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Economic, ecological and social sustainability is developing across all markets, sectors and functions to become a transformation issue critical for company success. After decades of predominantly technological innovations, the central conditions of economic activity are now changing: the legislature has passed manifold requirements and criteria for sustainable management to trigger the climate- and resource-friendly growth of business and society.
These changes affect the entire business and economic value chain, with some serious consequences. Most companies face the challenge of how to sustainably align their business models and processes in future and still remain profitable. From raising awareness and risk analysis to tangible reductions in emissions, resource consumption and other negative impacts, to a consistently sustainable business model: transformation on this scale requires considerable additional capacities and expertise.
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In this field, they also assume responsibility in companies for a limited period to formulate realistic goals that are customer-centered and use manifold methods, and to translate them into efficient, innovative solutions. task force INTERIM EXECUTIVES and EXPERTS are effective in function-oriented or task-oriented positions and in overall control roles. Their cross-functional expertise lies in their broad implementation experience, which clearly sets them apart from traditional management consultants.
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Reorganize security of supply - if not now, when?
Material procurement can become a struggle for survival, especially in mechanical and plant engineering
Initial situation
Suddenly the supply of materials is massively slowing down
The problem is not really new, but it has rarely - or even never - been as pronounced as it was during the coronavirus crisis. Worldwide, delivery times for raw materials and primary material are lengthening and key components are no longer available. This is a development that was neither predicted nor planned for. Even the premature arrangement of alternative suppliers is of relatively little use here, as they are also exposed to the same situation. What is more, a company will not necessarily be at the top of alternative suppliers’ customer list.
It has to be said that companies do not currently have much leverage towards suppliers at the moment when it comes to their negotiating position for shorter or normal delivery times. And yet, as with the consideration about taking a BioNTech vaccine, "wait and endure" is the wrong strategy. It is crucial to be at the forefront when it comes to the supplier's "allocation" of the available materials or materials the supplier has received. But how can you do that?
Seek short-term solutions to problems
Contact the highest possible level within suppliers in the event of critical scheduling delays
A conversation between the supplier's field sales personnel and the purchasing administrator is usually not enough to resolve delivery issues. Communication at a higher or at the highest possible level is required in this case. And preferably face to face not via never-ending e-mail streams. As face-to-face meetings are not currently possible, video conferencing is the best way to discuss matters directly, not to mention the fact that it makes it easier to organize matters and saves time and money.
The following questions need to be addressed in a video conference, such as this, involving the administrators and management on both sides:
- What are the reasons for the delays?
- Does the supplier have supply problems with raw or primary materials?
- Are the supplier’s internal production capacities inadequate due to the coronavirus or are they order volume-related?
- What is the importance of the purchasing company to the supplier (prepare recent years’ sales levels for this)?
- What measures are or have been taken to meet delivery dates (again)?
- How can delayed open orders be brought forward?
- What technical or logistical alternative solutions are available?
Experience has shown that these conferences give the supplier and the supplier’s management team a much better appreciation of the customer’s company situation. The problems can be addressed by the company (emotionally as well), and reference can also be made to a good (long-standing) working relationship up to now. Experience has shown that the willingness on the part of the supplier (supplier’s management team) to develop solutions in a face-to-face meeting increases massively. It means that solutions can be discussed that were not previously on the agenda. This might involve the use of stock, preferred order handling, use of alternative products etc. If these online conferences at which the current status of the delivery capacity is discussed are even organized on specific days during a certain period, the chances of succeeding with an improved delivery continue to rise.
However, when focusing on solving current or short-term supply problems, it is also crucial to look into the near future. The situation on the world market will not return to normal within a few weeks.
Plan orders in the medium term
Order products with long lead times before releasing the complete bill of materials
Often Production Scheduling in manufacturing companies waits for the complete bill of materials to be completed by Design and released before triggering a purchase requisition to buy the goods. This can be too late even in "normal times". In addition, the delivery times listed in the system are not always up-to-date and can give rise to a somewhat risky laid-back attitude with regard to the required ordering time. However, priority processing in the Design department, the generation of a "preliminary bill of materials” and the resulting purchase requisition for the Purchasing department can save crucial time.
However, it is even better to include Purchasing in the project meetings even as early as the quotation phase for a customer order or at the latest when it comes to placement of an order. Purchasing can highlight long or extended delivery times for certain materials or primary products - so-called long lead time products - at an early stage, which may not yet even be listed in the system. Even if an order cannot (usually) be placed at such an early point in time, the supplier can at least be advised to reserve the relevant production capacity.
