Innovative Supplier Management: Value Creation in Global Supply Chains 3658392444, 9783658392444

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Marc Helmold

Innovative Supplier Management Value Creation in Global Supply Chains

Innovative Supplier Management

Marc Helmold

Innovative Supplier Management Value Creation in Global Supply Chains

Marc Helmold IU Internationale HS - Campus Berlin Berlin, Germany

ISBN 978-3-658-39244-4    ISBN 978-3-658-39245-1 (eBook) https://doi.org/10.1007/978-3-658-39245-1 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 This book is a translation of the original German edition “Innovatives Lieferantenmanagement” by Helmold, Marc, published by Springer Fachmedien Wiesbaden GmbH in 2021. The translation was done with the help of artificial intelligence (machine translation by the service DeepL.com). A subsequent human revision was done primarily in terms of content, so that the book will read stylistically differently from a conventional translation. Springer Nature works continuously to further the development of tools for the production of books and on the related technologies to support the authors. This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Fachmedien Wiesbaden GmbH, part of Springer Nature. The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany

Foreword

Increasing globalization, megatrends, advancing digitalization, global supply chains and the COVID-19 pandemic have led society and businesses to take a closer look at value chains. Shifts in performance to supplier networks that compete with each other are creating new mission statements, strategies and processes that need to be managed. The focus in the future has, therefore, long ceased to be on raising internal company cost advantages, but much more on the exchange of information, stable supply chains and the exploitation of global cross-company potential. The book answers these questions by presenting innovative, preventive, digital and strategic examples of how successful supplier management must function and act. Due to megatrends and the Corona-19 pandemic, numerous organizations are facing a sociocultural, economic and digital upheaval of as yet intangible proportions. The upheaval into the digital age has been real since the pandemic at the latest. If suppliers and buyers cooperate even more closely and actively, inventories can be queried and requested in real time. Common products are developing into “intelligent” products along the entire value chain. The goal of digitization in purchasing for pioneering companies is the fully integrated management of the supply chain across many suppliers and customers. In the end, digitalization in purchasing could even make it possible to permanently change the orientation of production depending on profit prospects and cost structures. In this respect, supplier management comprises several subprocesses ranging from strategic alignment to supplier controlling. Supplier management is, therefore, facing significant challenges. Global digitization and the drive for ever faster and new innovations are forcing companies to radically change their strategy and traditional guiding principles. The increasing global  – and above all digital – networking of customers, suppliers and interest groups, the almost unrestricted exchange of data and information and the associated maximum transparency of a large part of the value-creating activities within global supply chains raises the question of the future generation of competitive advantages for manufacturing trading and service companies. In this context, supplier management, i.e. the function that controls the entire value chain, is becoming much more important across the entire value chain than it has been in recent years. This is because only the integrative approach from the customer order to planning, procurement, production, logistics and the returns process provides companies with the necessary decision-making basis for their future actions. v

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Foreword

The practical relevance is in the foreground here, whereby the concrete experiences from industry, teaching, research and business are linked with theoretical elements, which enable a concise and comprehensible presentation of the contents. Combined with numerous practical examples and country-specific recommendations for action, this work has numerous unique selling points. This book is particularly interesting for employees in the areas of sales, purchasing or marketing who have to negotiate performance characteristics of products and services, such as specifications, performance descriptions, quality characteristics and prices with customers or suppliers. In addition, the book also provides recommendations for action for employees in the areas of development, quality management, production, human resources, finance or logistics, who are directly or indirectly involved in the value chain through their function. Managers and project managers also belong to the circle of interested parties, especially when intercultural peculiarities and elements in supplier management with business partners come into play. Finally, the target group includes entrepreneurs and owners of smaller companies or start-ups who want to initiate or maintain business relationships in an international or national context. Furthermore, the symbiosis of theory and practice enables the application in higher education, so that this work also focuses on professors, teaching staff and students in an international context. Finally, the book is aimed at public sector clients and local authorities who wish to develop their project management and procurement staff into experts in supplier management. The target group includes small and medium-sized enterprises as well as international corporations. This book closes the gap on how companies can not only successfully implement innovative methods in supplier management but also successfully maintain business relationships and implement projects economically. The valuable recommendations for action specifically link practical and conceptual aspects with cultural and theoretical components based on the author’s many years of experience. In addition to the six phases in supplier management, other aspects such as transformation, strategy, organization types and sustainability are described in detail. The book imparts knowledge on how international and intercultural elements can also be effectively taken into account in supplier management. It is academically demanding, but at the same time comprehensible and compact. The structure thus follows a decidedly application-oriented concept. Thanks are due to the countless international business partners who have supported this publication with their assistance. The author hopes that his wide-ranging experience in this book will provide ideal assistance in building long-term relationships with national and international business partners. Diversity, appreciation of other cultures and cosmopolitanism are among the current and future key factors for successful and sustainable supplier management. Thanks to Mrs. Kramer and the entire Springer team for the friendly, competent and professional handling. Prof. Dr. Marc Helmold

