How does purchasing work in 2023? What problems do procurement staff encounter on a daily basis? In the second part of our interview with Henrietta Nemes, we discuss the day-to-day difficulties buyers are facing and the challenges of the changed global market situation.
Read the first part of the interview in our previous blog post.
What were your procurement objectives for last year, and what goals have you set for 2023? You work in the energy sector; how is the current crisis affecting you?
Henrietta Nemes: I think all procurement organizations can feel how greatly the energy crisis and the war affect the market dynamics and the prices. I can say that in general, no one wants to sign a 3–5-year contract now because they don’t know what the future holds. I can feel it myself that I became a buyer at the worst possible time [laughs], as we are having to face considerable challenges.
Our organization’s goal for last year was to separate from E.ON and start on our own path. It was very difficult that we had no past data, and even getting to our own contracts wasn’t too easy. In 2022, we focused on collecting and assessing what we had. I feel like we’re still in the data collection phase as we have no basis of comparison, so one of our goals for 2023 on my part is to have all orders go through one single platform. This way, we’ll already have some data in the first quarter on how much we’re spending on what, what are our more important contracts, where we might need to look into a process. We’d like to categorize our suppliers based on whether they are strategic partners or they can be easily replaced in case of a potential price hike.
I think it’s very important that our procurement is well-thought-out, as I can see in the market that it’s really difficult to bargain in the current situation. That’s understandable, of course, but that’s exactly where procurement has a significant role: exercising appropriate control. I don’t believe in saving money by cutting down on office supplies; we’d rather try working with our suppliers, exercising control, keeping a firm hand on contract periods, or even renegotiating prices.
How much has foreign policy affected your work? What difficulties are you facing now?
H.N.: Buyers aren’t in a good position right now, there’s pressure from both the requester and the supplier side that we have to juggle. Those requesting the products and services want to get what they requested, while suppliers want to raise prices, but management isn’t happy about the price hike. Buyers have to find the balance between these three different needs and try to make sure that everyone—but especially their own organization—gets the best possible outcome.
Another difficulty currently is the uncertainty of delivery times and for example, how far in advance tenders need to be announced to have the products or services delivered on time.
We also need to make our colleagues understand that in the current situation, we won’t be able to get them what they requested in just a week. So, we had to put a precise procedure in place for this in our own organization. We had to get our colleagues to understand that it was important that they planned ahead and set reasonable deadlines.
Do you feel like suppliers are now in the better position, dictating the pace and prices?
H.N.: Absolutely! Just the other day we were talking with the managing director about the fact that this is a clear market trend: there is an inflation rate of about 20% anyway, which is causing everyone to raise prices; this has proven to be a good bargaining chip for suppliers.
Clearly, we are living in an era where suppliers can afford to raise their prices by not just 20%, but 25-30%. In response to this, we can, for example, put hold an auction to reduce the prices, which often shows us that the suppliers can lower the prices somewhat.
In such cases, another thing that can be really helpful is if what we need to purchase is a basic product, so we have the option to buy it from a different supplier. The problem arises from the suppliers that provide unique services and products.
How would you define the place of procurement in your company?
H.N.: I feel like we aren’t in a strong position in the company yet. Last year, we had an efficiency improvement project that showed that there was a strong potential for savings that could be realized through procurement management. Of course, our CEO’s eyes lit up when we learnt this, and he said that this should be our goal for 2023. I told him, sure, it is achievable, if we put more energy and attention into procurement and expand this organization.
To some extent, we have a role in allocating money based on the data we get from finance, but it’s more about looking at where we can economize and on what. And obviously, we also try to help individual organizations by providing them with more options and guidance on how to meet their needs in the most targeted and cost-effective way, as this is how we can make savings efficiently.
Speaking of savings, in your opinion, what are the areas where savings can be made within a company in these changing times? What are the things that are potentially easier to give up?
H.N.: I have already identified a few things that we could save on. Of course, there are some everyday convenience items that colleagues wouldn’t want to give up. This must be respected, as we want to make sure that they continue to feel comfortable with the company.
The things that are currently costing us a lot of money are developments. We need them, we can’t do without them, but it’s also good to keep an eye on whether every single subscription is really necessary. There were negative examples of careless procurement: a system was purchased that turned out not to really serve our needs or be useful to us.
It is precisely to avoid this that we try to sit down and talk things through with the managers of the organizations concerned, so that we can let go of systems that are not useful in the long term, even if it means that we lose a small amount on it, and invest financially in ones that really meet the needs we expect them to meet.
This requires forward planning, seeking tenders, not jumping into contracts that haven’t been properly examined, as these all help avoid unnecessary expenditure.
What do you feel are the biggest challenges in procurement right now in Hungary?
H.N.: The hardest thing is facing crisis after crisis. We wouldn’t have thought that three years in a row would be so difficult. As soon as we got out of the COVID wave, the economy had no time to recover before the war and the energy crisis knocked on our door, not to mention the staggering inflation.
For example, as an energy trading company, during COVID, we saw that many of our customers invoked force majeure, and we got the same from the supplier side.
For procurement, the most worrying thing is how far the ripples of inflation and utility costs will reach, and how these will be incorporated into contracts and pricing. The main problem is that we can’t really depend on long-term contracts and that suppliers are constantly raising their prices, which is very difficult to adopt to.
What do you think about current procurement trends?
H.N.: I see that it is no longer enough to make all processes digital, but that there is more and more emphasis on robotization and automation. I’m constantly looking at when we can get to the point in our procurement where we have fully automated processes. Although we’re not a manufacturing company, I also wouldn’t rule out that in a few years’ time we may be able to implement robotization in some of our work processes.
Of course, we’re not there yet, but I truly hope that Audax will reach a level of growth where these processes will have a place.
Read the first part of the interview on our blog.