Interview with Michael Ulverich, COO Koenig & Bauer.
Dipl.-Ing. Michael Ulverich, COO of the Würzburg-based printing press manufacturer Koenig & Bauer, is an expert in corporate transformations. In an interview with Kloepfel Magazine, he provides insights on the role of purchasing in transformation processes, the cooperation with Kloepfel Consulting and his assessment of the crisis as an opportunity. The interview was conducted by Kloepfel senior partner Alexander Hornikel.
Mr. Ulverich, how do you assess the current situation of manufacturing companies in Germany?
You must look at the situation at least in two parts: On the one hand, there are manufacturing companies whose order situation has not yet rebounded and who are additionally struggling with the supply chain situation caused by Covid-19.
On the other hand, there are companies, including Koenig & Bauer, that are currently seeing enormous catch-up effects in some areas. In our case, this is the packaging market, especially for food, beverages, pharmaceuticals and cosmetics – but also the whole consumer durables sector. It is growing, and it’s also growing, particularly in the Covid 19 situation, in a wide variety of areas. For example, the corrugated cardboard shipping box with the ingredients for “do-it-yourself cooking” is replacing a visit to a restaurant, to put it exaggeratedly. The bottom line is that things are going well for us right now – “We are on track” and I also see great hope for the German economy. However, the problems in the supply chains already mentioned at the beginning are emerging as an after-effect or late effect of the crisis.
What approaches to solutions has Koenig & Bauer found for itself?
Right at the beginning of the Covid 19 situation, we thought in terms of a wide variety of scenarios and ultimately opted for the most pessimistic: the “Prolonged Lockdown” scenario, which assumed two lockdowns. At that point, no one could have imagined a third. But we were well blessed with that in the first service, because we correctly assumed a longer-term problem. Our conclusion was that we should use all available resources to improve in the manufacturing cost optimization area. Instead, we deliberately directed our focus to working on our suppliers and pricing.
To this end, we immediately started a project with Kloepfel Consulting to take advantage of the negotiating opportunities of a solvent customer in difficult times: We were able to offer reliability to interesting suppliers in exchange for good, long-term pricing terms. In other words, last summer we made deals until the end of this year. This was exactly the right thing to do, particularly in view of the sharp rise in raw material costs now being experienced, because the price base fixings give us a certain degree of security. This in turn allows us to “ride it out” under the current heat wave.
What advice would you give to other companies in a similar situation?
I like to compare it to a drive system: when the engine comes to a total stop one time, it has the highest consumption the moment it starts up again – the engine heats up, in places it can overheat. But once everything is running again, it cools down to a regular level. Similarly, the global economy is now ramping up after a severe slowdown – there are jerks and squeaks at first! Then add to this event such as the blockade of the Suez Canal, which has caused an early-starting Chinese economy to siphon off sources of raw materials from around the world, driving up prices.
In the end, however, the law of conservation of mass will apply here as well: Mass does not just disappear, nor does it add. There is a certain base on which the world economy runs. Once everything is on the move again after the current initial frenzy, demand, supply and thus the price situation will level out again. The task now is to keep calm in a phase of high liquidity in the market. For those companies that positioned themselves early so that they too now have the breathing room to “dive under the heat wave,” I would advise them to do just that.
How was Kloepfel Consulting able to help you find and implement a solution?
Kloepfel Consulting did an excellent job overall in two phases. The first involved combing through the supplier network to see: Where do we stand contractually, what does the benchmarking say internally in terms of value-added structure and externally in purchasing? In purchasing, we then took our approach of seeing the crisis as an opportunity and achieving fixed contracts for as long as possible – around 18 months – which secure favorable conditions. In the second phase, the right supplier strategy was defined, based on the size and capability of the suppliers under consideration. We looked at which machines would produce the parts best, instead of placing five more parts sight unseen with suppliers who had originally been found in a tender for a completely different range of parts.
Sourcing regions were also identified that Koenig & Bauer had not yet tapped into – for example, Turkey and some regions in China were particularly interesting for our procurement. Here, Kloepfel Consulting also directed our attention to taking advantage of the Silk Road in the future. It was also nice that there was learning from each other: Not only Kloepfel was able to provide us with new, enriching connections, but we were also able to provide contacts for network expansion. So it was a two-way participation.
What importance do you attach to purchasing in transformation processes?
Purchasing is, so to speak, the financier of transformation processes! After all, it is here that monetarily effective savings can be implemented the fastest, which do not conflict with any other department. Here, an impact can be achieved early in the company when it comes to increasing earnings. Of course, the next port of call would then be production. Here, however, it is a question of a change in mindset and culture, whereas, to put it simply, transformations in purchasing are primarily contract heavy.
How do the organizational structure and process organization shape up during transformations?
My approach is: to go into a project organization with the moment a transformation is started, instead of starting with an organizational structure. This way, acceptance of change is much higher and sponsorship runs more efficiently because the first question asked by the individual is not: “What does this mean for me and my box?” The focus is then on the first successes, for example in purchasing.
In this way, you involve the stakeholders in the project and then implement the findings bit by bit in an organizational structure that emerges naturally, so to speak, and is also accepted because it recognizably works.
I don’t want to hide the fact that a successful transformation always involves a certain amount of good fortune – it has happened in history that the strategically best generals were recalled from the field because they lacked the necessary amount of luck.
What is the significance of the Corona pandemic for companies in terms of innovation?
I think Covid-19 is a burning glass that shows where companies have been willing to make lazy compromises so far, if they were still making positive margins, albeit small ones. In my opinion, German companies clearly have the power to innovate, but they often lack the will to implement it. Here, the crisis was a driver: Where previously the figures were still right, there were now slumps in entire areas and action is being taken out of necessity. Here again, the difference between those companies that already recognized this last year and those that are still resisting even now becomes apparent – for the former, a quick return to the road to success is possible, for all others, it can still come to a very hard awakening.
However, I am inclined to take a positive view of the situation overall: the crisis has driven the market, flooded with liquidity notwithstanding, into a state we would normally see in a prolonged recession, and thus probably also triggered a shakeout that will drive process improvements and thus reveal new opportunities for recovery. You could also say that a shakeout cycle has been started from which the economy will ultimately emerge stronger. From my point of view, the glass is clearly half full if you use the crisis as an opportunity.
Mr. Ulverich, thank you for talking to us.
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