Contents

1 Supplier  Management, Purchasing and Procurement�������������������������������������   1 1.1 Classification and Value of Supplier Management������������������������������������   1 1.1.1 Importance of Supply and Value Chains ��������������������������������������   1 1.1.2 Value Creation and Value Networks����������������������������������������������   2 1.1.3 Value Chain with Suppliers (Upstream) and Customers (Downstream)��������������������������������������������������������������������������������   3 1.1.4 Value Chain According to Porter��������������������������������������������������   4 1.1.5 Value Creation and Waste�������������������������������������������������������������   5 1.2 Types of Waste in the Value Chain������������������������������������������������������������   7 1.2.1 Waste Due to Transport ����������������������������������������������������������������   8 1.2.2 Waste Due to Inventory and Stocks����������������������������������������������   9 1.2.3 Waste Due to Motion and Unnecessary Movements��������������������  10 1.2.4 Waste Due to Waiting Times ��������������������������������������������������������  10 1.2.5 Waste Due to Overproduction ������������������������������������������������������  12 1.2.6 Waste Due to Redundant Processes and Over-Processing������������  13 1.2.7 Waste Due to Defects��������������������������������������������������������������������  13 1.3 Tasks and Delimitation of Supplier Management��������������������������������������  14 1.3.1 Tasks of Supplier Management ����������������������������������������������������  14 1.3.2 Differentiation of Supplier Management from Classic Purchasing ������������������������������������������������������������������������������������  16 1.3.3 Procurement and Procurement Logistics��������������������������������������  18 1.4 Case Study: Sustainable Supplier Management in the BMW Group��������  18 References��������������������������������������������������������������������������������������������������������������  20 2 Transformation  and Cultural Change Towards Innovative Supplier Management���������������������������������������������������������������������������������������������������������  21 2.1 Transformation Requirements in Supplier Management ��������������������������  21 2.2 Supplier Management as a Competitive Advantage for the Company������  23 2.3 Keiretsu-Based Supplier Management������������������������������������������������������  26 2.4 Supplier Management as an Initiator of Cultural Change ������������������������  27 2.4.1 Stories and Myths��������������������������������������������������������������������������  27 vii

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2.4.2 Symbols����������������������������������������������������������������������������������������  28 2.4.3 Power Structures ��������������������������������������������������������������������������  29 2.4.4 Organisational Structures��������������������������������������������������������������  29 2.4.5 Control Systems����������������������������������������������������������������������������  30 2.4.6 Rituals and Routines ��������������������������������������������������������������������  30 2.5 Culture and Elements of Lean Management in Modern Supplier Management����������������������������������������������������������������������������������������������  31 2.5.1 Lean Principles and Lean Management as Part of Supplier Management����������������������������������������������������������������������������������  31 2.5.2 Change Towards an Open and Creative Enterprise (Chiiku)��������  32 2.5.3 Leadership in Lean Management (Tokuiku) ��������������������������������  32 2.5.4 Mental and Physical Strength in Lean Management (Taiiku)������  32 2.5.5 Implementation of Ideas Through Employee Involvement (Yattakoto)������������������������������������������������������������������������������������  33 2.6 Case Study: Leadership in Toyota Motor Corporation������������������������������  33 References��������������������������������������������������������������������������������������������������������������  35 3 Supplier  Management as Part of the Corporate Strategy�������������������������������  37 3.1 Supplier Management as a Strategic Competitive Advantage of Corporate Strategy ��������������������������������������������������������������������������������  37 3.1.1 Strategic Analysis��������������������������������������������������������������������������  39 3.1.2 Strategic Selection������������������������������������������������������������������������  39 3.1.3 Strategic Implementation��������������������������������������������������������������  40 3.1.4 Designing the Strategic Direction: Strategic Pyramid������������������  41 3.2 Internationalization of Supplier Management ������������������������������������������  43 3.3 Supplier Management as a Key Role in the COVID 19 Pandemic������������  45 3.4 Case Study: Siemens and the Selection of Suppliers via SCM Star����������  45 References��������������������������������������������������������������������������������������������������������������  47 4 Phases  of Supplier Management�������������������������������������������������������������������������  49 4.1 Supplier Management as a Cross-sectional Function: Integration of All Functions�����������������������������������������������������������������������������������������  49 4.2 Supplier Strategy����������������������������������������������������������������������������������������  51 4.2.1 Subject Matter and Elements of the Supplier Strategy ����������������  51 4.2.2 Supplier Classification������������������������������������������������������������������  52 4.2.3 Material Group Strategies ������������������������������������������������������������  54 4.2.4 Make-or-Buy Strategies����������������������������������������������������������������  55 4.2.5 ABC-XYZ Analysis and Strategies����������������������������������������������  57 4.2.6 Internationalisation Strategies������������������������������������������������������  58 4.2.7 Sustainability Strategies����������������������������������������������������������������  58 4.2.8 Digitisation Strategies ������������������������������������������������������������������  59 4.3 Supplier Selection��������������������������������������������������������������������������������������  60 4.3.1 Shifting of Peripheral Competences to Suppliers ������������������������  60