Secure the supply of recurring long lead time products with blanket orders or call-off orders
Call-offs by means of blanket orders are an option with recurring products with long lead times. Future annual demand can be estimated without taking a major risk of oversupply, depending on the demand figures from previous years and the planned sales figures. And even if too high an annual call-off volume has been agreed in the blanket agreement, this can generally be clarified with the supplier. It is also advantageous for suppliers to be able to plan in the long term.
Recognize delayed deliveries as a warning signal
Regular monitoring of all open orders and - possibly recurring - delays to deliveries is a prerequisite for recognizing potential supply problems at an early stage. It is not enough simply to enter changes to delivery schedules into the system. To a far greater extent, Purchasing needs to actively report these potential risks to the management so that measures can be put in place at an early stage.
Prioritize following up the delivery dates of "long lead time products”
Products with long lead times are generally non-standard products or drawing parts, for which alternative procurement is not simply possible. The use of simple tools can be used to call up particularly "critical" products and orders from the ERP system. This is about highlighting the delivery history relating to:
- Delivery date in the company's order
- Confirmed delivery date on the supplier’s order confirmation
- Documentation of (possibly multiple) delivery delays
But also:
- The latest possible date of receipt in Incoming Goods for handling in the company’s own Production/Assembly departments
- The company’s own delivery dates for customer orders and presentation of possible contractual penalties in the event of delay in delivery
Reorganize security of supply in the long term
Identify and evaluate supply risks
Analysis of all order items in the past years can highlight which product groups, products and, in particular, long lead time products are dependent on specific suppliers. A targeted start needs to be made to this. In addition to prioritizing the analysis (whether according to annual volumes or delivery times), it is important to list existing or known alternative suppliers for the top product groups.
As products groups are often recorded too generally in any procurement analysis, but products are too specific, it is often necessary to define additional product groups within the product groups and allocate procurement volumes to them. This improves the results of the analysis and also facilitates the subsequent sourcing of new suppliers.
Take seriously the supply risk with single source relationships
The supply risk with single source relationships is often underestimated. The failure of a supplier is not just painful for the purchasing company but can very quickly threaten its very existence. Short-term alternative procurement is not possible, or if it is, then also extremely expensive
Regular audits of "key suppliers" have to check technical, logistical or quality-related conditions as well as the supplier’s business development (sales, number of employees etc.) to counteract the failure of a single source of supply. The dependence of a supplier on a few customers can also be a risk factor. In addition to the information provided by the supplier, inquiries to independent credit-checking companies can also be cost-effective and extremely informative.
Be aware of price dependence in long-standing supplier relationships
A further result of procurement analysis can highlight the fact that high procurement volumes of certain key product(s) (groups) have been bought from a single supplier over many years – despite alternatives being available. Things always worked, the quality was OK and delivery times were met. So why take risks with a second supplier?
However, from a purchasing perspective, this means that annual negotiations with these suppliers are usually limited to their defense of price increases. There are no current comparative quotations. The mere presentation of better quotations in negotiations more often than not leads to price concessions of 5 – 10 percent, in some cases even more.
Identify technical dependencies in long-standing supplier relationships
Particularly when it comes to drawing parts, (regional) companies are often commissioned as sole suppliers for years on end. You know yourself, the quality is right, and the supplier knows exactly what to manufacture even without the latest technical details in the drawing (e.g. surface quality).
There is a lack of motivation to benchmark these product groups via new global tenders, particularly the qualification, auditing and creation of new suppliers. Purchasing often argues about the unquantifiable use of resources, as well as quality and supply risks. Design shuns the work involved to "complete" technical drawings and specifications for a Request For Quotation (RFQ) from new potential suppliers. Quality Assurance considers the increased inspection involved in Incoming Goods as not affordable.
However, experience has shown that considerable potential savings can be generated, say with the production of parts involving metalworking. As a rule of thumb, average manufacturing costs per kg by region are as follows:
- Germany: €7.00/kg
- Eastern Europe: €4.00/kg
- Asia: €3.00/kg
Strategically establish alternative suppliers
One of the most unpopular tasks in Purchasing is the identification, selection, qualification and creation of new suppliers. Nevertheless, the aim must be to establish alternative suppliers for procurement-critical parts and services where there is a (or at least some kind of) single source relationship with the suppliers, so that a "Plan B" is available when necessary.
