determine what should be produced and what can be kept on stock. 200 products are kept on stock; these are A products (high turnover). The forecast are given by the customers and are updated every month.

This is used for the purchasing of the products. The production, a lean process in cells, starts when the order is received. Lean is being implemented in the whole process at M&G BV according to the lean expert; there is no difference between before and after the CODP. M&G BV does exceptionally receive forecasts. M&G BV will start using Slim4 in the near future, but this is not operational yet.

The organisation uses procedures and protocols for the way of working which are written down in ISO procedures. The different sites in the Netherlands within the group are all oriented mechanistic, as the organisation is

hierarchical and employees use procedures. Decisions are made top down and the divisions are functionally organised. Burgerhout and InterActive were first competitors of M&G group and later they were both bought by the M&G group. Before the merger the cultures in the companies were quite different, but now they try to come together and give of the image to the

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Division KPI’s

M&G BV 1. Purchasing savings ( 2010 > € 400.000) 2. Rejected purchasing (orders on material) 3. Throughout time enquiries

4. Delivery time suppliers InterActive

&Burgerhout

1. Purchasing value level

2. Delivery reliability of suppliers 3. Stock level purchased goods Table 2 The KPI’s of the purchasing department

source: PM’s of M&G group (2010)

4.4 The purchasing strategy

The mission of the purchasing department of M&G group is as follows; ‘Purchasing is, as part of the M&G organisation, owner of the purchasing process. Purchasing provides added value to the organisation (the customer). Purchasing is also an up to the mark sparring partner for the other business processes. Where possible costs are reduced while delivering quality. For the external market purchasing is a serious discussion partner for the suppliers, in which the expertise, integrity, risk control and a market conform way of doing business are important. Purchasing wants to be the best partner for the (internal) customer.’ For the complete purchasing strategy of the M&G group see appendix A.

Purchasing wants to obtain the goods of the right quality, at the right quantity and at the right place and price. There is a focus on delivery time, price and technical specs. Purchasing focuses mostly on price and minimization of production stops, but also tries to have partnership relationships with strategic suppliers. All key performance indicators (KPI’s) that are measured by purchasing must be reduced and are part of the goals.

The type of supplier relations is based on volume and improvement of efficiency. Contract are mostly 3 to 6 months, but can differ between 3 to 12 months. Contracts about the price and delivery terms are signed for 80% of the products. See appendix B for an overview of the important suppliers of the M&G group. Altogether for more than 3.1 million there are framework contracts, this is for aluminium coils and profiles, sendzimir (galvanized) and lead. The contracts are saved on the intranet and a file is kept with all the current contracts, the quantity and the due dates. At InterActive dual sourcing is only used for important products. M&G BV and Burgerhout try to find 2 suppliers for most product group to ensure delivery. There is no focus on supplier reduction, only on costs and reliability. The suppliers that are selected are screened using a checklist. This list includes the product, contact information, if necessary a company visit, financial information (size of the company, type of company, etc.), ISO, reliability, the responsiveness and a check of the first incoming goods. The PM of InterActive participates in the management team at InterActive and the PM at M&G BV also participates in the management team at M&G BV. Both take part in multidisciplinary teams, for new product introductions or cost reductions. Through experience and education the purchasers have administrative and technical knowledge.

4.5 The organisation of the purchasing function

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Figure 9 Purchasing Matrix

source: Purchasing Manager M&G BV (2010)

Central De-central Injection moulding alu/PP Extrusion alu/PP Carton packaging Social workplace Lead Seals Pension Job agency All other product groups

Table 3 Central / decentralised purchasing

source: PM M&G BV (2010)

this research there is a focus on the three biggest companies; M&G BV, Burgerhout and InterActive. At M&G BV there are 3 people working in purchasing; one purchasing manager, an

assistant of the purchasing manager and an operational purchaser. Robert van Rheenen is the Interim MD at M&G BV and the MD at InterActive. InterActive has a purchasing manager and the chairman of the purchasing matrix is located here. At Burgerhout there is one purchasing manager and an operational purchaser. The members of the purchasing matrix have a meeting every month, however due to circumstances there are currently less meetings.