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4.3.2 Minimising Risks in the Selection of Suppliers����������������������������  61 4.3.3 Criteria and Supplier Selection Matrix ����������������������������������������  61 4.4 Supplier Evaluation������������������������������������������������������������������������������������  63 4.4.1 Subject of Supplier Evaluation������������������������������������������������������  63 4.4.2 Selecting the Right Criteria for Supplier Evaluation��������������������  63 4.4.3 Supplier Evaluation as a Control Tool in Supplier Management �����  64 4.5 Supplier Development��������������������������������������������������������������������������������  65 4.5.1 Object of Supplier Development��������������������������������������������������  65 4.5.2 Strategic Supplier Development����������������������������������������������������  66 4.5.3 Preventive Supplier Development ������������������������������������������������  66 4.5.4 Reactive Supplier Development����������������������������������������������������  66 4.6 Supplier Integration ����������������������������������������������������������������������������������  67 4.6.1 Subject of Supplier Integration ����������������������������������������������������  67 4.6.2 Supplier Integration Through Coaching and Collaboration����������  68 4.6.3 Supplier Integration Through International Purchasing Offices�������  69 4.7 Supplier Controlling����������������������������������������������������������������������������������  69 4.8 Case Study: Volvo Opts for In-House Production in the Field of Electromobility������������������������������������������������������������������������������������������  71 References��������������������������������������������������������������������������������������������������������������  72 5 Organization  in Supplier Management�������������������������������������������������������������  73 5.1 Supplier Management as a Key Function in the Company������������������������  73 5.2 Structure and Process Organisation of Supplier Management������������������  74 5.2.1 Object of the Organizational Plan ������������������������������������������������  74 5.2.2 Line Organisation��������������������������������������������������������������������������  75 5.2.3 Project Organisation����������������������������������������������������������������������  76 5.2.4 Divisional Organisation����������������������������������������������������������������  77 5.2.5 Functional Organisation����������������������������������������������������������������  78 5.2.6 Matrix Organisation����������������������������������������������������������������������  78 5.2.7 Agile Form of Organisation����������������������������������������������������������  80 5.2.8 Virtual Forms of Organisation������������������������������������������������������  81 5.3 Process Organization of Supplier Management����������������������������������������  82 5.4 Supplier Management and Digitalization in Indirect Purchasing��������������  85 5.5 Strategic Purchasing in Supplier Management������������������������������������������  86 5.6 Operational Purchasing in Supplier Management ������������������������������������  86 5.7 Case Study: Global Supplier Management at Bombardier Transportation������������������������������������������������������������������������������������������ 86 References��������������������������������������������������������������������������������������������������������������  87 6 Competence  Requirements in Supplier Management��������������������������������������  89 6.1 The Supplier Manager as Interface to the Supplier ����������������������������������  89 6.1.1 Changed Framework Conditions Lead to New Competence Requirements��������������������������������������������������������������������������������  89

