By Martin Kotula
Incoming orders are on the rise again and cause considerable problems in terms of the security of supply. One of the reasons for these allocation problems is the fact that production capacities had been significantly reduced during the economic crisis. Inventories had to be reduced at the same time. Many companies are now facing the problem of again having to build up production capacities just as fast. There are partly supply bottlenecks especially affecting those companies without any implemented risk management. Even just one missing part can bring production to a standstill. The company will then be unable to meet delivery dates, its reputation will be affected, and customers will cancel their orders.
If the company has to rely on a substitute supplier, it frequently must accept higher prices. To be able to anticipate and intercept supply bottlenecks early on, the purchasing department must take over the risk management. This includes the implementation of early warning indicators, emergency plans, as well as a strategic supplier management. Businesses all too often neglected these instruments until now. This is documented in a joint study by the Kerkhoff Competence Center of Supply Chain Management and the Institut für Demoskopie Allensbach (Institute for Public Opinion Polls and Research in Allensbach): Altogether 57% of the companies interviewed expressly admit that they do not use such instruments in their purchasing department. Only 12% of them are using risk management in the narrower sense.
To be able to detect any supply bottleneck early on, plannability must be increased. This includes the continuous observation of procurement markets through several channels. For example, via online databases, trade journals and associations, but also by visiting trade conventions or trade fairs. Such observations can ensure, over the long run, the company's optimum supply – for instance by expanding the procurement radius and developing new sources. At the same time, it's vital to evaluate during an allocation crisis whether there is any adequate substitute for the product concerned.
If a supply bottleneck has already occurred, companies must have emergency plans to be able to counteract. In case of an allocation crisis, the purchasing department must switch over very fast and increasingly implement operative activities so that the security of supply will be ensured. This includes regular phone conversations with suppliers, the adjustment of delivery schedules, the search for alternatives, as well as price negotiations. In urgent cases, the buyer must also check the spot market to obtain goods at short notice and at a corresponding surcharge. It is indispensable to commercially weigh carefully the additional costs against the costs of loss of production.
The greatest influencing factor to be able to avert supply bottlenecks is the strategic supplier management. Usually, the most important product groups and suppliers are those which would be able to bring the entire production to a standstill in case of supply bottlenecks.
This especially includes components which can only be obtained from one supplier or from only few suppliers. It is essential to enter into strategic partnerships with these suppliers. For instance, involving suppliers in research and development will not only bring about special products. Closely connected partners know the strengths and weaknesses of the respectively other partner and will be better able to counteract in critical situations. Moreover, suppliers with close ties to the company will be interested – due to strategic advantages – in continuing to supply their partner without long delivery periods. Because some suppliers set up their production schedules according to turnover and profit contributions. And that's why it's possible – especially with specific parts – that a larger order will be dealt with first. It's principally recommended to rely on several suppliers per product group (multi-sourcing strategy). Thus, the company will be able to fall back on another supplier in case of any possible supply failures.
This will also become ever more important in view of the increasing number of supplier oligopolies which the majority of companies consider a major challenge for the future. In times of increasing order numbers, supply bottlenecks will remain a problem. Manufacturers and distributors will continue to act cautiously. They assume that there are still significant theoretical demand volumes on the market and that surprise orders may continue to come in. For the next few years, security of supply will continue to be one of the greatest challenges for many purchasing executives. |
