A closer look

Jouni Pekonen, Executive Vice President, Procurement

 

More efficient operations through systematic procurement

The development of procurement plays a significant role in the improvement of efficiency and profitability of operations throughout Lemminkäinen.

In 2011, Lemminkäinen launched an efficiency programme aimed at lightening our cost structure by EUR 50 million as of 2014. In this goal, the share of procurement was EUR 30 million. We achieved the procurement savings target, thanks to successful project purchases and competitive bidding of annual agreements. However, the procurement gains were not fully realised in the company’s result due to intensified competition. In the future, we will measure the realisation of procurement savings separately for annual agreements and for project purchases.

Lemminkäinen’s extensive partner network and decentralised procurement have posed challenges. The starting points in the development of procurement have been the establishment of standardised working methods and the improvement of supplier relationship management. These enable us to improve the efficiency of our procurement and purchase processes and to harness economies of scale and the benefits of centralisation.

Advantage of procurement synergy potential

The aim is that in future we will be able to take even greater advantage of our size and total volume in procurement. This requires that we continuously develop cooperation between the centralised procurement unit and businesses across country borders, too. Currently, the extent to which we use foreign suppliers in Finland is very limited. Over the long term, our goal is to significantly increase both our volume of global sourcing and number of direct suppliers.

During 2013, we carried out several successful pilot projects in which we analysed potential suppliers outside Finland for project purchases. In addition, we tighten cooperation in procurement with our key operating countries.

Clear interal work distribution

In our operations in Finland, the centralised procurement unit is responsible for annual agreements and the business segments for project purchases. In 2013, we also started scrutinising common working methods in our other operating countries.

In addition, we develop common working methods, purchase and procurement tools and indicators. They will increase the efficiency and transparency of our operations and improve our supplier relationship management.

One of our most significant goals for 2014 is the implementation of a common ERP system throughout our procurement organisation. The system will harmonise our operations and improve their efficiency, increase the transparency of purchases, improve the predictability of operations and support the online procurement and purchase process.

Long-term partnerships

A key goal is to improve supplier relationship management. Long-term cooperation with selected partners enables both parties to benefit from greater cost-effectiveness and economies of scale.

We select all our contract partners and project suppliers through competitive bidding. We actively monitor our suppliers’ performance, such as delivery reliability and the number of reclamations. We primarily audit our suppliers when we want to ensure the performance of a potential major supplier or when we want to identify areas for development with our current suppliers.

We require that all of our suppliers and partners adhere to legislation, international regulations concerning human rights, employment rights and the environment as well as our Code of Conduct. We require our subcontractors to adhere to the Act on the Contractor’s Obligations and Liability When Work Is Contracted Out, and we monitor how all new and existing partners comply with it.

A significant part of the improvement of supplier relationship management is the reduction in the number of suppliers. We aim to reduce our suppliers to about 5,000 over the coming years. In 2013, we trimmed our network of over 17,500 suppliers by about 3,000.