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6.1.2 The Supplier Manager as Single Point of Contact������������������������  92 6.1.3 Growing Internationalisation in Procurement ������������������������������  93 6.2 Networking Ability of Supplier Managers������������������������������������������������  93 6.3 Regular Development Through Training and Qualifications ��������������������  93 6.4 Case Study: Risk-oriented Management of Suppliers at the Meyer Werft Shipyard��������������������������������������������������������������������������������  94 7 Control  Groups and Escalation Levels in Supplier Management�������������������  97 7.1 Supplier Management as a Central Control Function��������������������������������  97 7.1.1 Supplier Steering Group����������������������������������������������������������������  97 7.1.2 Supplier Manager as Central Contact Person�������������������������������  97 7.1.3 Supplier Management Workshops������������������������������������������������  98 7.1.4 Supplier File����������������������������������������������������������������������������������  98 7.1.5 Supplier Cockpit��������������������������������������������������������������������������� 100 7.2 Suppliers’ Day ������������������������������������������������������������������������������������������ 100 7.3 Supplier Academy�������������������������������������������������������������������������������������� 101 7.4 Escalation Levels in Supplier Management���������������������������������������������� 101 7.5 Case Study: Supplier Management at Porsche and the New 911�������������� 102 References�������������������������������������������������������������������������������������������������������������� 103 8 Lean  Methods in Supplier Management����������������������������������������������������������� 105 8.1 Lean Principles in Lean Management�������������������������������������������������������� 105 8.1.1 Zero-Defect Principle�������������������������������������������������������������������� 105 8.1.2 Drawing Principle ������������������������������������������������������������������������ 107 8.1.3 Flow Principle ������������������������������������������������������������������������������ 108 8.1.4 Clock Principle������������������������������������������������������������������������������ 109 8.2 Harmonisation and Levelling of the Production Flow: Heijunka�������������� 109 8.3 Yamazumi Diagrams���������������������������������������������������������������������������������� 110 8.4 Intelligent Automation: Jidoka (自働化) �������������������������������������������������� 110 8.5 Visualization in Lean Management ���������������������������������������������������������� 111 8.6 Shadow Boards������������������������������������������������������������������������������������������ 112 8.7 Andon�������������������������������������������������������������������������������������������������������� 113 8.8 Total Productive Maintenance (TPM)�������������������������������������������������������� 114 8.9 Total Equipment Effectiveness (GAE)������������������������������������������������������ 115 8.10 Lean Management on the Spot: Gemba, Genjitsu, Genchi, Gembutso�������� 116 8.11 Focus on Essential Elements: Muda, Mura, Muri�������������������������������������� 117 8.12 Error Prevention: Poka Yoke���������������������������������������������������������������������� 118 8.13 Implementation of an Ideal Working Environment: 3 K Principle������������ 119 8.14 Lean Management as a Consensus-based Basis for Rapid Project Implementations���������������������������������������������������������������������������������������� 119 8.15 Health and Safety�������������������������������������������������������������������������������������� 119 8.16 Case Study: Implementation of the Lean Production System at Mercedes-Benz������������������������������������������������������������������������������������������ 120 References�������������������������������������������������������������������������������������������������������������� 121

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9 Audits and Supplier Analyses����������������������������������������������������������������������������� 123 9.1 Audits and Quality Management Systems������������������������������������������������ 123 9.1.1 Concept of the Audit �������������������������������������������������������������������� 123 9.1.2 System Audits������������������������������������������������������������������������������� 124 9.1.3 Process Audits ������������������������������������������������������������������������������ 125 9.1.4 Product Audits������������������������������������������������������������������������������ 125 9.1.5 Control Audits ������������������������������������������������������������������������������ 127 9.1.6 Other Audits���������������������������������������������������������������������������������� 127 9.2 Case Study: 5S Audits in the Berlin-­Kindl-Schultheiss Brewery�������������� 127 References�������������������������������������������������������������������������������������������������������������� 129 10 Corporate  Social Responsibility (CSR) and Ethics in Supplier Management����������������������������������������������������������������������������������������� 131 10.1 Definition of CSR and Ethics������������������������������������������������������������������ 131 10.1.1 4-Step-CSR Pyramid According to Caroll ������������������������������ 132 10.1.2 Two-Dimensional Model According to Quazi and O’Brien ������� 133 10.1.3 Core Area Model According to Carroll and Schwartz ������������ 134 10.1.4 Sustainability and the Three-Pillar Model�������������������������������� 135 10.1.5 Corporate Citizenship (CC)������������������������������������������������������ 137 10.2 Megatrends with an Impact on Supplier Management���������������������������� 139 10.3 The Need for CSR in Supplier Management������������������������������������������ 140 10.4 Maturity Analyses of CSR in Supplier Management������������������������������ 141 10.5 Supplier Development in the Area of CSR���������������������������������������������� 142 10.6 Global Compact Principles���������������������������������������������������������������������� 143 10.7 Case Study: Sustainability at VW������������������������������������������������������������ 144 References�������������������������������������������������������������������������������������������������������������� 145 11 Lean  Management in the Service Sector����������������������������������������������������������� 149 11.1 Characteristics of Services���������������������������������������������������������������������� 149 11.1.1 Intangible Assets���������������������������������������������������������������������� 149 11.1.2 Services Are Not Storable�������������������������������������������������������� 150 11.1.3 Uniqueness (Heterogeneity) ���������������������������������������������������� 150 11.1.4 Inseparability���������������������������������������������������������������������������� 151 11.1.5 Variability �������������������������������������������������������������������������������� 151 11.1.6 Perishability������������������������������������������������������������������������������ 151 11.1.7 No Ownership�������������������������������������������������������������������������� 151 11.2 Application of Lean Management to Services���������������������������������������� 151 11.3 Increasing the Visible Added Value of Services�������������������������������������� 152 11.4 Case Study: Lean Ordering Process in Japanese Restaurant������������������ 153 References�������������������������������������������������������������������������������������������������������������� 154 12 Supplier  Management for Suppliers with Financial Difficulties��������������������� 157 12.1 Signs of Financial Difficulties ���������������������������������������������������������������� 157 12.1.1 Phases of a Financial Crisis������������������������������������������������������ 157

