Aventis cuts spending on procurement

Pharmaceutical company Aventis has saved tens of millions of euros by altering its purchasing behaviour and embracing electronic technologies.

The company, which turned over 18bn euros (£12.14bn) in 2002 and has an annual procurement budget of around 6bn euros (£4.4bn), has changed the way it buys and identifies goods, focusing most of its efforts on high value goods and services.

According to Kai Nowosel, head of global purchasing, commercial operations at Aventis, eprocurement would not have worked for Aventis had it not fully understood its data and purchasing habits first.

'We spend a lot of time trying to understand how and where we spend our money,' Nowosel said. 'A huge number of purchases would be representing a very small piece of the business.'

'A prime example is office supplies,' he said. 'It's not something you should worry about because it doesn't give you any competitive advantage to be good at buying office supplies.'

The company, which is using procurement technologies from spend management specialist Ariba, has essentially outsourced the purchasing of small value goods to the people that actually want them, allowing procurement staff to concentrate on high value transactions.

And with one per cent of procurement spend accounting for 98 per cent of transactions, Aventis has found itself operating in a much more efficient manner.

It implemented the Ariba Buyer product in 2000, and more recently Ariba Contracts. It has just purchased Ariba Category Management, all part of the Ariba Spend Management Suite.

Nowosel says the use of the technology, and perhaps more importantly, the way it is now viewing its data and organising its procurement activities has resulted in massive annual savings.

'The procurement figure is always 6.5bn euros,' Nowosel said. 'We just spend more. Sales increase 20 to 30 per cent each year. If you can sustain that growth for the same cost, it has a bottom line impact.'

Nowosel says the company saw a return on its investment within three years, a figure that included internal costs and considerations, as well as the 10m (£6.7m) euros it has spent on technology.