Purchasing & Logistics – Need to work together / Can they work together?

bg-img1How do you prioritise between day to day business and strategic issues?

Both logistics and purchasing have two sides of the business, operation and strategic concerns. However it seems too often that logistics gets the hand over purchasing if it comes to day-to-day business. Why is that? Logistics and with that warehousing are much closer to the production in the supply chain than purchasing. Issues arrive at a last minute and it takes too often all the energy of the operations to keep the production running. This is the time no one cares about strategy as priority number one is logistics and the further delivery to the end customer.

If these roles are combined or interfere at a very early level in the hierarchy you will always see that the responsible staff has to make a trade-off which is in most cases in favour of logistics (material management).

Thus what needs to happen:

- Purchasing & logistics roles need to be separated and shouldn’t be combined.

- Purchasing should not report into an operational function which is more concerned about the finished products and the production procedures.

- Purchasing needs a representative at board level to support the interest of purchasing and to achieve the highest value for the company.

This doesn’t mean these functions are strongly interlinked but they need to have a separation to act independent while making decisions.

You should start today to have a look at your logistics and purchasing departments and decide if they work in the proper way side by side!

Klaus Weghaus

Director

Rhenus Consulting

Klaus Weghaus is an experienced professional who has gained knowledge in international project management and purchasing. He served more than nine years within a big OEM of the automotive industry having various positions within Product Development and Purchasing. Klaus oversees the creative direction at Rhenus Consulting as well as business development. As a marathon runner he will ensure that he does a marathon for you if this is required.
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Outlook for Procurement Outsourcing

graficoAsking another business or individual for help is always a big step. The natural instinct leads us to believe that we can solve everything on our own and we know best how our business should run. Nevertheless it is proven that another pair of eyes helps to look for a needle in a haystack. More and more businesses rely on other businesses to deliver their services and products.

Thus it is not surprising that procurement is a subject which gets outsource more and more often. Europe and North America have already a bunch of big specialist companies who help businesses to improve its procurement, both strategically and operational.

It has to be a decision driven process which decides the way you setup your procurement. Not every business has the size to have its own procurement department but it is an important keystone to your business. Therefore you have to make a careful decision how to process this. The key to arrive at a decision has to be the required skills which are necessary to run a successful procurement environment. If you are not sure if you have the required skills you should start to have a look outside your business. You don’t need to outsource your procurement yet but you should start to make an investigation to understand the subject better. Too many businesses underestimate this side of the business and concentrate on the sales side and forget about procurement. For them it is just a spending manager who follows the orders of the other business stakeholders. This is a wrong perception and will cost your business dearly. Modern procurement is  cost reducer and value broker. It is proactive and helps to create value to the business. It starts right there where you decide and develop new products and services for your business.

As said before you have to make the decision for your own business but be sure you make a  decision.

If you are more interested in the subject just download the file below giving an overview on the industry setup in Australia. Like in most countries worldwide it has multiple companies offering similar services but it lacks the number and size which you can experience in Europe or North America.

Klaus Weghaus

Director

Rhenus Consulting

Klaus Weghaus is an experienced professional who has gained knowledge in international project management and purchasing. He served more than nine years within a big OEM of the automotive industry having various positions within Product Development and Purchasing. Klaus oversees the creative direction at Rhenus Consulting as well as business development. As a marathon runner he will ensure that he does a marathon for you if this is required.

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Procurement Outsourcing Services Australia

 

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Supplier Selection

selection-and-selection-process11To select the correct supplier is the essential element of purchasing. Nothing will define your future business more than the supplier you have chosen. If the purchasing function has made the right decision they will hear nothing from the other departments as the supply chain is working, the end products are fine and the end customers are happy. As soon as something goes wrong there is one function to blame, right or wrong, purchasing will be there to act.

Thus how do you select the right supplier so that it is obvious to everyone why this supplier has been chosen and no one else. At first it is important that purchasing includes other functions in the selection process as purchasing won’t be the only one who needs to interact with the supplier.

Engineering, manufacturing, marketing, finance and other functions should be contacted to understand what they are looking for by a supplier. Purchasing & engineering need to be very close and it is engineering who will define the requirements of the product and with that a big part of the items which the supplier has to fulfil. Then purchasing needs to work on all the other elements and to define an assessment matrix to categorize the different suppliers.

