Marina Trepova’s blog
The agricultural sector plays an important role in the development and formation of Ukraine's economy. As of 2021, Ukrainian agricultural products were bought by the whole world, without exaggeration. Last year alone, farmers brought the country 50% of foreign exchange earnings and 20% of GDP. It is clear that support and uninterrupted operation is a priority here.
In this case study, IPSM will tell you how we managed to establish procurement in agriculture through audit and procurement outsourcing.
1. The agricultural sector during the war
According to official data, in the year since the start of the full-scale invasion, the agricultural sector has been able to ship almost 39 million tonnes of grains, oilseeds and processed products. The top three crops shipped over the 10 months of the war are corn – 15.6 million tonnes, wheat – 8.6 million tonnes, and sunflower oil – 3.3 million tonnes.
The procurement front is becoming particularly important for the agricultural sector. By optimising procurement (on average), a company can achieve 5 to 30% savings depending on the category, significantly increase procurement efficiency, improve business sustainability and reduce potential risks, which, to be honest, are plentiful today.
2. Starting cooperation with a client
The hero of this story is a medium-sized regional agricultural company. We started working with the client in the autumn of 2021.
The owners realised that they had no control over the company’s procurement and invited us to analyse procurement, find problem areas and form a procurement structure. The key root causes were the lack of organised and transparent processes, structure, rules and procedures, and a large number of “emergency” purchases. And most importantly, the lack of a procurement department.
Together with the owners and top management, we agreed on the following plan:
- Conduct a procurement audit to identify weaknesses and possible cases of fraud.
- Develop unified standards and set up a procurement process, and create the department from scratch.
- Develop job descriptions for the management and the head of the department. Since the client wanted to retain an internal resource, we decided to develop old employees (even though they had not previously worked in procurement). But under the supervision of our team – of external outsourced specialists.
One of the slides from a presentation for a client.
3. Setting up the procurement function
October 2021. We started building a procurement department to increase savings in the company. In fact, the IPSM team began to organise all the company’s procurement processes, and the entire supply chain was under our direct control.
The results of this stage are as follows:
- We developed the company’s procurement policy.
- We introduced a methodology and developed the procedure itself.
- We determined the level of relations between stakeholders in this matter: who should initiate the purchase and how to work out the points of payment and quality tracking.
With our help, a Tender Committee was set up; employees began to use competitive bidding, and price comparisons, and make informed collegial decisions. Before that, procurement was chaotic, often in an emergency mode.
Now, if something needs to be purchased, the company’s director clearly understands that the request goes to the procurement department, then the procurement team provides their recommendations, calculations, and market research, and the Tender Committee decides whether to accept their recommendations or not. And only then can the director sign the purchase documents with a calm heart. After all, he now has an effective tool for making management decisions – the Tender Committee – a body he trusts in procurement. It should be noted that during the implementation of the Policies and Procedures and the work of the Tender Committee, the company’s management decided to include our consultants in the Tender Committee as a controlling body.
The procurement process
4. Work results
As a result of our work, the number of emergency procurements has decreased: in 2022, their number was 15%, and in 2021, half (50%) of procurements were in emergency mode.
We have been able to make procurement management more efficient by planning and procuring potentially necessary goods in advance (for example, in advance of preparing machinery for harvesting).
We support our employees in choosing suppliers in a timely manner: we analyse the market and help them choose the best price; we alert management and prevent risky transactions. In this way, we stop unjustified spending of the company’s funds; we have even achieved savings of ~50% in the category.
5. Staff training
Since the client wanted to develop internal employees to the maximum, the procurement department was formed from old employees. No one had any experience in procurement, so we started training with basic knowledge and skills. And today we are developing advanced skills and passing on more and more new knowledge.
I constantly emphasise that a procurement officer needs education. Today, a true procurement professional has to operate with a whole bunch of specialised knowledge about data digitalisation, category and risk management. Unfortunately, Ukrainian universities do not offer such a speciality, so courses, training, and self-education come to the rescue. I am sure that people who decide the fate of millions of hryvnias must understand exactly how to manage them.
6. Control over the Supply Chain
Efficient logistics and supply chain organisation are crucial for a sector that deals with perishable products.
To manage the supply chain efficiently, we take into account various aspects and work out the details:
- how to equip storage facilities so that losses are minimised;
- how to calculate the throughput capacity of the entire Supply Chain to ensure the supply of high-quality products with minimal losses;
- how to coordinate actions very clearly and create the most detailed delivery and loading/unloading schedules.
As a result, we managed to: establish coordination between all stakeholders.
7. Results
The result: with a procurement budget of tens of millions of hryvnias, we achieved savings of ~8%.
Gradually, if all the recommendations in the case study are implemented, savings of up to 15% are possible. Of course, due to the war, we were not able to achieve the maximum result. However, we are proud that despite the disrupted supply chain, we managed not only to ensure the continuity and efficiency of the enterprise but also to achieve savings.
And in a year when logistics prices rose significantly, the company’s top management had to leave the country and the owners were abroad, we ensured control of all processes online and prevented panic and chaos in procurement.
Today, the company is successfully establishing an efficient procurement process. In the future, everything will depend on the military situation in the country and whether the positive changes in procurement and the supply chain will be maintained in the future.
At IPSM, we work with companies of all sizes and industries. Our clients are united by a desire to make their procurement transparent and understandable.
Photo: courtesy of IPSM, Wikimedia |Author = Ivshyn, Pexels