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12.1.2 Strategic Crisis ������������������������������������������������������������������������ 158 12.1.3 Profitability Crisis�������������������������������������������������������������������� 159 12.1.4 Liquidity Crisis������������������������������������������������������������������������ 159 12.1.5 Insolvency�������������������������������������������������������������������������������� 159 12.2 Recommendations for the Elimination of Financial Difficulties������������ 160 12.2.1 Restructuring���������������������������������������������������������������������������� 160 12.2.2 Measures to Increase Liquidity������������������������������������������������ 160 12.2.3 Increase in Equity Capital�������������������������������������������������������� 162 12.2.4 Increase in Long-Term Liabilities�������������������������������������������� 162 12.2.5 Sale of Fixed Assets and Leaseback���������������������������������������� 162 12.2.6 Factoring���������������������������������������������������������������������������������� 162 12.2.7 Inventory Optimisation������������������������������������������������������������ 163 12.2.8 Conversion of Debt Capital into Equity Capital���������������������� 163 12.2.9 Debt Rescheduling ������������������������������������������������������������������ 163 12.3 Reorganisation or Restructuring Measures���������������������������������������������� 164 12.3.1 Object of Restructuring������������������������������������������������������������ 164 12.3.2 Strategic Restructuring ������������������������������������������������������������ 165 12.3.3 Structural Restructuring ���������������������������������������������������������� 166 12.3.4 Restructuring to Improve Profits���������������������������������������������� 166 12.3.5 Financial Restructuring������������������������������������������������������������ 166 12.4 Tools to Identify Financial Difficulties in Supplier Management ���������� 167 12.4.1 Identifying Financial Difficulties �������������������������������������������� 167 12.4.2 Creditreform ���������������������������������������������������������������������������� 167 12.4.3 Creditsafe��������������������������������������������������������������������������������� 167 12.4.4 VDA Rating������������������������������������������������������������������������������ 168 12.4.5 Dun & Bradstreet��������������������������������������������������������������������� 168 12.4.6 Rapid Ratings: Financial Risk Management���������������������������� 168 12.5 Case Study: Insolvency of the Solarworld Company������������������������������ 168 References�������������������������������������������������������������������������������������������������������������� 169

13 Lean  Management in Projects���������������������������������������������������������������������������� 171 13.1 Lean Project Management���������������������������������������������������������������������� 171 13.2 Critical Success Factors in Projects�������������������������������������������������������� 173 13.2.1 Key Criteria in Projects������������������������������������������������������������ 173 13.2.2 Integration Management���������������������������������������������������������� 174 13.2.3 Scope and Performance Management�������������������������������������� 174 13.2.4 Time and Schedule Management �������������������������������������������� 174 13.2.5 Cost Management�������������������������������������������������������������������� 174 13.2.6 Quality Management���������������������������������������������������������������� 174 13.2.7 Human Resources Management���������������������������������������������� 175 13.2.8 Communication Management�������������������������������������������������� 175 13.2.9 Risk Management�������������������������������������������������������������������� 175 13.2.10 Procurement Management�������������������������������������������������������� 175