This can include but is not limited to:

  • Technical Abilities
  • Communication
  • Delivery Performance
  • Financial Stability
  • Quality
  • Commercial Judgement
  • Project Objectives – Timing
  • Feedback from other functions
  • Other Business Goals

The final decision needs to be objective as possible and therefore you need more than your own input. It is also important to understand that you might be at different stages when choosing a supplier, e.g. you have already a supplier panel and you take this as basis or you have no one for the specific category and you start from scratch.

No matter what you do don’t drive the decision on your own because then you will be the only one responsible for good and more for bad. It will be hard to find the respective support once you require it.

What kind of tool do you use to come to a decision?

Klaus Weghaus

Director

Rhenus Consulting

Klaus Weghaus is an experienced professional who has gained knowledge in international project management and purchasing. He served more than nine years within a big OEM of the automotive industry having various positions within Product Development and Purchasing. Klaus oversees the creative direction at Rhenus Consulting as well as business development. As a marathon runner he will ensure that he does a marathon for you if this is required.

 

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Supplier Relationship Management

Women rowers oar on riverPurchasing & procurement activities and responsibilities have constantly expanded in recent years and the increasingly demanding economic, legal, global and social conditions must be realized by a professional supplier management.

Firstly, the suppliers can not infinitely reduce the cost and on the other hand keep high standards in quality and delivery performance or even strengthen research & development and investments to the future of the business.

Therefore, it is a requirement of a long-term partnership to integrate the supplier as early as possible using the untapped potentials, with the aim to increase their value proposition sustainably.

Ensuring the supply for the company and the efficient execution of a professional risk management is the biggest challenge within purchasing in the coming years as more and more countries and businesses try to create artificial shortages in the commodity markets to increase power and profit.

There is no chance without risk, but today’s factors, such as increasing globalization, increased dependancy on few suppliers and rapidly modernizing technologies require a continuous risk management with the current but also with the potential suppliers. The initial questions in risk management are: What are the risks, which have a great impact, which are inevitable and what proactive measures can be taken ?

We see a real paradigm shift in the purchasing world when it comes to supplier relationship management. In the past the expectation towards the work of a buyer was very low:

In the 60s he was more of an employee in ordering,

in the 70s he was a price cutter,

in the 80s he became the volume maximiser, and

in the 90s he rose to becoming the procurement marketing expert.

The suppliers and their knowledge were not integrated very early into the value chain and it was nothing buyers were considering  or even wanted to consider. Only at the beginning of this millennium, the buyers started to add value to the process and became an internal and external moderator because the standard business opportunities had been exhausted in the procurement market which asked procurement to act and to enlarge their radius of activity. It was again that the automotive industry was pioneering this paradigm shift.

However, before your business starts to have an active supplier relationship management you need to ask yourself the following question in all honesty:

  • What is your opinion about a supplier relationship ?
  • What kind of supplier communication are you currently using?
  • Do you trust the supplier ?
  • Will you have full transparency with the supplier or only share certain information?

Is “supplier relationship management” really supplier relationship management? Only with the willingness of both partners to cooperate and enjoy a long-term relationship you will see a working supplier relationship management.

Supplier relationship management needs to cover all areas of cooperation with the suppliers working on continuous improvement and working on the total package but not solely on price. The objectives of supplier relationship management for the company are manifold :

  • Optimization of the supplier pool and support for ailing but interesting suppliers
  • Risk minimization and information about sub-suppliers
  • Innovation security
  • Creation of global competition
  • Transparency to help reducing the overall costs in accordance with the principle TCO (Total Cost of Ownership)

Now, what are the different elements or steps in supplier relationship management ?

  • Global supplier risk management
  • Global supplier research
  • Supplier evaluation
  • Supplier selection
  • Supplier development & improvement
  • Supplier standardization and suppliers reduction

Only with the systematic implementation of the above measures will a supplier relationship management successfully solve the challenges of the future .

Do you have any supplier relationship management in your business?

