ESL’s Esa Huotari explains how he’s optimising procurement processes in the digital age
Writing a thesis on your organisation’s procurement function is one way to get to know how the department works. For Esa Huotari, it was the perfect start to life in procurement. Having spent 10 years as a ship agent, he moved to ESL’s technical management team in 2014; it was at the same time that his thesis for a degree in international business and logistics was due.
“I was focusing primarily on procurement,” Esa says. “So the timing was quite perfect. Being in the right place at the right time, I ended up writing my thesis about development of procurement functions at ESL Shipping.”
Since then, the development of procurement processes has been one of Esa’s main tasks, aside from actual purchasing. We caught up with him to discuss how he’s applying theory to optimise ESL’s procurement function and how that will look as we enter industry 4.0.
“The timing was quite perfect”
Being in the right place in the right time, I ended up doing my thesis about development of procurement functions at ESL Shipping
You focus on procurement optimisation; how do you approach this process? What are the key considerations?
I definitely have a theoretical approach to optimisation, using and considering well-known procurement strategies. But at the same time, I aim to come up with practical solutions to serve current requirements the best. The exact theories don’t usually fit directly to most cases and you must be able to pick the best parts out of them instead of following those theories accordingly. Learn, think and modify them to serve your purposes and keep up with the rapidly changing possibilities offered by the modern world.
As an example, ABC analysis is typically used to optimise material flows, order quantities, warehousing and such. It’s also useful when thinking about time savings and how tactile processes are working. For example, a lot of us spend 20 to 30% of our work time with issues that cover 70 to 80% of yearly spends. Just think about what you could achieve if you had more time to focus on the most important 20%. It requires that you need to create simple processes for the remaining 80% (B-C categories) in order to minimise time spent on them.
It’s also important to recognise varying supplier segments and the differences between them. You have to be able to develop different ways to approach each segment to get the most benefit out of cooperation. If optimal, both sides should gain. That keeps the motivation high in the cooperation. If you only approach the supplier to negotiate lower prices, it will be a difficult relationship. Look at the big picture – how much time and money could be saved through mutually beneficial solutions?
So, in the end, what it all comes down to is time, time and time. If you don’t have enough time available to focus on the most important issues, your possibilities to successful buying are quite limited. And to make it all work, it requires a good cooperation throughout all parties within the whole procurement source-to-pay process, including the crew on board, purchasers, suppliers, accounting, etc.
How do you measure success and plan for the future – especially in light of ever-advancing technology that can be optimised ad-infinitum?
We work on better planning and forecasting all the time.
Fortunately, modern software offers better tools for planning, forecasting and measuring your performance. Measuring your performance becomes more and more important all the time. It’s not only the operational functionalities that are expected and required from software anymore. Planning is definitely something that can always be improved. The earlier and more accurately you can recognise upcoming maintenance requirements, the more time you have for procurement planning. You want to be as proactive as possible instead of being completely reactive. That’s when savings can be made and risks minimised.
As for measuring performance, the yearly, monthly, quarterly spend and KPIs are, of course, followed as usual. Those are good long-term measurements in general, but to have development for particular issues, you need to figure out the exact KPIs to serve those purposes. I don’t think an organisation could use the same exact 5 to 20 procurement KPIs year after year. Recognise your obstacles, plan corrective actions and set KPIs to serve and measure that exact performance.
“Procurement processes are something we’ve been working on constantly for the past three to four years and it’s still a priority”
Digitisation is changing the way procurement is done – what signs are you seeing in your own organisation?
I stay updated on the procurement automation possibilities that will save us time on manual work – these are where I’m hoping to see a lot of improvement in marine software. For example, if a vessel keeps their stock figures up to date, why shouldn’t the software be able to create monthly or even weekly requests/orders based on stock levels and average consumption, instead of a person manually having to look up all that is required? That would cause a significant time-saving throughout the process. If you could automate most orders of C-category, which are normally very basic consumables, you would have a lot more time to focus on A and B categories. If at the same time, with the help of digitisation and modern software, you have planned upcoming maintenance works and require critical spare parts, the software could also create automated orders of spare parts required in those maintenance works – and do it in perfect timing as per running hours of equipment. That’s where we’d like to be and hope to be there some day, sooner rather than later. But I’m not expecting that big of a change to happen instantly – it will take time.
How are you adapting for that change? Are you making changes to your supply chain and procurement processes?
It’s a big change and it requires a lot of work. We implemented a new PMS and procurement software about four years ago. That was a big step in the right direction and we have high hopes for what this software will enable us to do. The data quality is a big factor. Poor data still causes constant work to have it optimised, but we’ll get there. There has definitely been a change in planning already due to this software and it’s also a constant learning process for us to know what the software can do.
Procurement processes are something we’ve been working on constantly for the past three to four years and it’s still a priority. You kind of go step-by-step in the right direction, aiming bigger all the time.
Managing people through these kinds of changes is still the key factor to success. In the end, it doesn’t matter how good your software is, how good the data you have in the software is or how well you have planned everything out if the people in the process are not motivated to work for the same goals or simply don’t know how to use the system properly. Digitisation is there to make life easier for all parties and not vice versa, which unfortunately a lot of times it seems to do when not implemented properly.
Do you think there’s too much focus on digitisation?
No, definitely not. We have to know and learn about digitisation possibilities. That’s where the world is heading. It’s all about being a step ahead or, unfortunately in some cases, many steps behind. Becoming obsessed can of course be seen as a risk, but you don’t need all the digital solutions. You don’t have to excel in everything. Aim to excel in things that really matter to your organisation.
One of the most important factors I see in digitisation is getting rid of as much manual routine work as possible through automation. Also, you would have fewer human errors in the process when orders, for example, would be based on consumption and planned upcoming requirements. Maybe then you would also have more time to develop your supplier relationships.