In these meetings the cost reduction and improvements are discussed which are driven from the purchasing matrix. The divisions are responsible for this and can decide if they want to change the way of working. Furthermore the contracts that are prepared by the purchasing manager can sometimes be discussed and approved by the chairman of the purchasing matrix. Framework contracts for raw materials are made by M&G BV and InterActive in some cases, so the divisions can use these contract and all place orders. Most of the time still 2 contracts are signed for some metals, just because the companies have done it like this for many years. At the moment the facility goods like the lease contract for the cars, office supplies, etc. are bought decentralised. The purchasing function in the M&G group is fairly decentralised. When looking at which products should be bought centrally, in an operational excellence environment there is mostly chosen for a central organisation. At the M&G group there is chosen for a purchasing matrix for cost reductions and with a decentralised execution of the daily tasks.

In table 3 the product groups are divided over a table in which is shown if a product group is purchased central or de-central. 14 out of the 58 product groups are currently bought de-central. The other product groups are purchased with approval from the purchasing matrix,

from a central point of view. The degree of formalization is high and procedures are fixed in ISO and decisions are made top-down. In terms of training and education of the purchasers, there is a difference between the three divisions. At M&G BV the Purchasing Manager has done NEVI 1 and 2 and his assistant is currently doing NEVI 1. At Burgerhout the Operational Purchaser is doing NEVI 1, but the Purchasing Manager has work experience in purchasing. At InterActive Ronald has

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Figure 10 The purchasing process

source: the purchasing scan, Kamann (2009) modified by S.Quax (2010)

worked for 6 year as a Purchasing Manager and his background is mechanical engineering. The specialization of the staff is average.

4.6 The purchasing process

The purchasing process is divided into the description of the process, a time spend analysis, a creditor analysis and the Kraljic matrix. This paragraph focuses on the sub question ‘What are the processes of purchasing?’.

4.6.1 The process

The purchasing process is shown in figure 10. The persons involved per activity are shown below the steps in the matching colours. Blue represents M&G BV, green is Burgerhout and red represents InterActive. The initial purchasing is done by the Purchasing Managers (PM); Mr. Spoelstra (M&G BV), Mr. Nijhuis (Burgerhout) and Mr. Sweers (InterActive). The operational purchasing should be done by the operational purchaser (OP), but is also done by the PM of InterActive, because his assistant does not work there anymore and the PM of Burgerhout does the operational purchasing for an important customer. The ordering and expediting can be done by the users (the canteen, the technical service) in some cases, but most of it is ordered by the purchaser. In the M&G group the first step is done by the commercial director and the marketing department at the M&G group in Assen. The specification at M&G BV is carried out by the engineers. When selecting suppliers, there is first looked at the approved suppliers list.

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Figure 11 Suppliers per division in NL and Ex-NL

source: Supplier turnover list M&G group (2009)

assistant and sometimes by PM. Ultimately the PM decides which supplier is chosen, but it can decided from the matrix because there can be a general stake in the supplier selection. The matrix always has an advising role and the divisions can decide when they do not want to accept the advice, but they have to have good reasoning. The contracting step is carried out by the PM, a standard contract (supplier manual) is send to every supplier and this has to be signed before they

can deliver. When this is arranged already, only a contract for the new products is signed, which is mostly the price but not a fixed quantity. The ordering is done by the OP, who works fulltime as an operational purchaser. Approximately 1750 orders are entered per year by the OP. He uses BM Pro (short for Burgerhout Muelink & Grol Production), a 15 year old internally programmed MS DOS interface for the entering of the orders, which is labour intensive. The size of the orders are depended on the level of safety stock or the size of the customer order. About 250 orders per year are entered in Gateway (project management software), these are orders which cannot be linked to a customer order (e.g. raw material). The expediting of the orders is done by the OP, but is done without a standard working method. Each week there is an operational meeting in which the critical orders and customers are discussed, so the OP keeps an eye on these orders. The registration is done at the incoming good department. When something is not correct, then the OP has to check it. All the orders that go via Gateway also have to be checked by the PM or his assistant. The payment is done by on every Tuesday by administration. All the invoices that have be received are paid, depending on the payment terms regarding discount etc. Vendor rating is done on reliability and quality at M&G BV and this is done purchasing with help of QA.