Klaus Weghaus

Director

Rhenus Consulting

Klaus Weghaus is an experienced professional who has gained knowledge in international project management and purchasing. He served more than nine years within a big OEM of the automotive industry having various positions within Product Development and Purchasing. Klaus oversees the creative direction at Rhenus Consulting as well as business development. As a marathon runner he will ensure that he does a marathon for you if this is required.
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Without Change there is no progress!

“We must be willing to get rid of the life we’ve planned so as to have the life that is waiting for us.” (Joseph Campbell)

“Stillstand ist der Tod” – “Stagnation means death” (Herbert Grönemeyer – German musician)

“Why still planning?  – Take change as something natural not something which works against your planning. Incorporate it into your thinking.”

w_485_1350810293_e4f2_tumblr_lumukmKXoE1qb8ikqo1_500My mantra is and has always been that “planning is important” and key for your life and business. But it is also true that “Change is always there” and you cannot avoid it. Thus I asked myself how can both work together.

There are situations like sickness, natural disasters which come unforeseen and will have an effect on your plans. Still you are expected to achieve your goals irrespective of what is happening. You will get into situations which you haven’t planned, like job opportunities which suddenly appear and you have to decide very quickly if it fits with you.

When I was working at Ford I did not list purchasing as the department I dreamed of working for. However when I was asked to join them I rather saw the benefits at the time and also the fact that I had nothing to loose. If it wouldn’t have fit it still would have been a great experience and I could have returned to engineering or do something else.

Thus one benefit of change is the fact that if offers new opportunities which you have either never thought of or which are just the opportunities you were waiting for:

“Live with change and take the opportunities which are offered by it!”

On the other hand it is important to plan a bit as it gives you the feeling of certainty, but you need to accept that there is no guarantee that your plan will work.

Thus it is important to allow certain flexibility in your planning. A negotiation should be well planned and prepared in order to have a good start, knowing your objectives and understanding the overall situation. However it would be devastating if you couldn’t handle any change during the negotiation or even at the beginning. You cannot predict the outcome as there are too many variables.

So change and planning might work together if they run hand in hand and you appreciate both benefits and its challenges.

The main difference is that planning is coming from yourself and change is an outside factor. To find the right balance is the challenge and the fun of life!

There are a few things you can do to incorporate change into your planning.

As there are:

  • Have a buffer time in your daily schedule
  • Identify risks to your business as good as possible
  • Put money away while you have an exceptional run which is beyond your expectation:
    • You could draw a line starting from your budget:
    • 5% above budget, use money for additional R&D to reinvest in your business
    • 5% – 10% above your budget, save it in your bank account for bad times and unexpected changes  or something else
  • Have several options for your negotiation / business meeting / …be aware that different circumstances may lead to a different result. Use a checklist to work with.
  • ….

Everyone will cope differently with the reality but it is important to realise that change is something positive which enriches your life as planning helps you to get control over a bit of it.

Make yourself and your business ready for change and don’t forget the plan for it :-)

Klaus Weghaus

Director

Rhenus Consulting

Klaus Weghaus is an experienced professional who has gained knowledge in international project management and purchasing. He served more than nine years within a big OEM of the automotive industry having various positions within Product Development and Purchasing. Klaus oversees the creative direction at Rhenus Consulting as well as business development. As a marathon runner he will ensure that he does a marathon for you if this is required.
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No Risk management – Don’t risk your own business!

???????????????????????????????????????????The first time I read about a force majeure was when I read a letter of one of my suppliers telling me that one of its plants had a force majeure and they do not know when they will return to normal production. To be honest, I did not know what I should do with these news. Call production that we might get an interruption of production? Go to my superior and ask for help? In the end I decided to do nothing as I believed that we had enough material to sustain the period without production of the supplier. Luckily nothing happened and after a short while everything was back to normal.

A definition of force majeure is: “Standard clause found in construction and supply contracts, it exempts the contracting parties from fulfilling their contractual obligations for causes that could not be anticipated and/or are beyond their control. These causes usually include act of God, act of man, act of parliament, and other impersonal events or occurrences. French for, superior force. Also called irresistible force.”

The US is currently experiencing a cold period of weather which causes the stop of many manufacturing sites and other businesses. This is a case of force majeure and nobody could have foreseen such an extreme situation.

However you still should be able to know what you can do and not as in my case to do nothing and wait what will happen. And I know sometimes this may be the best solution.

