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08/31/2012

Reducing the Risk of Delivery Failures

Strategic Supplier Management Minimizes Risks

After the economic crisis and more particularly after the natural disaster in Japan, it is evident that supply chain risk management is indispensable to prevent supply bottlenecks or even complete delivery failures. Aside from such natural disasters, other risks increasingly play a role – such as currency fluctuations, bottlenecks in commodities and raw materials, political instabilities and oligopoly developments. To guarantee the security of supply, it is recommended to use instruments such as scenario planning and alternative suppliers. Furthermore, it is important to have reliable partners in such situations.

Closely connected partners know the strengths and weaknesses of the respectively other partner and are able to counteract in critical situations. After the crisis, Bilfinger Berger had briefly faced major challenges: Production capacities previously reduced with suppliers and subcontractors could not be built up again fast enough, partly resulting in delivery bottlenecks. Especially due to its strategic partner management, Bilfinger Berger was able to counteract with its suppliers and thus prevent procurement-induced production failures.

What had been previously done and what thus formed the underlying basis for the strategic partner management was a complete realignment of the multi-service group's purchasing area. In an excellence program, the existing purchasing network was expanded between the central purchasing division and the purchasing organizations of the operative units, and their processes were systematized. Central steering body of group-wide activities now is a purchasing board which includes – in addition to the chief financial officer – the heads of purchasing of the operative units and the management of the central purchasing division.

Core of the purchasing realignment at Bilfinger Berger was, inter alia, the introduction of a group-wide supplier management. Focus of the attention was a specifically targeted supplier selection and supplier evaluation which were established for the entire group according to uniform criteria in a joint project with the consultancy Kerkhoff Consulting specializing in purchasing and supply chain management. Prior to the project, Bilfinger Berger had a very heterogeneous IT structure, and different IT solutions were applied for their supplier management. Within the scope of the project, Kerkhoff Consulting provided support with the introduction of new integrated IT solutions for a standardization of the supplier management in the group. This tool renders it possible to obtain transparency about suppliers with the objective of selecting them more efficiently, uncovering (compliance) risks early and, finally, increasing the general performance capability in purchasing.

Efficient supplier selection requires intensive internal and external data exchanges. This is rendered possible by a new supplier portal with a registration function for all potential suppliers supplemented by detailed supplier-provided information. The beginning of the project was marked by establishing group-wide uniform criteria for the selection of suppliers.

In addition to the standardized supplier selection, a next step introduced a group-standardized supplier evaluation system. Its advantage is that not only suppliers can be compared with each other but a supplier's weak points in performance can also be detected and jointly remedied; also, the supplier will be supported and developed – in partnership collaboration which is target-oriented for both parties.

Two concrete examples:
For a longer period of time already, Bilfinger Berger has been collaborating with a large construction material dealer. The supplier evaluation clearly showed that the company's delivery times had optimization potentials at various locations. Purchasing thus specifically talked about it with the supplier and organized a meeting with sales. It was only due to the newly developed transparency that this weak point could be detected and jointly eliminated.

Another supplier from the energy sector showed weaknesses in quality on the occasion of the supplier evaluation. Here as well, due to the new cross-transparency, purchasing provided the impulse for talks between the supplier and an internal stakeholder. This new partnership quality significantly improved the collaboration between Bilfinger Berger and its suppliers.

As of today, the majority of suppliers have already been evaluated and made transparent at Bilfinger Berger. Its supplier management is to be significantly expanded yet to strengthen cooperations and minimize risks. Because due to the support by Bilfinger Berger, suppliers are able to develop further, increase their capabilities and thus develop long-term supplier relations. Bilfinger Berger's purchasing also profits from the supplier's increased performance capabilities – for example, by more efficient processes even in case of supply bottlenecks, and also by cost benefits. The group-wide newly established supplier management thus is a vital component in the group's purchasing strategy – to take advantage of chances in collaboration with the partners or to detect and minimize risks in good time.

Dr. Egbert Hubmann, Michael Stietz