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Figure 12 Time spend analysis

source: survey time spend analysis (2010)

are from M&G BV. At Burgerhout there is no vendor rating done and the delivery reliability is not measured. They do want to use this in the near future, but it is only in the start-up phase.

At InterActive the specification is done by their own engineering department. The selection step is done by Mr. Sweers and he always tries to use the existing suppliers first, so the number of suppliers does not expand. The number of suppliers for used for the products is ca. 100; the remaining ones are incidental suppliers or costs. InterActive assembles and therefore only buys semi finished products. The contracting is only done for price agreements, because the suppliers of InterActive are depended on the price of the raw material. Since last year this is used for the group, but it is still in a developing phase. The ordering is done by the PM. For almost 1900 articles there is a forecast which is adjusted every month. 200 products are kept on stock, which is approximately 70% of the revenue. These products are ordered and received on a daily basis and are ordered per box. C products are ordered per quantity that is required, to keep the stock level down. Expediting is done by the Support Unit. The registration of the goods is done by goods receivable. Invoices are scanned in when they are received and the system checks if they match the order. 19.500 invoices were received in 2008. When everything is correct, the invoice is paid. When there is a mismatch (price, quantity, etc.) then purchasing gets this in an action list in SAP. At InterActive vendor rating is done by the PM, he uses an Excel sheet to calculate the quality and delivery performance. These are sent to suppliers once per every two months for the top 13 suppliers.

4.6.2 Time spend analysis

24 2 9 % 1 4 % 1 4 % 7 % 7 % 7 % 6 % 6 % 5 % 5 % T o p 1 0 s u p p l i e r M & G B V B U R G E R H O U T S L A G T E R R a n d s t a d U i t z e n d b u r e a u M U E L I N K & G R O L G R O E P B V M E R C U U R m e t a l s p i n n i n g & p r e s s i n g P M E S m u r f i t K a p p a V a n D a m H Y D R O A L U M I N I U M E R I K S H A N C H U A N I N C

Figure 14 Top 10 supplier M&G BV

source: invoices M&G BV (2009) 3 1 % 1 3 % 1 0 % 7 % 7 % 7 % 7 % 6 % 6 % 6 % t o p 1 0 s u p p l i e r s M & G g r o u p M u e l i n k & G r o l B . V . B u r g e r h o u t B . V . I n t e r m e c o B . V . B u r g e r h o u t B . V . H A N C H U A N I N C . S L A G T E R S l u y t e r L o g i s t i c s A s o n e t i m e c r e d i t o r R a n d s t a d U i t z e n d b u r e a u S l a g t e r B . V .

Figure 13 top 10 suppliers turnover

source: supplier turnover list M&G group (2009)

While carrying out the survey, there appeared to be many people in the companies who are busy with purchasing. At M&G BV and Burgerhout the receptionist orders the office supplies, the project manager the larger office supplies (chairs, etc.), the TD orders the parts that are necessary in the production process and the catering team leader orders for the canteen. The companies work like this, because the users know the specification of the product and they know the quantity required.

4.6.3 Creditor analysis

The top 10 suppliers with the highest spending on purchasing are shown. As you can see 3 of the divisions are in the list; M&G, Burgerhout and Slagter, which means there are many intercompany orders. Altogether € 11,3 million is spend on intercompany orders. Burgerhout is in there twice, one to InterActive and one to M&G BV. 80% of the turnover is spent at 54 suppliers. To see how important the M&G group is for the customers, for some of the biggest suppliers there was looked for revenue data. Han Chuan has a revenue of € 3 million and about 50% is generated by the M&G group. Randstad in-house services has a revenue of 1,9 billion worldwide. The fact that Randstad is in-house at M&G BV tells us that this customer is important for them. Intermeco is a supplier of InterActive, but used to be a sister company.

