August 5, 2014, 2:17 PM

Business software company SAP learns how to slash its own procurement costs

After reorganizing its global buying policies, SAP moved to a more automated system and cut costs by a fifth, chief procurement officer Marcell Vollmer says.

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When he arrived at business software vendor SAP AG in 2011, Marcell Vollmer didn’t take long to overhaul how the company spent billions of dollars each year to purchase what it needs, such as I.T equipment and travel services, to operate its facilities and field staff.

“My first task,” says Vollmer, the company’s chief procurement officer, “was to make sure more than 200 procurement personnel were allocated to the right function.” And, with more than 65,000 employees in facilities across more than 130 countries, he also transitioned SAPs corporate procurement policy away from local market purchasing to a more globally centered operation.

“As we see markets more and more global, it doesn’t make sense to only buy laptops in Germany for our locations in Germany,” Vollmer says. “It makes more sense to have a total corporate-wide cost of ownership.” Although a more centralized and global procurement system means many sources are further away from corporate facilities, it also provides for more efficiency overall in the whole procurement process, he adds.

A year after he arrived at SAP, Vollmer again overhauled the company’s procurement system after SAP acquired Ariba, an Internet-based procurement technology company that operates the Ariba Network. Before it moved much of its own $4 billion in annual procurement transactions through Ariba, SAP had used its own supplier management technology to connect with suppliers—with about half its annual number of some 730,000 invoices received from suppliers processed automatically through software connections, the other half processed manually.

With SAP now connecting to suppliers through Ariba, it has automated purchasing and invoice processing for another 200,000 invoices. In addition to providing more accurate data on procured products and payments, the new system has freed up procurement and accounting staff to more away from tedious data entry work and focus more on “more higher-value activities,” such as analyzing accounting records and operations, Vollmer says. 

The new systems and procedures, he adds, have helped cut overall procurement costs by 20%.

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