Lufthansa – Brochure 2020

How an enabled and empowered procurement team becomes a stronger enabler for business

Enable, Empower and Encourage: Procurement teams reach higher level of performance at Lufthansa Group Angela Qu, Senior Vice President, Chief Procurement Officer at Lufthansa Group tells us how procurement is becoming a true business enabler.

WRI T T EN BY PRODUCED BY

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any people have a classical perception about procurement. To them procurement is

an administrative function hidden away in the back office. Procurement is simply to get the right things for the right time in the right quantity. “This is just a starting point,” explains Angela Qu, Senior Vice President, Chief Procurement Officer at Lufthansa Group. “Procurement can provide more added value to the business, if we become much more strategic, and are able to bring valuable market information and alternative solutions to the decision table. Further, we should be able to facilitate collaboration with internal and external stakeholders, connecting the dots of the whole supply chain. Ultimately, procurement should drive supplier innovation and sustainability at the top of its agenda. Thus, we can support the company’s growth and become the key enabler of value chain

in mind as she started her tenure at

creations. However, there is a long way

Lufthansa Group: to create a better align-

to go from where we stand today, even

ment on long-term objectives across the

knowing where the final target is, as we

different procurement teams within the

head towards where we want to be in a

group, and to bring procurement to a

5-year horizon.”

much more strategic level. As part of this, she also looked at making the procure-

Procurement vision 2025

ment contribution much more visible from

Like many procurement profession-

a P&L context while also upscaling and

als, Angela Qu had a very clear mission

skilling people across the group.

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This mission started in April 2019 and

Right after that first week, Qu organ-

she recounts that ‘day one’ proved to

ized a series of strategic workshops with

be one of the most significant. “I met my

her leadership team that consisted of the

whole procurement leadership team and

various heads of procurement from differ-

was asked by one of the colleagues:

ent airlines within the group. Collectively

‘What is your vision here? What do you

they defined their long-term goals of

want to achieve?’” Qu replied: “It’s not

the procurement function (i.e. where

about what I want to achieve, but rather

they wanted to be in five years). Thus,

what we want to achieve. Let us work it

a vision was born. Procurement Vision

out, together!”

2025 will see procurement become a key w w w . c p o s t r a t e g y. c o m

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Photo by Annie Huss Kearney, Chicago

Smaller.

Smarter.

Speedier.

Disruptive Procurement is a radical new approach to creating value and innovation by challenging the status quo across the entire product and service line. It requires going far beyond conventional desk­ top procurement to under­ stand the value the company brings to its customers as well as the value that suppliers bring to the company.

This is the first procurement book with a special focus on the board level

de.kearney.com/disruptiveprocurement

For almost 100 years Kearney has firmly established itself as one of, if not THE true market leader, when some of the world’s foremost organisations are looking for trusted advisors to support them in delivering real strategic change.

As a leading global management consulting firm with more than 3,600 people working in more than 40 countries, organisations undergoing significant procurement transformation journeys turning to Kearney is something of a no brainer.

“With clients ranging from automotive, commercial and retail, right through to aerospace and defence, we at Kearney have a simple promise: to deliver the guidance our clients need to make real progress and impact” says Kai Engel, Partner and MD. “In this new world where we are seeing truly disruptive procurement and going in completely new directions in terms of challenging the product and service portfolio of companies to drive cost reduction, Kearney can call upon its incredible heritage and expansive partner ecosystem to deliver results,” says Michael Strohmer, Partner at Kearney.

“But while we possess the leading edge know-how, we very much work in a very pragmatic way together with the client and so they feel inspired about what we bring to the table in terms of innovation but they know that we understand their specific issues and we always find ways to optimize a cost and value.”

Strohmer identifies three main areas of change for procurement: 1) The standing of procurement has increased significantly over all industries meaning there is a necessity to have good procurement, that goes beyond simply being compliant with the process, but really drives value.

2) An increased focus on strategic topics in procurement and a decrease in operational workload.

3) Procurement has a seat at the table and, in some corporations, is much leading innovation and driving change in products.

So how does Kearney ensure that its services continue to serve this changing landscape? “This is a big challenge,” admits Strohmer. We have dedicated people identifying future trends and following what’s happening in the startup area.

We are fortifying our ecosystems to have the leading edge solutions and know-how developed by ourselves and coming from the market and creating this ecosystem and we have plug and play situations, where we can really collaborate with one of our partners for the client.”

At the real heart of Kearney is its people. The company is extremely proud of its people and the way they listen to clients and understand their challenges and develop creative, innovative solutions and ideas to succeed. These relationships are built by working hand in hand, having fun together, and sharing great success together. “It is something which is highly important for us,” he says. “to work with the client and also the different functions of the client and so we train the people, how to work with engineering, with finance, how to market people and so on, so that this becomes a kind of network of true collaboration.”

No one has the keys to success, but there are steps that can be taken to ensure that however challenging the road ahead can be, it remains the right direction to grow and to succeed. For Kearney, this requires commitment from all sides of the business. “We need to be excited about what the clients are doing. With excitement comes commitment,” he says.