4.6.3.1 M&G BV

25

Figure 16 ABC Analysis 2009 M&G BV & invoices per supplier

source: invoices M&G BV (2009)

2187 475 ₄₁₆ 327 295 262 254 215 201 176 0 500 1000 1500 2000 2500

Top 10 Invoice suppliers

Invoices 2009 Invoices 2010

Figure 15 Number of invoices per supplier M&G BV

source: invoices M&G BV (2009)

In figure 15 the top 10 invoice senders of M&G BV are shown. Altogether there are 507 suppliers who have send invoices to M&G BV in 2009. Some of the biggest suppliers of the group are not the ones who send the most invoices. There are send out invoices within the group and two of the sister companies are in the top 10. Every time when something is sold to one of the sister companies, a certain margin added on the price. So every time the product is sold to a sister company, the total margin for the group gets less because the price to the customer is fixed. The number of invoices send to Burgerhout is not available, but the PM of Burgerhout says that it is quite similar to the suppliers of M&G BV. Only Burgerhout receives the most invoices from the sister company M&G BV.

26

Figure 17 Frequency distribution M&G BV

source: invoices M&G BV (2009)

Compared to group A, groups B and C have less invoices but more suppliers. In group A 37 suppliers send 5987 invoices. Group B includes 37 suppliers send 2800 invoices and in group C 342 suppliers send 2145 invoices. Invoices divided by the number of suppliers results in the invoices per supplier which is shown above on the right side. There can be seen that in group A many invoices are send per supplier. For group B there are almost 35 invoices per supplier and in group C more than 6.

In figure 17 a frequency distribution for the invoices at M&G BV is shown. There can be seen that there are many suppliers who only send one or two invoices per year. The yellow part are the declarations and the blue the invoices of suppliers. The sales reps have a card with which they can pay, but all the other employees have to hand in the declarations at the administration and fill in a form. Mostly these costs are travelling allowances for the kilometres. Looking into the other invoices that are send once or twice, they is shown that many invoices are just a onetime purchase. 70 invoices are product related, all other invoices are services, one time purchases at the technical service (TS), consults and training.

4.6.4 The Kraljic matrix

27

Figure 18 Kraljic matrix

source: supplier turnover list M&G group (2009)

4.7 Summary

28

Figure 19 central / de-central purchasing

source: PM’s M&G group (2010)

Chapter 5 Diagnose phase

The current situation was compared to literature and in this paragraph an analysis is carried out. The sub questions of the POP model are used to see where the misfits are. These bottlenecks are further looked into.

5.2 The processes and organisation

The CODP of the companies is shown in paragraph 4.3. The Lean principle is used as a common term for all improvements, agility is not used and is not a well known term in the company. Lean manufacturing means developing a value stream to eliminate all waste, including time, and to ensure a level schedule. Whereas agile manufacturing means using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place (Yusuf et al. 2004). Though "lean" and "agile" strategies are often pitted as opposing paradigms, they share a common objective; meeting customer demands at the least total cost (Goldshy, 2006). Lean and agile can be combined to leagility, where lean is used before the CODP where demand is levelled and agility is used after the CODP where demand is depended on the customer orders. For agility supply should be located nearby, and information sharing among the parties must be open and frequent (Christopher & Towill, 2001). The information sharing is not optimal within some of the companies and can be improved to have a better insight in what is happening. Most of the forecasts of M&G BV are based on historical data and from some customers forecasts are received, these are only used to set the stock level. These forecasts are not entered into Slim4, as this is a lot of work. When SAP is implemented the forecasts can be entered into a module of this system. At the moment 3 students are focusing on the (lean) improvements of the production process, so there is no focus on this matter in the remaining part of this research.

5.3 The organisation of the purchasing function

29 below on the right side, it is coordinated from the purchasing matrix with de-central execution. The purchasers find these product groups important, so they should be kept de-central. Sheet work is purchased at two suppliers by Burgerhout and InterActive. Price agreements are made, but no framework contracts. Force is purchased at 3 suppliers, but 80% is purchased at Mercuur where price agreements are made. For the transportation there are 19 suppliers used in 2009. There are so many suppliers in this group, because some of the customer can decide on the transport company and then the invoice is sent to M&G, depending on the agreements made with the customer. And incidentally some other transport companies are used. But the biggest one is Sluyter for M&G and Burgerhout and Tiemex for InterActive and occasionally for Burgerhout, with whom contracts are signed. Sluyter arranges all the intercompany transport.

