Nugen Case

GENERAL DATA:

Turnover 2011: 315 million €

Procurement budget: 160 million €

Objective: reduction of 4% in 2012 = 6.4 million € reduction.

Procurement budget will represent the 46.8% of the turnover instead of the current 50.79%.

PRODUCT RANGES CLASSIFICATION:

Table 1:

Product Ranges | % total Procurement | Agregated % |   |

1 | 34 | 34 | CLASS A |

2 | 20 | 54 | |

3 | 14 | 68 | |

4 | 10 | 78 | CLASS B |

5 | 9 | 87 | |

6 | 6 | 93 | |

7 | 4 | 97 | CLASS C |

8 | 2 | 99 | |

9 | 1 | 1 | |

From the class analysis we can see that our panel is very segmented with one third of each range falling into one class.

Class A products are very important for the company thus it is essential for the company to ensure that both the engineers and the buyers’ needs are met before the actual purchase.

It is also important to pay attention to Class C products. As we have seen before these product ranges usually consist of small electronic components such as cables or diodes which are standard, non-innovative products that can be easily obtained at very competitive prices. Even the less technical skilled buyers could be in charge of these sections as they do not require engineer’s supervision. The aggregated volume of requests is high enough (42%) so that the company could start thinking about externalizing their procurement and free up resources in the Procurement Department. The company currently employs ten people in the procurement department and has a total of 450 employees. The usual ratio for the procurement department is usually 1% of the total staff of the company. In this case it is twice as big as needed. Now the first step is to develop a segmentation approach so that risk can be assessed. Typically this is done by looking at supply risk and supplier importance or criticality.

a) FINANCIAL IMPACT:

We are going to analyze the impact of each product range in the Company’s financial statements.

Table 2:

Class | % total...