“The people, the product, the journey, the challenges, we need to be excited together by all of it. For us, it’s incredibly important for the success of a project.”

Learn More

www.kearney.com

contributor to the overall growth of the company and the associated value creation.

The Vision is built on three pillars: Strategic Foster next level strategic sourcing, supported by automated and digitalized processes and tools to procure products and services with best-in-class quality and cost

Professional Enhance competence and entrepreneurship amongst procurement staff; ensure a high-performance driven organization and create a professional image to internal and external stakeholders and suppliers

Sustainable Build partnerships with internal partners as well as suppliers; retain knowledge and talent while providing sustainable solutions to business units and include sustainability aspects into decision-making process With these three key pillars in place, the team has identified their strengths and weaknesses in terms of current organization, structure, process, tools etc. Qu could then begin to launch short-term and long-term actions.

Enable and Empower the procurement teams to reach higher ambition of performance In procurement, particularly in times of transformation, results speak louder than anything else. Qu recognizes this and she can point to some considerable successes 8

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“ Facing the current challenges across aviation industry, procurement teams at Lufthansa Group are focusing on three topics: ensure smooth operations; maintain competitive cost base; and generate profits for each flights” — ANGELA QU, SENIOR VICE P R E S I D E N T, C H I E F P R O C U R E M E N T O F F I C E R AT L U F T H A N S A G R O U P

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that she has overseen in her time

Along with rolling out NLSS across

with the company. In 2019, Qu’s team

different categories, Qu also focused

achieved a significant growth in savings,

on strategic empowerment of group

representing almost a 50% increase on

category managers. Qu notes that: “We

2018; a testament to the work that Qu

empower our group category managers

and her procurement team achieved

by letting them understand what they’re

in a short time. The key success factor

responsible for and what their mandates

was the launch of “Next Level Strategic

are. Empowerment means that they are

Sourcing - NLSS”, which is the founda-

truly aligned to the procurement vision

tion of Vision 2025’s strategic pillar. The

and understand how they can play a key

aim of NLSS is to enhance the plan-to-

role in the transformation. In the end,

strategy process, with a standardized

the team has to deliver the requested

procurement methodology (using the

results.”

“Kearney Purchasing Chessboard”) in a continuous improvement approach to generate sustainable value for all stakeholders.

It is a simple five-step approach: 1) Spend transparency: understand spend through data and market analysis 2) Benchmark: set benchmark, define gaps, analyze root causes and aim for innovation 3) Develop: define category strategy and action plans with product owners/ process owners/ demand organizations 4) Implement: execute strategy and improvement plan 5) Sustain: review, reflect, and prepare for continuous improvement 10

LUFTHANSA GROUP

“ I truly believe engaged and empowered employees can deliver higher level of performance” — ANGELA QU, SENIOR VICE P R E S I D E N T, C H I E F P R O C U R E M E N T O F F I C E R AT L U F T H A N S A G R O U P

On top of that, Qu looked at those “enablers”, including advanced tools, data analysis capabilities, functional trainings, cross-industry best practice sharing programs and working collaboratively with other partner functions to find the best solutions for the business. At the same time, Qu spent significant time building the large talent base “Spotlight on Talent for Procurement”, which is a group wide program, identifying talents and giving them insight regarding procurement as a function. She ran numerous dialogues and one-on-one talks with potential talents from other functions, explaining why procurement is a great place to be. Through those active communications, she was able to attract talents into her organization with new ideas and new ways of doing things.

“I am very proud to see that, through this journey, our own organization has transformed from a disparate procurement community to a more aligned and performance-driven procurement team! Together we became stronger as a function, as we can build upon our competences and knowledge from each other. Through our Next Level Strategic Sourcing processes, we have w w w . c p o s t r a t e g y. c o m

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become a valued business partner rather

to drive innovation and sustainability.

than simply waiting there until we receive

Alas, 2020 saw the world gripped by the

a request to negotiate,” says Qu.

COVID-19 pandemic and companies have been forced to act fast in order to miti-

COVID19 and crisis management With key successes under her belt, the

gate the impact as best as possible.

“It was a unique situation for me and my

future looked bright for Angela Qu and

team,” affirms Qu. “Without much warning

procurement at Lufthansa at the begin-

in advance, in early March the Group’s

ning of 2020, with Qu and her team

cash inflow suddenly dropped by 90%.

well on their way to another 30% saving

This was a challenging time for my team

increase compared to 2019. Qu was

and me. First of all, we were worried

about to launch a supplier innovation

about the health and safety for ourselves

campaign that would see Lufthansa work

and our loved ones. We also had to keep

closely with its suppliers to redefine and

a functioning supply chain for on-go-

reinvigorate the relationship model and

ing operations, such as Lufthansa Cargo

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LUFTHANSA GROUP

who flew masks and medical equipment

when to protect and support the most

around the clock, and also the many

fragile parts of the supply chain in these

rescue flights which the Lufthansa Group

turbulent times. Whatever we do has to

performed for our home countries. The

be within the legal framework and based

most challenging part has been the 3rd

on mutual agreement with our service

pillar: sustain cash within our company in

providers and suppliers.� Lufthansa Group

order to weather the storm.�

has taken corporate responsibility espe-

Looking back to the last few months,

cially seriously during this challenging

Qu speaks of the importance of acting

time. A special approval process was

fast, calmly, and professionally, particu-

established for small and mid-size enter-

larly when dealing with supplier relation-

prises, or private owned companies in

ships. As Qu says, “The value of procure-

urgent need, so that they received their

ment has been particularly effective in

payments on time.

knowing when to aggressively conserve

In mid-July Lufthansa group received

cash to meet internal liquidity goals, and

state-aid support. The procurement team

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ABOUT US The Lufthansa Group is the leading aviation group with operations worldwide, with a revenue of €36.4bn Euro in the financial year 2019.