6 suppliers are used for the raw material sheets group. Burgerhout and M&G sign framework contracts with MCB for a certain quantity, price and period. InterActive still has an agreement with Intermeco and is obliged to purchase a certain quantity for the coming years until 2013; this can be purchased by the whole M&G group. Most of the product groups that are underlined are already worked on at the moment, because there is a lot of money involved in it. These projects are executed on purchasing manager level or by the MD. Therefore there is not a focus on this part in the remaining part of this research. But this matrix can be used to see how the different product groups can be purchased.

5.4 The purchasing processes

In the time spend analysis there is shown that the most time is spend on specification. The first steps are important for the development and engineering of the M&G group, so there is no need to focus on this part. For the registration and payment steps, the completion of the invoice, there can be made an improvement. As shown in the creditor analysis many invoices are received and a great part of these are intercompany invoices. Burgerhout and M&G BV send the most invoices to each other (2187 invoices in 2009 from Burgerhout to M&G). The many invoices result in the registration and payment steps of the time spend analysis. Therefore the invoice booking process is discussed in the next subparagraph. According to the controller of the M&G group invoices are send to each other now, however this can be changed when all the companies are using SAP. M&G BV is using BM Pro at the moment and will implement SAP next year. One limitation of BM Pro is that is cannot have different delivery dates within one order, that is why there are made separate purchase orders. For all these purchases orders separate invoices are received and they are booked in per invoice. At Burgerhout the invoices are scanned by the receptionist. When something is not correct on the invoice (e.g. price or quantity), then the invoice is mailed to the purchaser. He mostly prints these out to check them and change it in the system. This is double work and could be simplified.

30

Figure 20 Flowchart invoice booking process M&G BV

source: process owners (2010) invoiced amount. This file is printed

31

Figure 21 Flows between departments

source: process owners (2010)

administration and there the invoices are put into files by the receptionist on alphabetic order. The numbers in the flowchart represent the movement between departments, and these flows are shown in figure 21. There can be seen that there is much movement of the invoices and lists in the invoice booking process between the different employees and departments.

This process includes many non value added steps, because they do not meet the below requirements; • The customer must be willing to

pay for the activity.

• The activity must transform the product or service is some way. • The activity must be done

correctly the first time.

Typical non value added activities

include overhead (e.g.

administration) and bureaucracy (Sayer & Williams, 2007). So actually the whole process is non value added and should be simplified as much as possible. According to LEAN principles first there should be simplified and eliminated, then automated and finally integrated. As automating bad business practices will not fix the problems (Sayer & Williams, 2007).

According to the administration it is not possible to simplify the process, as has already been simplified recently. The remaining steps are important for the control of the flow of invoices and the documentation. The most time consuming of the process is the movement of the documents. Currently the reception does some of the work from administration, e.g. the stamps and the excel list. The reason that this is done in this manner is because the lady at the administration works 50% and the reception has enough time to do these tasks. Administration would not have enough time to do all these tasks and the receptionist is not educated enough and does not have enough time carry out the whole invoice booking process.

32 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% T u rn o v e r

Suppliers ranked in order of turnover

Turnover per supplier

M&G / extreme equal standard

Figure 22 Turnover per supplier

source: Kamann (2009) modified by S.Quax (2010)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% In v o ic e s

Suppliers ranked in order of turnover

Invoices per supplier

proportional

M&G BV

ideal

without policy

Figure 23 Turnover per supplier

source: Kamann (2009) modified by S.Quax (2010)

extreme, ideal and equal situation. The red line is when the percentage of suppliers is equal to the percentage of the turnover, which is not often the case. The green line is the standard situation, where 80% of the turnover is generated from 20% of the suppliers; this situation should be strived for. The blue line is the extreme case where there are just a few suppliers that generate almost 95% of the turnover and there are many suppliers that are responsible for a small part of the turnover. This extreme line is exactly the same as the line of M&G BV, therefore this line represents both. There can be seen that M&G BV has a few big suppliers and many small suppliers. These small suppliers result in many orders and thus handling.

