Competition in the supply chain: Solution-oriented purchasing
Author: Thomas Wandler, Managing Director of Kloepfel Consulting Austria
Today, it is no longer individual companies that are competing with each other, but rather their supply chains. Those with the most innovative and agile supply chains will be better able to manage their supply bottlenecks and stay ahead in their markets. However, to achieve this, companies must trust their key suppliers much more and no longer view them merely as obedient procurement sources. A rethink is required.
Despite supply bottlenecks and price explosions, the German economy is still doing well. The IHS Markit/BME Purchasing Managers’ Index (EMI) rose for the second time in a row in July 2021. However, buyers, entrepreneurs and associations are skeptical about the future. Supply bottlenecks and the coronavirus pandemic could pose a massive threat to the economy. So far, hardly anyone has experienced such massive challenges in terms of price increases and material availability. This makes it even more important for buyers and entrepreneurs to radically change their attitude towards suppliers and work with them in a completely new way. The solution is: break out of the corset of specifications!
Solution-oriented purchasing
Twenty years ago, we had much more flexibility in the supply chain than we do today. I do not want to pay homage to the old days, because purchasing has developed massively and become much more important. But back then, technicians talked to their suppliers more about functionalities than about specific products. And this is precisely the solution to supply bottlenecks, price explosions and competitive supply chains.
When we look at why we don’t get electronic assemblies today, the problem starts with the unnecessary corset of specifications. Purchasing and technology limit all the raw materials to be procured with manufacturer names, article designations and many other characteristics. This means that there is little or no room for maneuver and the purchasing department loses its competitiveness.
Purchasing companies have now worked their way so far into their supply chain that they specify exactly which product is to be purchased from which supplier and under which conditions. This sounds sensible at first and was justified for a long time. After all, customers want to reduce their maintenance and storage costs, for example. The corset of specifications may have made sense in the past, but today it restricts purchasing too much and deprives the company of opportunities to avoid supply bottlenecks or drive innovation.
Examples
Take an assembled electronic module as an example. Here, the basic material supplier for the printed circuit boards is already negotiated by the end customer. No second supplier is approved! Of course, all components (resistors, capacitors, etc.) are not described by their function, but are specified exactly by manufacturer, article number and name. How is a supplier supposed to ensure that he is always able to deliver?
There are many examples of this. Let’s take a mechanical engineering company that is prescribed many components by its customer. However, if we consider that an important supplier sells its components to the machine manufacturer at a lower price because it has ensured that the subsequent end customer only specifies its components, then we are caught in the same trap. The end customer does not get a machine because the supplier cannot supply the prescribed component.
Trust suppliers more
There is a lot to talk about making your suppliers your partners, but only as long as they obey! Unfortunately, almost no company today trusts its partners and their know-how. With this important trust, however, we could describe the functionalities that we purchase and would not have to specify and draw every single product down to the last decimal point.
We have now arrived in the 21st century and should use the latest digital tools and opportunities to bring more flexibility back into our supply chains. But the massive shortage of technicians will also force us to rethink. I therefore hope that we don’t get too stuck in these old “thought patterns”.
Conclusion:
Trust your partners in the supply chain and let each company do precisely what it does better than your own.
Schedule a meeting with us if you have any questions on the topic.
Contact:
Kloepfel Group
Christopher Willson
Tel.: 0211 941 984 33 | Mail: rendite@kloepfel-consulting.com