Against price increases and shortages!
- 1. Tip: Tap alternative suppliers
- 2. Tip: Use weaker phases for optimization
- 3. Tip: Maintain supplier relationships systematically
- 4. Tip: Probe hidden overcapacities in the market
- 5. Tip: Global sourcing is not equal to China sourcing
- 6. Tip: Competitive advantage through standardization
- 7. Tip: Use networks of associations and purchasing consultants
In times of raw shortages sourcing is the number 1 topic for many buyers. While some suppliers can hardly save themselves from orders, others have lost reliable customers as a result of the crisis. Kloepfel partner and sourcing expert Thanh Duy Tran reveals how buyers can safely navigate the allocating market and whether it is worth changing suppliers now, with 7 sourcing tips.
1. Tip: Tapping Alternative Suppliers
Companies have responded to the crisis with different strategies, of course, this also affects OEMs and suppliers of our customers. Those suppliers who were able to maintain capacity and did so are now having less difficulty resuming operations. But those that cut capacity, laid off employees, etc., are now having trouble ramping up production. Those who cut 100 jobs during the crisis, but now cannot save themselves from orders – probably don’t have enough people at their machines now.
Since we are currently operating in an allocating market, suppliers are allocating their resources primarily to regular customers and delivery times are being delayed. Especially in the raw materials and electronics sector, we are noticing a huge price increase. Here, suppliers have a strong demand and our customers also actively ask us if we can source plastics and other materials for them.
In these areas, therefore, security of supply is the main priority in the current market situation. If you belong to the selected circle of those who continue to be reliably served by their supplier, it would not be advisable to switch. What is worthwhile, however, is to consider tapping an additional supplier as part of cost and risk management. In addition, bottlenecks are often caused by upstream suppliers. In these cases, the supplier can also be approached to open alternative sources of supply.
2. Tip: Use weaker phases for optimization
Past crises have shown: Those that did not immediately cut jobs but invested the time in training and optimization are more resilient and have better growth opportunities. As an outsider, that is easy to say, and afterwards you’re always smarter, but one thing is certain: it pays off to keep a steady hand.
After all, “free machine hours” are best used for vulnerable maintenance work and optimization. In good times, it is not desirable to shut down the machines 24/7 for the necessary time. After all, that would shut down fundamentally functioning production. However, if there is a period of rest due to the crisis anyway, the time can be used to optimize production. This will allow the machines to reach their full potential after the crisis and deliver the optimum output quantity instead of the previous one. Processes and communication with suppliers can also be improved in quieter times.
3. Tip: Maintain supplier relationships systematically
Buyers should take a cue from sales on how to maintain good relationships. Especially in seller’s markets, this is very important to be supplied at competitive prices. That is where proactive supplier management with relationship building is needed. After all, it remains an interpersonal business among people! If you have formed a bond with someone, like them and trust them, you are also more likely to make concessions.
So, to be a good buyer, it pays off to have a network of alternative suppliers to ask in a situation like now. The more sources you have created before the crisis, the more you can “go shake trees” now.
Buyers and commodity group managers who regularly put commodity groups out to tender can check, for example: Who were the best five in each of the last tenders? And then make inquiries there. The fact that they have already been in contact may open the door a little wider in difficult times. This example also shows that it is worthwhile not to unnecessarily tear down bridges to tender participants and former suppliers once they are not needed. After all, who knows when they will be needed again.
4. Tip: Probe hidden overcapacities on the market
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Kloepfel Consulting naturally has its own extremely well-maintained network, which we also use on behalf of our clients. Otherwise, it helps buyers check which companies are currently doing badly, because their suppliers may just have unrecognized overcapacity. That is why it’s also worth making broad inquiries. In addition, there are still some international inventories that one would not expect, but which can be tracked down through digital global sourcing. Herewe offer our help to medium-sized companies, too.
Even if individual industries are not comparable with each other, they can sometimes use the same suppliers. For example, although the automotive and mechanical engineering sectors have different characteristics, they can sometimes use the same suppliers. Some suppliers, for example, not only supply automotive series customers, but primarily special vehicle construction or even special machine construction. When the automotive crisis hit Germany and Europe in 2009, it was possible to target and build up these suppliers, as they are keen to allocate their overcapacities elsewhere (and often in a strategically sustainable way).
In addition, it is worthwhile to look beyond national and market borders. After all, although we live in a globalizing market, not every industry develops in the same way in every market. Accordingly, suppliers in Italy, France and Spain, where the economy has not yet recovered evenly, sometimes still have undiscovered capacities.
5. Tip: Global sourcing is not the same as China sourcing
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In the 1990s, global sourcing was a huge issue in China. There was a huge hype around the “workbench of the world”. However, other markets that are very important for Europe have always played a role, namely Southern and Eastern Europe and Turkey. In addition, the costs of trade with China have risen in the meantime. Wages have developed and the expense for supplier management is still considerable. In addition, the expenses for shipping, customs duties, packaging, on-site visits, etc. are high. Unfortunately, these additional costs are all too often forgotten in the calculation. However, a total cost of ownership (TCO) analysis clearly shows that it can sometimes be more expensive to source from China than from Germany! China has not been a best-cost country for a long time.
For this reason, some companies even prefer to source in Germany again, but of course this does not offer the favorable wage conditions of Turkey or Eastern Europe. These offer proximity and good or easier communication – if necessary, you can be on site quickly instead of sitting on a plane to Asia for eleven to twelve hours. The smaller time difference also plays a role because you can coordinate better. As part of a best-cost country sourcing strategy, Turkey and Eastern Europe, but also Southern Europe, are very interesting, especially for SMEs.
Another aspect that should not be neglected is targeted, technical sourcing. After all, suppliers with suitable machinery that exactly matches the parts to be procured beat even the savings from low labor costs in terms of productivity and cost efficiency.
6. Tip: Competitive advantage through standardization or simplification
Every machine builder is reluctant to outsource competition relevant USP parts, which is understandable. Even with complex drawings, it can be daunting for machine and plant manufacturers to set up suppliers at a distance – for example, for time and capacity reasons. Thus, “simple” products have always been preferred to be produced abroad.
Therefore, it is advisable to steadily simplify non-USP products that do not require core know-how and to use already available “out of the shelf” components. If one carries out such product and process optimization through standardization or simplification (without special products) and then produces in best-cost countries, this is an enormous competitive advantage. Especially when the use of special products is not even necessary and standard solutions have been available in the market for a long time.
7. Tip: Use networks of associations and purchasing consultants
In many areas, there are associations and federations that have excellent exchange opportunities of experience and supply sources. Be it industry associations or even dedicated purchasing interest groups.
Likewise, Kloepfel Consulting helps its clients strategically and operationally. We bring a great deal of know-how to the strategic alignment of purchasing and can structure and accompany transformation and alignment processes here. Operationally, we help through our excellent supplier network and our sourcing expertise.
Our overview results not least from the fact that we regularly screen the market. In addition, we are close to current market events in (almost) all areas, as we serve 70 to 100 new customers per year and conduct 300 to 1,000 inquiries.
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