33

Figure 25 the POP model

source: Kamann (2009) modified by S.Quax (2010)

BHT IA M&G BV

NL 91,67% 91,93% 88,19% Ex-NL 8,73% 8,42% 11,81%

Table 4 Supplier local and abroad

Figure 24 Kraljic matrix

source: own design (2010)

when there are no explicit invoice arrangements. As can be seen M&G BV is above the ideal line and therefore receives too many invoices, especially from the large suppliers as was also pointed out in the ABC analysis.

The Kraljic matrix shows that there are enough supplier available in the market for most product groups, which matches with the fact that the company is striving for operational excellence. However the number of suppliers the M&G group should strive for as a whole is two per product group. In this situation the suppliers can be used to make sure that the best price is obtained, while keeping the number of suppliers low. When a company is striving for operational excellence, it should

strive to have mostly leverage suppliers as was explained in the theoretical background. However most of the product groups are in the routine part of the matrix and just some are leverage. This also matches with the fact that there are received many small orders in the frequency distribution. The typical sources in the routine part should be established local suppliers according to Kraljic (1983). This is the case at the M&G group, as most suppliers are based in the Netherlands, see table 4. Burgerhout and InterActive have more than 90% based in the Netherlands and M&G BV has the least suppliers in the Netherlands.

5.5 Concluding remarks

The diagnose phase showed that looking at the POP model the purchasing process has the potential for improvement, see the red part in figure 25. The number of invoices can be reduced as is shown in the frequency distribution and the ABC analysis. In the invoice booking process steps can be eliminated and it can be simplified,

34 Invoices

Take post out of envelop and separate invoices from reminders Scan invoices System checks invoice number, price and quantity

with order No mistakes; automatic payment Mistakes; pops up in list Invoice checked and changed Invoice paid

Figure 26 Automated invoice booking process M&G BV

source: own design (2010)

Chapter 6 Design

In this chapter the design of possible scenarios including the costs savings (when these are known) are shown using the results from the diagnose phase. First the invoice booking process is discussed, then the number of invoices and finally guidelines are described for the reduction of suppliers.

6.2 Process invoice handling

In the diagnose phase the current invoices handling process was shown. The steps that can be deleted is that the executive secretary receives the excel list and then gives it to the MD. The receptionist can put it in the MD mail box right away, so the executive secretary is not included in this process anymore. The remaining steps in the process are found important by the administration and they will not support changes in the current process.

The time can be saved when the process is automated, because then there is no movement of the actual document, which is the most time consuming. All of this can be achieved when the invoices booking process is done using scanned invoices. In the figure on the right there is shown what the process will be like when the invoicing is done automated. The advantages of automated invoicing are that there the flow of the invoices is much quicker, everybody can open the invoices at all time and in the system there can be seen who is working on the invoice. There is no need to print them, which saves paper. Altogether it saves costs and time. The MD can still see the incoming invoices, but this is not required for the invoices to proceed in the process. If the MD sees something he would like to know more about, he can open the invoices digitally and take action right away. The authorizations can be done in the system and the invoices do not have to be filled, which saves paper.

35

less invoices less invoices

Burgerhout 2135 € 32.025 - € 106.750 2175 € 32.625 - € 108.750 Ability 423 € 6.345 - € 21.150 463 € 6.945 - € 23.150 Erik s 364 € 5.460 - € 18.200 404 € 6.060 - € 20.200 Alfa Techniek 275 € 4.125 - € 13.750 315 € 4.725 - € 15.750 Smurfit 243 € 3.645 - € 12.150 283 € 4.245 - € 14.150 Hydro 210 € 3.150 - € 10.500 250 € 3.750 - € 12.500 Slagter 202 € 3.030 - € 10.100 242 € 3.630 - € 12.100 Bus 163 € 2.445 - € 8.150 203 € 3.045 - € 10.150 Mercuur 149 € 2.235 - € 7.450 189 € 2.835 - € 9.450 Fabory 124 € 1.860 - € 6.200 164 € 2.460 - € 8.200 total 4288 € 64.320 - € 214.400 4688 € 70.320 - € 234.400

one per month one per week

Suppliers

range of savings range of savings

Table 5 Savings reduction top 10 invoice senders M&G BV

source: own design (2010)

BHT 16000 € 240.000 - € 800.000 € 160.000 - € 720.000

M&G BV 11242 € 168.630 - € 562.100 € 112.420 - € 505.890

total € 408.630 - € 1.362.100 € 272.420 - € 1.225.890 range of costs range of savings

current invoices

future

Table 6 savings reduction top 10 invoice senders M&G BV

source: own design (2010)

expressed in money is between € 272 thousand and € 1,2 million for Burgerhout and M&G BV together.

