In March, telephone interviews were conducted for the study, with 104 persons responsible for purchasing at German furniture manufacturers having either a workforce of more than 250 employees or more than € 10 million annual sales. The study "Strategic Challenges for Purchasing in the Furniture Industry in Germany" was conducted on behalf of Kerkhoff Consulting, Düsseldorf – in cooperation with MÖBELMARKT as the exclusive media partner – by the Institut für Demoskopie Allensbach jointly with the chair for logistics management at the University of St. Gallen (LOG-HSG). Of those interviewed, 80% were heads of their purchasing department, the remaining percentage was made up of owners, board members, managing directors or executive personnel with responsibility for purchasing.
New challenges
According to evaluations by the 104 persons with purchasing responsibility, framework conditions for procurement in the German furniture industry will change in many areas in the next decade. In terms of the procurement markets, many of those interviewed expect significantly increasing costs for energy, transport and logistics and developing oligopolies among their suppliers. Moreover, they are expecting more difficult framework conditions on sales markets: Many of them believe that the end customers' demands will become ever more individualized; they will attach ever greater importance to fast delivery, and the manufacture of furniture under sustainable aspects will become ever more important. Also, they expect increasing price pressures from the furniture trading sector, and many assume that more restrictive credit conditions will render procurement more difficult.
Dr. Erik Hofmann, Deputy Director of the LOG-HSG and Project Manager of the Kerkhoff Competence Center of Supply Chain Management (KCC), emphasizes this placement of cost topics in the top ranks. According to him, the basic relevance of the topics has been identified by those interviewed; yet, the importance for their own company would still be underestimated. This difference would be particularly evident with regard to sustainability (company: 38%; industrial sector: 64%) and restrictive credit awards (company: 27%; industrial sector: 62%). If the challenges were considered without providing options for answers, those interviewed would fail to mention restrictive credit awards which would indicate that those responsible for purchasing are lacking awareness for financial aspects.
Increase in global sourcing
Also, the globalization of purchasing on international markets seems to be a low volatility aspect since those interviewed think that it is considerably more urgent for the industrial sector as a whole than for their own company. Currently, Germany is dominant as the procurement region, followed by Asia. Global sourcing is expected to gain in importance in the future. In this respect, 60% of the buyers expect Asia to further increase in importance, whereas 41% think it will be Turkey; 36% expect this to be the case for individual eastern European countries and 14% for India. Currently, 75% of the larger German manufacturers buy their goods or raw materials from Asia, 31% from Turkey. On average, 12% of the purchasing volume is handled with Asia, 1% with Turkey and 65% within Germany.
Inevitable changes
Nearly all buyers – 96% – indicate that they have realized the need for change in their own department; 14% thereof think that radical changes are necessary. However, especially large companies with annual sales of more than € 50 million see the need for radical changes (29%), whereas this is considered to be less relevant (8%) with medium-sized companies. According to Hofmann, this might be indicative for a lower degree of professionalism of the purchasing department in medium-sized companies. Currently, 24% of the larger furniture manufacturers are not taking any measures in purchasing to get ready for future challenges, nor do they have any concrete plans in this respect. In contrast, 53% have already taken such measures; 19% thereof have concrete plans for further measures. And 23% are not yet carrying out any measures but have at least concrete plans. Among large companies, the percentage without either measures or even concrete plans is smaller, at 12%, than with medium-sized companies at 29%.
Purchasing still underdeveloped
To ensure the viability of purchasing in the future, it is highly significant that purchasing will be involved much more in product development and production: 90% of the purchasing managers consider this to be important. Other measures as well are deemed to be important: Streamlining material groups in companies; also, that every area has key suppliers; and better qualifications for employees. Improving the forecasting precision in purchasing through the use of computer-assisted planning programs is considered to be of comparatively lower importance.
According to Hofmann, the findings about the actually used instruments and measures show deficits in some areas; least, however, in the qualification of employees. In dealing with suppliers, 56% of those responsible for purchasing rely on strategic partnerships. Of those interviewed, 51% each carry out systematic supplier controls or, respectively, use standardized evaluations. Of the larger manufacturers, 26% provide a direct link of suppliers to their own EDP system. About every eighth does not use any of these instruments. "In terms of the implementation or, respectively, the importance of measures used, primarily company-centered measures rank on top, aside from establishing key suppliers", sums up Hofmann. In contrast, cross-company measures are considered only to a limited extent – such as tying in suppliers through EDP solutions or cooperations in purchasing and in transport and logistics. This strong internal orientation of the purchasing department would indicate that the furniture industry is still in the first development stage of supply management. In the second stage of the development process, interface topics would be viewed across companies which would result, in the last stage, in an extensive inter-organizational alignment of the supply management.