The general procedure consists of the known steps:
- Identification of global potential suppliers for selected product groups
- Definition of the actual suitable suppliers via a request screening with inquiry about delivery capability and readiness, as well as the signing of a Non-Disclosure Agreement (NDA), if necessary
- The long list becomes a shortlist via qualified feedback
- Sending of a detailed inquiry to the suppliers from the shortlist
- Structured comparison of quotations (including consideration of freight costs, as goods are often quoted ex works (EXW))
- Initial negotiations with the best price providers
- Further limitation and selection of a suitable supplier
- Ordering of test products and checking of the quality and communication delivered in the supplier’s handling of the order
- Auditing of the supplier by internal teams or international service providers (especially in Asia)
- Onboarding of the new suppliers
Personnel resources in Purchasing are often inadequate to eliminate acute supply risks, or even strengthen the security of supply as a preventive measure. Unfortunately, these strategic and results-oriented projects often languish on the backburner. What is more, over and above their operational work, employees are often already working above capacity with cross-departmental projects (e.g. digitalization). A timely and effective solution can often only be realized through external support.
Conclusion
The current situation shows how important it is for companies to put their (primary) material supply on a sure footing. Reliable alternative suppliers must be found and tested for relevant articles and components. The path to appropriate fallback solutions is laborious, unpopular, yet unavoidable, to ensure uninterrupted value creation in one’s own company as far as possible.
In any case, the coronavirus situation should be viewed as an opportunity to scrutinize security of supply and optimize it from a strategic standpoint.
The following is therefore essential:
Reorganize security of supply - if not now, when?
The author:
Consultant, interim manager and author, partner of taskforce.
DDIM board member, certified project manager (PRINCE2 and CIM).
Optimization of procurement, supply chain and processes in mechanical engineering, plant engineering and manufacturing.
Tel: +49 8145 - 9966 40
Mail:
Web: www.taskforce.net
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Interim managers can essentially be used for all issues and functions
An interview with Joachim Kürten, Managing Director and Vice President Region Central of Albert Berner Group GmbH
Jo, you have had great success for over two years as Managing Director and Vice President Region Central at Albert Berner Deutschland GmbH. Prior to that, you were a partner and a valuable member of taskforce for many years. This means that you understand interim management from both the manager's and the client's point of view. In your experience, what are the key benefits of interim management for companies?
As a rule, Interim Managers are very well qualified and have knowledge and expertise that is often even broader than that of permanent managers in comparable positions, due to their multi-faceted assignments. Moreover, their fast and flexible availability speaks in favor of the deployment of Interim Managers to bridge vacancies and make up for skills or capacity shortfalls, generally after a very short induction period.
Which aspects make interim management so attractive to managers?
The exclusive responsibility to achieve the set objective and towards the client means that Interim Managers can act very freely and communicate equally openly and directly. The contracting companies also benefit from this independence, as they obtain unbiased and unfiltered assessments of their problems and about the measures needed.
What were the reasons behind you becoming an Interim Manager?
The diversity of work and precisely the independence to which you have just alluded.
As a client, for what issues would you bring Interim Managers into the company?
For which issues would I not do so? (laughs) Interim Managers can essentially be used for all issues and functions. However, mainly they are brought in for project work and to bridge vacancies.
Is the Albert Berner Group currently contracting Interim Managers?
Yes, several. Albert Berner Deutschland GmbH and the Berner Group are always happy to use Interim Managers with demonstrable results. For example, we currently have two managers deployed through taskforce.
Finally, what factors should clients and Interim Managers consider in a remit to effectively achieve their agreed goals?
The most important thing is to clearly formulate and document all objectives and expectations from the outset. In addition, continuous coordination needs to be agreed in the first four weeks. Targeted and open communication is particularly important especially during this getting-to-know-each-other phase.
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Supply chains are facing significant risks during the crisis
taskforce INTERIM EXECUTIVE Peter Fischer on the growing importance of strategic supply chain management for reliable delivery processes.
The pandemic is slowly coming to an end but many consequences will remain. In your view, how have the changes to supply and demand affected global supply chains?
The coronavirus pandemic has shown us how vulnerable our global supply chains are. The unexpected closure of borders and blockage of traffic routes can give rise to long transit times for goods, shortages of key parts and, as a result, high demand for storage, which in turn results in considerable costs. What is more, restrictions and lockdowns around the world have changed the availability of personnel. Suddenly, materials were harder to procure, and employees in the supply industry and the automotive supply industry, for example, were often only available for a limited time. Particularly in Europe but also elsewhere, supply chains are less aligned to national borders than to competences, resources and capacities. The accident involving the "Ever Given" container vessel in the Suez Canal showed us how susceptible our otherwise hardly noticeable global delivery routes actually are. The blocked canal was a symbolic example of the high risks in global trade, such as longer transit routes, rapidly rising transport costs, and increasing production downtimes.