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13.3 Recommendations for Projects���������������������������������������������������������������� 175 13.4 Case Study: Collaboration Between Knorr-Bremse and Continental for the Development of an Automated Driving System�������������������������� 176 References�������������������������������������������������������������������������������������������������������������� 176 14 Innovation  Management as a Key Task in Supplier Management������������������ 177 14.1 Innovation Management as a Sub-task of Supplier Management ���������� 177 14.2 Strategic Relevance and Attractiveness �������������������������������������������������� 178 14.3 Resource Intensity ���������������������������������������������������������������������������������� 179 14.4 Future Potential Analysis������������������������������������������������������������������������ 179 14.5 Tasks and Fields of Action in Innovation Management�������������������������� 181 14.6 Improvements and Innovations���������������������������������������������������������������� 182 14.7 Social Responsibility as Part of Innovation Management���������������������� 185 14.8 Innovation Management and Green Marketing�������������������������������������� 186 14.9 Case Study: Innovations Through Design Thinking at Continental�������� 187 References�������������������������������������������������������������������������������������������������������������� 188 15 Claim  Management and Subsequent Claims in the Event of Default������������� 191 15.1 Claim Management and Subsequent Claim Management���������������������� 191 15.2 Contractual Recommendations���������������������������������������������������������������� 192 15.3 Defensive and Offensive Claim Strategies���������������������������������������������� 193 15.4 Types of Arbitration�������������������������������������������������������������������������������� 194 15.5 International Arbitration Tribunals���������������������������������������������������������� 195 15.6 Case Study: Demand Management at Deutsche Bahn and Bombardier����� 196 References�������������������������������������������������������������������������������������������������������������� 197 16 Change  Management to Supplier Management������������������������������������������������ 199 16.1 Definition of Change Management �������������������������������������������������������� 199 16.2 Change Management According to Lewin���������������������������������������������� 200 16.2.1 Change in Phases���������������������������������������������������������������������� 200 16.2.2 Phase: Unfreezing – Changing, Modification – Freezing�������� 201 16.2.3 The Human Factor Is Decisive ������������������������������������������������ 202 16.3 Change Management Curve According to Kübler-Ross ������������������������ 202 16.4 Change Management According to Kotter���������������������������������������������� 204 16.5 Change Management According to McKinsey���������������������������������������� 207 16.5.1 Description of the McKinsey 7S Model���������������������������������� 207 16.5.2 Hard and Soft Factors in Changes�������������������������������������������� 207 16.6 Change Management and Personalities�������������������������������������������������� 207 16.6.1 Readiness for the Change to Modern Supplier Management������� 207 16.6.2 Visionaries and Missionaries���������������������������������������������������� 208 16.6.3 Pioneers������������������������������������������������������������������������������������ 208 16.6.4 Active Supporters �������������������������������������������������������������������� 209 16.6.5 Opportunists ���������������������������������������������������������������������������� 209 16.6.6 Underground Fighters�������������������������������������������������������������� 209

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16.6.7 Open Resisters�������������������������������������������������������������������������� 210 16.6.8 Emigrants �������������������������������������������������������������������������������� 210 16.7 Dealing with Resistance�������������������������������������������������������������������������� 211 16.7.1 First Strategy: Analyse Internal Stakeholder Groups �������������� 211 16.7.2 Second Strategy: Explain the Background of the Project�������� 211 16.7.3 Third Strategy: Dealing with Opponents Properly������������������ 212 16.7.4 Fourth Strategy: Preserving and Developing What Is Good���� 212 16.7.5 Fifth Strategy: Raising Awareness of the “Valley of Tears”���� 212 16.7.6 Sixth Strategy: Inform Individually������������������������������������������ 213 16.8 Case Study: Corporate Culture at Toyota������������������������������������������������ 213 References�������������������������������������������������������������������������������������������������������������� 214 17 Tools  in Supplier Management to Identify Waste��������������������������������������������� 215 17.1 Ishikawa Diagram������������������������������������������������������������������������������������ 215 17.2 Material���������������������������������������������������������������������������������������������������� 216 17.3 Supplier Audits and Workshops�������������������������������������������������������������� 217 17.4 Brainstorming������������������������������������������������������������������������������������������ 217 17.5 Pareto Analysis���������������������������������������������������������������������������������������� 218 17.6 Correlation Diagram�������������������������������������������������������������������������������� 218 17.7 Network Diagram������������������������������������������������������������������������������������ 219 17.8 Problem Decision Plan���������������������������������������������������������������������������� 219 17.9 W-Questions�������������������������������������������������������������������������������������������� 219 17.10 Flow Chart ���������������������������������������������������������������������������������������������� 220 17.11 Pro and Contra Lists�������������������������������������������������������������������������������� 220 17.12 Failure Mode and Effect Analysis (FMEA)�������������������������������������������� 220 17.13 Statistical Process Control���������������������������������������������������������������������� 222 17.14 Mind Mapping ���������������������������������������������������������������������������������������� 223 17.15 Quality Control Chart (QRC)������������������������������������������������������������������ 223 17.16 Portfolio�������������������������������������������������������������������������������������������������� 224 17.17 Tree Diagram ������������������������������������������������������������������������������������������ 224 17.18 Case Study: Ishikawa Diagram at Porsche���������������������������������������������� 224 Reference �������������������������������������������������������������������������������������������������������������� 225 18 Outlook  and Future Vision for Supplier Management������������������������������������� 227 18.1 Supplier Management as a Central Interface in the Company���������������� 227 18.2 Automation and Digitalization Trends in Supplier Management������������ 228 18.3 Changing Competence Requirements in Supplier Management������������ 228 18.4 Internationalisation of Value Chains�������������������������������������������������������� 229 18.5 Case Study: AirSupply and SupplyOn as Integrated Value Creation Systems���������������������������������������������������������������������������������������������������� 230 References�������������������������������������������������������������������������������������������������������������� 232 19 Glossary���������������������������������������������������������������������������������������������������������������� 233