Seriously neglected quality
Of the 104 heads of purchasing, 43% indicated that – apart from brief incoming goods controls regarding quantity and quality – no further measures were taken for quality assurance in procurement. One of them even said that the consumer were their inspector. At the same time, 19% generally referred, not very concretely, to "quality controls" or "systematic controls". Supplier audits or, respectively, visits are carried out by 15%; supplier evaluations or, respectively, monitoring by 7%; random sample checks by 6%; production-attendant quality controls by 4%. Also, 4% obtain comparisons or, respectively, do test manufacturing, and another 4% make sure there are certificates and proofs of quality. A mere 6% of the companies have installed a systematic quality management.
"Although the German furniture industry produces rather high-quality and technically sophisticate products, quality management does not seem to enjoy the required high standing with buyers", Hofmann sums up. Thus, most of them do not take any additional measures aside from the incoming goods inspection. "Apparently, it is still unknown in parts that there is a relationship between the point in time of quality measures and the quality costs", he states. Because the general assumption would be that quality costs increase in every step of production by a factor of ten.
Unused cost potential
To achieve their cost objectives in procurement, 78% of the larger furniture manufacturers regularly renegotiate existing contracts with their suppliers; 69% make value and inventory analyses for optimization. Only 42% use the instrument of directly laying down cost reduction targets for their suppliers. In procurement, 12% of the larger furniture manufacturers cooperate "very closely" with other companies; 11% "closely" and 18% "less closely". In terms of transport and logistics, cooperations are less widespread: Here, 4% cooperate "very closely", 9% "closely" and 21% "less closely" with other businesses. However, for the future, 45% of those responsible for purchasing expect that cooperations in procurement will increase in importance "significantly" (11%) or at least "somewhat"(34%). In contrast, 53% expect no change in importance.
"Despite an existing problem awareness, companies hesitate to initiate measures for the future", comments Hofmann. Although future challenges would frequently be realized, only few would initiate adequate measures to do something about it. Thus, fluctuating raw materials prices were registered as a major challenge, yet more than half take no measures for risk control. The case is similar for cooperations, according to Hofmann. "Actually, most of them consider price pressure, rising energy prices, as well as transport and logistics costs as a challenge; yet there are only few to use close cooperations in procurement or transport and logistics. High potentials for cost reductions go unused in these areas", says the expert. Also, 97% would realize how important further training is, but 30% of the companies would offer no opportunities in this respect.
Often no fixed strategy
Another problem would be purchase beyond standardized procurement channels, without involving the purchasing department: Such "maverick buying" is practiced in 41% of the companies. For Hofmann, this high percentage seems to be the result of a frequently lacking purchasing strategy formulated in writing. That could lay down binding provisions not to place any orders without having first obtained a signature from purchasing. Additional measures to reduce "maverick buying" would be to establish standardized, leaner and faster procurement processes, or also directly handling any offenders.
Generally, those responsible for purchasing would not have enough resources available for mastering the challenges. More than half of them accordingly indicated not to have enough time for mastering future challenges. Also, the budget provided for it was considered "inadequate" by two-thirds. But it seems that companies realized the necessity to adjust the budget to the increased challenges. Of those interviewed, 95% think that the purchasing department has "great" or "extremely great" importance within the company. Nonetheless, 46% expect purchasing to still increase further in importance.
According to Hofmann's assessment, these statements are partly in contradiction to those concerning their time and resources situation. "It seems that there is a discrepancy between the buyers' own and outside perceptions", he speculates.
Large companies are somewhat more professional
There are different perceptions of some challenges among large and medium-sized companies. Thus, cost increases are rather considered a challenge by medium-sized companies; whereas large players consider the following to be more relevant: fluctuating raw material prices; suppliers forming oligopolies; security of supplies. Medium-sized companies accordingly see primarily cost aspects in their focus of attention; large companies will additionally see the significance of more complex risks. Basically, large operations in the furniture industry thus seem to be better prepared for future challenges than medium-sized companies. This finding is supported by the fact that many measures – such as further training, quality and risk management, or a purchasing strategy formulated in writing – are used to a much higher degree by large companies. Yet, only 57% of the larger manufacturers have a purchasing strategy fixed in writing; 42% admit that this is not the case in their company.
Kerkhoff Consulting, with headquarters in Düsseldorf, provides consultancy predominantly for medium-sized companies of various industrial sectors regarding all issues in the optimization of their supplier relations and their purchasing organization. In the furniture industry, Kerkhoff already provided consulting services, among others, for SieMatic, Nobilia, Svoboda and Hettich. |