As you cannot stop such a scenario you can manage the risk which is threatening your business to survive these kind of situations. Therefore you need to have a risk management plan at hand which tells the steps you need to take if such an event occurs. You need to know the possible impact, the associated cost and the time it takes until everything is back to normal.

A force majeure is difficult to predict but you can develop measures which help to deal with them in the best possible way. Use the following steps to guide you through it:

  1. Search for risks which can be insured and analysis of such
  2. Establish alternatives for risk avoidance and limitation
  3. Judgement and optimization of selected alternatives
  4. Determine to have  an insurance
  5. Insurance Certificate
  6. Controlling / Monitoring –> Bring risk management to action

If your business is a small business you will need to outsource the risk management, e.g. ask an insurance company to take care of the risks which can be insured.

Not for all cases of a force majeure you will find an insurance. Areas where floods are common have normally difficulties to get an insurance. Therefore you need to minimize the possible damage a flood will have and you also need to have the assets to return to normal business on your own. Therefore you should have something like a flood fund for your own business.

As risks are part of life you cannot avoid them completely but you can try to live with them and find ways to work around them. Denying the existence of any risk as force majeure is the end of your business.

Make sure that you manage your risks well.

Klaus Weghaus

Director

Rhenus Consulting

Klaus Weghaus is an experienced professional who has gained knowledge in international project management and purchasing. He served more than nine years within a big OEM of the automotive industry having various positions within Product Development and Purchasing. Klaus oversees the creative direction at Rhenus Consulting as well as business development. As a marathon runner he will ensure that he does a marathon for you if this is required.
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A clean desks helps you to get a better deal!

DN STEWART INFECT07 LITUCHY LD 3Many years ago when I started in my first role as a buyer I was thinking about a lot of things. What kind of suppliers would I have? How would I run my first negotiation? Would I meet all the expectations, my own, of my management and of my colleagues?

With the start of my role I learned that an external audit was about to be conducted in three months after my start. Thus the focus was on identifying all audit issues and to eliminate them. If your predecessor had done a great job and everything was according to plan there shouldn’t be any need to worry. However I had to deal with unpaid invoices going back for years, contracts which were not in line with general procedures and missing documentation. In the end it was the perfect scenario to get lost.

As everybody knows your daily tasks don’t stop just because an audit will take place. You are still expected to run your commodity, source for new projects, monitor the supplier, take care of your budget and cost improvement actions.

The dilemma which you are in is the fact that the suppliers you are approaching to source a new project are also on your list for items as unpaid invoices, missing orders or something else. Thus the supplier will put this on the agenda and use this as an argument for not being in the position to offer you the best deal. It wouldn’t be that bad if you have enough suppliers who have no burning issues and would like to talk to you purely about the upcoming project.

Unfortunately in my case more or less every supplier had open issues which were distracting to the project and cost negotiation. It took months to sort this out and required more than one compromise between the supplier and myself.

The new project which required to be sourced and the price negotiation which had to be completed were still finalized but it took much longer than normally required and the outcome could have been better.

The open issues were perfect arguments for the suppliers to ask for the negotiation and even if you tried to separate them these issues remain on the table.

It is similar to your office desk. You try to focus on your main task but you see all these papers surrounding you which scream for action.

In regards to negotiate the best possible deal with a prospective supplier or to negotiate new prices with your supplier base make sure you have a clean desk:

  • Get your finance department to pay on time
  • Understand any issue in regards to quality and get them sorted out
  • Talk to your management what they have on their mind in regards to certain suppliers
  • Communicate with your suppliers upfront and close out any remaining issue
  • Ask for support from colleagues who may help to close any issue
  • Identify any concern other departments may have with one of your suppliers
  • Have only one subject on the table but the new project
  • Finally: Clean your desk and keep it clean!

Enjoy your clean desk!

Klaus Weghaus

Director

Rhenus Consulting

Klaus Weghaus is an experienced professional who has gained knowledge in international project management and purchasing. He served more than nine years within a big OEM of the automotive industry having various positions within Product Development and Purchasing. Klaus oversees the creative direction at Rhenus Consulting as well as business development. As a marathon runner he will ensure that he does a marathon for you if this is required.
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