6.3 Number of invoices

Make agreements on invoices with suppliers with large turnovers (e.g. the top 10 invoice senders), so the number of invoices can be reduced. There can be send one invoice per week or per month, which will reduce the administrative time required for the entering and checking of the invoices. As was explained in the diagnose phase in the ideal situation, there are never received more invoices then one per month. In this calculation also a weekly invoice is taken into account, because the finance department also considers the payment conditions and discounts to have an effect on this. As a general rule the costs for the manual completion of an invoice are between € 15 and € 50 (Ctac, 2010). When the number of invoices from the top 10 suppliers would be reduced to one per week the below soft savings would occur.

36 dec 2009 € 608,80 jan 2010 € 619,88 feb 2010 € 358,49 march 2010 € 550,85 april 2010 € 570,35 may 2010 € 502,02 total € 3.210,39

average per month € 535,07 average per year € 6.420,78

Table 7 spendings postal charges

source: own design (2010)

PRINTING ENERGY PALLETS WASTE PROCESSING

OFFICE SUPPLIES TOOLING CLEANING SEALING KIT

PACKAGING CLOTHS RAW MATERIAL PP RAW MATERIAL LEAD

TOOLS LUBRICANTS CONNECTION MATERIAL INSPECTION

STICKERS ENERGY GASSES TRAINING MAINTENANCE MACHINES

CATERING STAINLESS STEEL PARTS BRANCHE MEMBERS MACHINE LEASE

INSURANCE WELDING MATERIAL SPRINGS TELEPHONES

Table 8 Potential combination Kraljic matrix

source: PM M&G BV (2010)

are not too many problems with rejects, because the payment can be set on hold. This change can be started at this moment, but will be most effective when SAP is implemented, because in BM Pro still all the invoices have to be booked in per delivery date.

Burgerhout should save the invoices in SAP, so they do not have to be printed again which is double work and it saves paper. Also the documents can be

opened at any workplace.

When the invoices are sent via email, there is a saving of postal charges. For the last 6 months 3200 € is paid for the postal charges. The costs for the packages is reduced from these number in table 5. When invoices are send via email approximately € 6400, - per year can be saved. These are hard savings.

6.4 Suppliers / Kraljic

The Kraljic matrix showed that many suppliers are routine, but they ought to be leverage as the M&G group is striving for operational excellence. Gelderman & Van Weele (2003) showed that there are two possibilities when products are routine. Try to pool to requirements to increase the buying power and move to the leverage part. To achieve this, the routine products can be combined and some suppliers are eliminated. This will result in less suppliers, and also less administrative costs, and because the amount of money will increase it is easier to receive a better price from the supplier. The administrative process can be simplified and there can be done more with relationship management. If it is not possible to pool the requirements, then the process must be made efficient, for example by a purchase card.

The product groups in the routine part of the matrix are groups that cannot be combined, but there is a potential the combine within these groups. According to the PM in 26 groups that are routine, there is a possibility to combine products to reduce the number of suppliers and perhaps get a better price.

These potential projects can be carried out by the new PM and the purchasing assistant. From the purchasing process especially the steps specification, supplier selection and contracting are important, so these are included. Below is explained how these projects can be carried out.

• Taking inventory

37 • Specification

According to Van Weele (2008) the specification steps consists of the functional specification, list of requirements and the technical specification. In the functional specification there is defined what the product must do. The list of requirements described in more detail what there is expected from the supplier. The performances requirements including the budget are discussed. These specifications may already be available, since the items are already purchased. However when new products are added to the list, then it is important that these specifications are defined. It is the primary responsibility of the budget holder, the user, to specify the purchase needs. The purchaser must make sure that the specifications are written down in objective and supplier neutral terms (Van Weele, 2008).

