The path from the pilot to the implementation of a full-fledged Category Strategy and assistance in the implementation of SAP S/4HANA.
A case study on how Darnitsa's shift in focus to the procurement function and interaction with IPSM helped to achieve an impressive 32% savings in the Foil category, implement Category Management and a complex multi-level business solution.
Continuation of the interview with Anna Demchenko, CFO of Darnitsa Pharmaceutical Company.
The first part of the case study and interview can be read here: https://psc-future.org/en/category-management-at-darnytsya-part-1/
Part 2. About Category Management.
Maryna: Let’s continue. Please tell us how important was the stage of building the Category Tree for you when you launched SAP and how it affected Category Management and digital transformation?
Anna: A structured approach to building the Category Tree, which was then integrated into the system solution, was critical for us. It allowed us to better analyze the results, in particular, to obtain statistical information about suppliers by category. It would be difficult to track this data without Category Tree. In addition, the Category Tree made it possible to track suppliers in terms of the number and value of services purchased.
In terms of category fixation, we identified some subcategories that required minor adjustments in the process of working with internal clients to meet their needs and ensure a high level of service. In the end, we implemented some changes to meet the needs of our internal customers.
Due to Category Management Darnytsya and IPSM teams sought to achieve and eventually did:
- Strategic management of the supply chain.
- Greater flexibility and responsiveness to business needs.
After analyzing emergency and recurring requests, the team conducted procurement for them to sign framework contracts. So now, in the event of force majeure, the procurement team can meet its needs within a few days.- Reduced transaction costs.
The team managed to overcome the chaos due to templates and the development of a clear algorithm of actions.- Increased expertise of the procurement function.
Previously, buyers bought everything that came from ERP. Now everything is structured into category groups. With the IPSM training the level of specialists and market knowledge has increased.
Maryna: Tell us about the development and success of the pilot in the foil subcategory.
Anna: We chose this subcategory because of its importance for the company and because there had been no changes in this area for 3 years before: neither in terms of price nor in terms of new suppliers. But there was potential for development.
Interestingly, after studying the market, the team found 3 competing suppliers at once, even in Ukraine. Their capacities would be enough to cover the needs of the entire market in general, and, for example, in the food industry 4 times.
Therefore, one of the key tasks was to distribute the volumes and introduce a new supplier. It was particularly difficult to get the new supplier approved by internal and external customers.
For example to understand the scale:
Further, the team was particularly adept at reducing incoming inspections as a bonus. After all, these are company expenses that have the potential to be optimized without losing process quality.
Our project team consisted mainly of employees from the procurement department. One person was involved 100%, and the others – 70%, 50%, and 30%, respectively (depending on the availability of time for the project). The project also involved employees from the operations department (because they use foil and work with it), marketing, corporate communications, compliance, and lawyers (because contracts were being revised).
Maryna: Please tell us about the results of the pilot project in the Foil category. How do you evaluate this pilot, and what are your plans for the future development of Category Management?
Anna: The pilot project was very successful and helped us build the final Category Strategy. We received valuable tools for strategic analysis that allowed us to find alternative ways to manage this category and suppliers. We understood how to adapt this approach to other categories.
This project also contributed to the development of our employees and the identification of their potential.
As for the future, we plan to expand the use of category strategies to a larger part of our procurement volume (about 80% by the end of 2024).
We are confidently moving in this direction, and this is our joint success.
Slide from the presentation at the business breakfast “Does Category Management Work in Ukraine? Case studies.”
Maryna: This success is a testament to the significant development of your team. How exactly did you work on developing your team?
Anna: We used your methodology to assess the skills of our colleagues. It helped us to see what we could improve. Together we developed a training plan, as we felt there was a lack of professional training.
Today, we continue to invest in employee training to improve their skills and develop talent. This requires a lot of money, but the development of our specialists is our strategic goal. And we highly appreciate your approach to training. They have a lot of practice, which is a great advantage in the market.
Maryna: What conclusions can you draw after the transformation of the procurement function?
Anna: Formally, the transformation has taken place and the project is completed. However, we continue to develop and analyze what else can be improved. I believe the changes that have taken place are inevitable.
Analyzing the first 3 quarters of the project, I would like to note that we managed to significantly increase savings in various categories, exceeding our plans.
For example, in the Foil subcategory, we achieved savings of 32%, and in other categories from 7% to 27%. It proves that the new Category Approach allowed us to create more value for the company than even expected.
Maryna: What are your plans for the development of the procurement department in the future?
Anna: We plan to continue to use KPIs to measure and improve performance. We also plan to develop a reporting system for our internal clients and develop a dashboard to display procurement achievements. We have also developed a strategy for the function for 2024-2025 with clear plans and actions for each employee.
We have allocated resources to train internal customers in procurement processes to convey the value of the function to the company. Since there is a shortage of qualified employees in the labor market, we improve their skills ourselves together with you and your trainings.
I would only add that our model remains flexible and can change according to the needs and changes in business.
General conclusions of the Darnytsya team after the project launch:
- ou need to communicate with suppliers and internal customers. Transparent and clear communication with the market and internal customers is the key to success.
- Visits to suppliers’ production sites were critical. It was a turning point. Purchasers were able to explore the entire process of creating the same foil. They began to understand better what the backlash is to fulfill an order. Where there are physical limitations and where the supplier is procrastinating.
- Teamwork for a single result with a clear division of roles and responsibilities. This gives a certain predictability and confidence. Terms of reference should be analyzed and matched to the need (prioritize requirements). Strategies require constant updating in accordance with market trends and company strategy.
- Be prepared for the fact that the implementation of Category Management will distract human resources from their routine. However, it will turn into an advantage in the long run.
- Do not be afraid to invite professional consultants who will guide you on the way to implementing Category Management. The IPSM team has become an invaluable assistant to us and has motivated us to make changes. Thank you for your cooperation!
Reference:
IPSM (Procurement & Supply Chain Professional) is a Ukrainian company that operates in the field of procurement and supply chain consulting (optimizes costs, builds more efficient procurement processes) and provides outsourcing services, i.e. takes over the management of the procurement part of the customer company.
Darnytsya Pharmaceutical Company is one of the market leaders among Ukrainian pharmaceutical companies and No. 1 in terms of sales of medicines in packages (market share by this indicator is 15.8%). The company has a multi-brand portfolio consisting of 177 brands and 380 SKUs.
Photo: courtesy of IPSM and Darnitsa