About the Author

Marc Helmold  (M.B.A.) is a professor at the IU International University of Applied Sciences at the Campus Berlin for Business Administration, Strategic Management, Supplier Management in an International Context and Supply Chain Management (SCM). Before his appointment as a professor, he held various management positions at well-­known companies in the automotive and railway industries. From 2002 to 2006, he worked as an executive in the context of a global cooperation with a leading automobile manufacturer in Japan and carried out supplier management in the higher three-digit million euro range. In addition to his work in the automotive industry, from 2010 to 2017, he worked for a manufacturer of commuter trains, trams, regional trains and express trains. Here he was head of the main purchasing and supply chain management (SCM) department with a purchasing budget in the higher three-digit million euro range. In China, he was responsible for the international purchasing office (IPO, International Procurement Organization) and for the distribution of spare parts in China at the same company from 2013 to 2016 as Managing Director of China Activities. Especially in Asia, the sustainable consideration of intercultural elements in supplier management was necessary. The project volumes here were also in the three-digit million euro range. The purchasing office had approximately 70 employees at five locations in China. He completed his doctorate at the University of Gloucestershire in the field of supplier management. Parallel to his appointment at IUBH Berlin in 2016, he founded his own consulting company in process optimization. As part of this activity, Prof. Dr. Marc Helmold conducts training courses for practitioners and academics in the field of supplier management. xv

List of Abbreviations

3R Retention, related sales and referrals 5S Seiri, Seiton, Seiso, Seiketsu and Shitsuke 7P Product, price, place, promotion, physical evidence, people, process AAA American Arbitration Association B2B Business-to-business B2C Business-to-customer BME German Association for Materials Management, Purchasing and Logistics CISG United Nations Convention on Contracts for the International Sale of Goods DIN German Institute for Standardization EN European Norm EUR Euro ICC International Chamber of Industry and Commerce IFM Institute for SME Research IHK Chamber of Industry and Commerce IPO International Procurement Organisation ISO International Standardization Organization IUBH International University Bad Honnef JIT Just-in-time JV Joint venture LBR Line balancing ratio LER Line efficiency ratio LLK Supplier Steering Committee Ltd Limited liability company MEP Margin enhancement plan NGO Non-governmental organization NPO Non-profit organization OP Operation (workstation) PESTEL Political, economic, social, technological, environmental, legal aspects QKL Quality, costs, logistics QKLT Quality, costs, logistics, technology xvii

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ROP SCM SME SWOT UN VMI VO WFOE

List of Abbreviations

Risks and opportunities Supply chain management Small and medium-sized enterprises Strengths and weaknesses analysis United Nations Vendor managed inventory Virtual organization Wholly Foreign Owned Enterprise

List of Figures

Fig. 1.1 Fig. 1.2 Fig. 1.3 Fig. 1.4 Fig. 1.5 Fig. 1.6 Fig. 1.7 Fig. 1.8 Fig. 1.9 Fig. 1.10 Fig. 1.11 Fig. 1.12 Fig. 1.13 Fig. 1.14 Fig. 1.15 Fig. 1.16 Fig. 1.17 Fig. 1.18 Fig. 2.1 Fig. 2.2 Fig. 2.3 Fig. 2.4 Fig. 2.5 Fig. 3.1 Fig. 3.2 Fig. 3.3 Fig. 3.4