• Standardise article numbers and remove overlap

When the specification of the items is done there can be checked if there are double items in the list or if there is overlap. These articles can be combined, so they have the same article number. This makes it easier for next time to see how much is purchased per item. This can be done when SAP is implemented at all sites.

• Strive for standardisation

There should be strived for standardisation (i.e. replacement of several materials/components by a single component that has all the functionalities of the materials/components it replaces (Sanchez-Rodriguez et. al., 2006)) and modularisation. A study by Sanchez-Rodriguez et. al. (2006) indicates that standardisation in purchasing has a significant positive effect on both purchasing and business performance. Furthermore the lack of standardisation drives up supplier costs as well, when they have to manage different RFQs from the same customer (Polsonetti, 2000). So for the suppliers standardisation had advantages too.

• Supplier selection

This step consists of the way of contracting, prequalification of suppliers and making a list of the supplier who will receive a RFQ, the preparation of the quotation, compare the received quotes and select a supplier (Van Weele, 2008). There are many suppliers available for these product groups, as they are routine items. When selecting a supplier it is important to look not only at today’s unit price but also the total purchase costs (including ordering, transport and inventory costs) and the potential for price reduction (Larson, 1994). La Londe et al. (1994) list items to be considered during supplier selection, including the supplier’s financial stability and environmental standards record.

• Contracting

38 group should not be too great. When the peloton has caught up with the front runner the game can begin again, thus the contract can be offered to the suppliers so they can quote.

• Maximum 2 suppliers

The M&G group as a whole should strive to have a maximum of 2 suppliers per product group. The reduced supplier base means that closer, longer-term relationships can be established with a few (sometimes single-source) suppliers who then play a critical role – contributing to new product design, significantly reducing costs and constantly improving quality (Goffin et. al, 1997). For simple products, like packaging, single sourcing can be sufficient, but for special items dual sourcing might be a saver option.

6.5 Vendor Managed Inventory and Service Level Agreements

For routine products these methods are used to avoid organisational costs. The basic principle of VMI (Vendor Managed Inventory) is that the vendor, or supplier, becomes responsible for managing the inventory at the customer’s site (Kuk, 2004). Complete dependence on a single supplier can optimize VMI (Giaoutzi & Nijkamp, 2008). For office supplies this can be carried out, so there is always enough available for the employees. At M&G BV most of the office supplies is purchased at DATAS. Orders are placed via the web shop and put into the shopping basket. The ordering can be done quickly, because the last purchases are shown in the opening screen. There is momentarily not a possibility to pay right away, but DATAS wants to look into this matter when they request this. Within one or two days the items are delivered together with the invoice. Some office supplies are purchased at different suppliers, because the price is better. DATAS is also the main supplier of Burgerhout for the office supplies. Only the items that cannot be purchased at DATAS are sourced at another supplier. 82% of the office supplies are purchased at DATAS. DATAS could change the web shop so there can be paid right away. The case of DATAS is a good example were VMI can be used, so the handling of M&G BV and Burgerhout would be minimized.

A SLA (Service Level Agreement) can be made to specify a service, e.g. maintenance or cleaning with a supplier. A monthly price is agreed on and for this price the supplier should take care that this service is always done. So the employees do not have to call the cleaner, but the company checks to see if cleaning is required. This can also be done for printers, so the supplier takes care of the maintenance. These agreements are made to the organisational costs are kept minimal.

Declarations

Employees who have regular declarations could be given a purchasing card, so they do not need to hand in the declarations. This will reduce the administration time required to handle the declarations. Employees who have regular declarations, for them an average amount could be paid in advance every month. And the end of the month or every quarter there should be gotten even.

Job agency Randstad

39 checked by the administration, using the information from the hour registration and sometimes the group leaders and/or the people from Randstad. Then the invoice is paid. The information with Randstad should be shared correctly, so there can be an automatic payment, through reverse billing. Randstad offers M&G BV and Burgerhout the possibility to pay the temp workers automatically the end of the week. At this way the money is automatically drawn from the bank account of M&G by Randstad. There will be less time required for administrative work for M&G and for Randstad.

6.6 Conclusion