The group is composed of three segments: Network Airlines, Eurowings and Aviation Services. The Network Airlines segment comprises of Lufthansa German Airlines, SWISS and Austrian Airlines, which offers its passengers a premium, high-quality product and service and a comprehensive route network combined with the highest level of travel flexibility.

Aviation Services comprises the segments Logistics (Lufthansa Cargo), MRO (Lufthansa Technics), Catering (LSG Group) and Additional Businesses and Group Functions. The latter also include Lufthansa AirPlus, Lufthansa Aviation Training and the IT companies. All segments occupy a leading position in their respective markets.

A considerable amount of the Lufthansa Group's costs come from external suppliers.

The procurement team led by Angela Qu, has responsibilities for several tasks…

- Group procurement guidelines, process and procedures - Group wide category management, definition and implementation of sourcing strategies, and managing supplier relationships - Supply chain sustainability and risk management - Performance management and procurement tools development

- Functional competence and people development

has played a key role to mitigate insol-

open and transparent way. “I am grateful

vency risk. “It was essential to have a

for those corporation partners and suppli-

high degree of transparency,” she says.

ers who have supported us with special

“It was important to look at all purchas-

contributions and prolonged payment

ing requisites and identify what is in the

terms during the past months. Those

pipeline, and cancel purchase orders on

who demonstrated great willingness to

time. We also lowered down the thresh-

support and collaborate with us in the

old of approval so that every external

difficult times will remain our strategic

spend request went through a special

partners for the future,” says Qu.

controlling approval process. We worked extremely hard to ensure that our buyers

Going Forward

were equipped to communicate the

Procurement has transformed significantly

complexity of what was happening and

at Lufthansa, and the crisis has meant

to communicate with our suppliers in an

further transformation is afoot. As the

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topics: ensuring smooth operations; maintaining competitive cost base; and generating profits for each flight. Throughout the crisis time, Qu notes that she and her teams are changing their role from the traditional cost-cutting role into a true enabler of business. “We have to enable smooth operations, in a fast-changing environment, The flight plan is not stable, and we need to have a high degree of flexibility in our supply chain planning and commercial agreements. We have to ensure our cost base becomes even more competitive. We are looking at how we leave out complexity and how we as procurement can be true enablers to our internal partners. We need to help our requesting departments, which have very limited pandemic continued, so did the impact on

budgets to get the services and products

business continuity and Lufthansa had to

they need.”

look at its plans for the future - both long-

Qu reflects that the COVID-19 crisis has

term and short. Initial successes were

not been a distraction from those initial

crucial, but it was time for Qu and her

goals set in 2019, but instead has been

teams to differentiate what crisis mode

a catalyzer and an accelerator. Whereas

was and what the next phase was going to

‘Procurement as an Enabler’ was a key

be. “We are okay, we managed our crisis

focus prior to 2020, it now becomes THE

well, but now we have to move into the

focus moving forward. “It will go hand in

next stage, which is the ReNew phase,”

hand with our strategic business partner-

says Qu.

ing,” she adds. “This will be our key focus

Facing the current challenges across the

in the near future and I believe we can truly

aviation industry, procurement teams in

enable the organization to grow again as

the Lufthansa Group are focusing on three

we navigate and move beyond this crisis. w w w . c p o s t r a t e g y. c o m

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“ I am very proud to see that, through this journey, our own organization has transformed from a disparate procurement community to a more aligned and performance-driven procurement team!”

— ANGELA QU, SENIOR VICE P R E S I D E N T, C H I E F P R O C U R E M E N T O F F I C E R AT L U F T H A N S A G R O U P

What makes a successful procurement organization?

Prior to COVID and indeed throughout, Qu and her team have achieved an incredible amount of success.

Is there a secret to this success, a silver bullet that could guarantee success both now and in the future?

Unfortunately, there is not, but Qu is keen to highlight there are things we can all do to ensure that whatever path we take, the road ahead remains a step in the right direction. “Procurement managers need to understand the company’s overall strategies and top priorities; we must align procurement strategy accordingly to support the business. Going forward, we must remain flexible, fast and responsive towards market changes, including better analytics skills, stronger forecasting visibilities on cash management and informed decision making which are the keys to achieving success. Ultimately, it all starts with proper communication towards our own team, our internal stakeholders and our supplier base. That will forever be crucial to being a true enabler and delivering true value to the business.”

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