At the same time, we are experiencing incredible changes in demand. Most observers thought that demand would decline because of the pandemic, but actually the opposite occurred. Important markets, such as China and the USA, have already bounced back and are generating significantly higher demand than expected. As a result, even simple materials have suddenly become scarce: natural products, like wood and leather, but also mass-produced electronic components, such as computer chips. In the past, chips have been treated almost like C-parts, because their purchase price is so low. However, now people have established that these mass-produced products are important key components. Many Chinese electronics manufacturers, such as Huawei, have begun to build up massive stocks, which is why these parts are no longer available to us as usual. It follows that, in future, we will also need to view C-parts very differently. As a result, supply chain management is increasingly becoming risk management. Whether pandemics, major accidents, natural disasters or political crises: it is important to plan as efficiently as possible and as redundantly as is necessary. Because we all need to be prepared for these disruptions occurring time and time again, and perhaps even more frequently.
Against this background, can we expect a trend towards deglobalization?
I do not think so, in principle, but we will see a shift. The industrialized nations will focus on bringing critical processes, in particular, which have been outsourced globally in the past, back into more controllable regional areas. This applies in particular to core and key technologies, such as the production of electronic components, pharmaceutical supply chains or automotive components. Depending on the risk profile, companies will try to rebuild or relocate certain key components in Europe in the next few years - and this has already begun.
But that does not mean that there will be deglobalization. The global economy will remain globally networked. Growth and wealth gains are largely based on this. There will merely be an attempt to bring the suppliers who are urgently needed a little closer to a company’s production networks. For example, with deliveries from here to China or South America, it means that suppliers must be encouraged to build additional supplier sites closer to OEM plants to shorten the supply chains. In this respect, things will become even more global, as providers and suppliers have to try to produce even more multinationally upstream of their customers' factories, or at least to maintain proper storage there.
What challenges will Interim Managers face in the SCM environment in future?
The challenges inevitably come from what I have alluded to above. Fundamentally, it is a matter of ensuring supply, that is, being able to supply global production structures locally. This also means that we have to think a little bit more about whether we can use alternative materials or technologies. Peugeot is a very topical example of this. As they currently have no more chips for their digital instruments, they are now once again installing analog speedometers into their 308 models and selling the cars €400 cheaper. But at least they are able to produce.
Across the board, we are currently pretty short in almost all sectors: metals, like copper, or even plastic granules. The challenge for Supply Chain Managers, as technology and change drivers, is to consider alternative options to strategically slow down the impending bottlenecks, and steer the company towards resilient delivery processes.
What can INTERIM EXECUTIVES do to help?
The main advantage of an experienced Interim Executive over experts who otherwise work in a company is that they are familiar with many different industries, understand the networks well, and have an overview of the different technologies. This makes the Interim Executive the innovation driver for the supply chain, which is usually only operated as a pure procurement or logistics structure. The Interim Executive sets the stage for designing products from product development to delivery in such a way that the company is equipped to withstand crises and can still continue to produce. This is essentially preceded by the establishment of a massive strategic risk management system to anticipate alternative solutions and options for action for different requirements and scenarios.
Have you already experienced this or did this come about through the pandemic?
There have always been certain wave movements with all materials. We are constantly seeing fluctuations in supply and demand. At the moment, markets like Asia have suddenly bounced back. The consumer backlog, for example in the automotive sector or in the fast-moving consumer goods sector, has skyrocketed. But if everyone wants to access the same material at the same time to secure their supply chains, this quickly gives rise to a boosting effect in which shortages, price increases and further growing demand continue to rocket. However, this can be changed by not just focusing on securing favorable purchasing prices, but on ensuring real security of supply, for instance by agreeing volume contracts and encouraging suppliers to build up and reserve the relevant storage capacities.
What about make-or-buy decisions?
I would make a differentiation here. The traditional "make" approach where I make everything myself will no longer exist. Rather, new alliances will emerge. A fine example of this is Porsche, which is currently building a new plant in Saxony for its battery supply. They are not producing them themselves. They simply generate the impetus and then look for someone to do it for them. This means not doing it yourself, but locating supply in a local environment close to production to establish the necessary security of supply for the core components. Of course, this cannot be done with all elements for reasons of cost and capacity. But the elements that are crucial for the product, that is, the critical components, need to be brought closer. This is done by establishing appropriate cooperation partnerships that will provide the company with reliability of supply in times of crisis.
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