Input-transformation-output model���������������������������������������������������������������� 2 Value creation networks in the context of supplier management������������������� 3 Value chain with suppliers and customers������������������������������������������������������ 3 Value chain according to Porter���������������������������������������������������������������������� 4 Transformation to supplier management as a primary function��������������������� 5 Value creation and waste�������������������������������������������������������������������������������� 5 Focus on value creation and elimination of waste������������������������������������������ 6 TIMWOOD – 7 types of waste����������������������������������������������������������������������� 7 Checklist: TIMWOOD����������������������������������������������������������������������������������� 8 Waste due to transport������������������������������������������������������������������������������������� 9 Waste due to inventories��������������������������������������������������������������������������������� 9 Waste due to movements������������������������������������������������������������������������������ 11 Waste due to waiting times��������������������������������������������������������������������������� 12 Waste due to overproduction������������������������������������������������������������������������ 12 Waste due to overprocessing������������������������������������������������������������������������� 13 Waste due to defects and deficiencies����������������������������������������������������������� 14 Controlling value creation through supplier management���������������������������� 14 Delimitation of procurement, purchasing and supplier management����������� 17 Development of supplier management��������������������������������������������������������� 22 Transformation in supplier management������������������������������������������������������ 22 Maturity levels in supplier management������������������������������������������������������� 24 Elements of corporate culture: the cultural web������������������������������������������� 28 Supplier management in China��������������������������������������������������������������������� 33 Phase model in strategic management – strategic triangle��������������������������� 38 In-house and external production in an international context����������������������� 39 Strategic pyramid based on Johnson and Scholes (1997)����������������������������� 41 The most important export trading partners for Germany. (Source: Press release No.039 of 8 February 2018: German exports in 2017: + 6.3% on 2016. Exports and imports reach new record levels. Retrieved 15.3.2018.

xix

xx

Fig. 3.5

Fig. 3.6 Fig. 3.7 Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. 4.4 Fig. 4.5 Fig. 4.6 Fig. 4.7 Fig. 4.8 Fig. 4.9 Fig. 4.10 Fig. 4.11 Fig. 4.12 Fig. 4.13 Fig. 4.14 Fig. 4.15 Fig. 4.16 Fig. 4.17 Fig. 5.1 Fig. 5.2 Fig. 5.3 Fig. 5.4 Fig. 5.5 Fig. 5.6 Fig. 5.7 Fig. 5.8 Fig. 5.9 Fig. 5.10 Fig. 5.11 Fig. 6.1 Fig. 6.2

List of Figures

https://www.destatis.de/DE/PresseService/Presse/ Pressemitteilungen/2018/02/PD18_039_51.html)���������������������������������������� 44 The most important import trading partners for Germany. (Source: Press Release No.039 of 8 February 2018: German exports in 2017: + 6.3% on 2016. Exports and imports reach new record levels. Retrieved 2018-03-15. https://www.destatis.de/DE/PresseService/ Presse/Pressemitteilungen/2018/02/PD18_039_51.html)���������������������������� 45 Production of a pair of jeans through international value added������������������ 46 Managing Director Dr. Helmold and Mr. Li������������������������������������������������� 47 Phases in supplier management�������������������������������������������������������������������� 50 Supplier strategy as the first phase in supplier management������������������������ 51 Elements of the supplier strategy������������������������������������������������������������������ 52 Supplier classification and supplier categorization��������������������������������������� 53 Material group strategies������������������������������������������������������������������������������ 54 Strategic make-or-buy analysis��������������������������������������������������������������������� 56 ABC-XYZ analysis in supplier management����������������������������������������������� 58 Sustainability and Corporate Social Responsibility (CSR)�������������������������� 59 Supplier selection as a subphase of supplier management��������������������������� 60 Supplier selection matrix������������������������������������������������������������������������������ 62 Supplier evaluation��������������������������������������������������������������������������������������� 63 Supplier evaluation with internal and external company data���������������������� 65 Supplier development����������������������������������������������������������������������������������� 65 Preventive and reactive supplier development���������������������������������������������� 67 Supplier integration�������������������������������������������������������������������������������������� 67 Supplier controlling�������������������������������������������������������������������������������������� 70 Example of key figures in supplier controlling��������������������������������������������� 71 Organizational pyramid for modern supplier management�������������������������� 74 Organizational structure of supplier management in the line organization������� 75 Organizational structure of supplier management in the project organization�������������������������������������������������������������������������������������������������� 76 Divisional organization��������������������������������������������������������������������������������� 77 Functional organization of supplier management����������������������������������������� 78 Matrix organization with supplier management as a cross-sectional function��������������������������������������������������������������������������������������������������������� 79 Agile organization����������������������������������������������������������������������������������������� 80 Virtual organization�������������������������������������������������������������������������������������� 82 Maturity levels of virtual organizations�������������������������������������������������������� 82 Structure and process organization in supplier management������������������������ 83 Example of global supplier management at Bombardier Transportation�������� 87 Competence requirements in supplier management������������������������������������� 91 Competence matrix��������������������������������������������������������������������������������������� 94

List of Figures

Fig. 7.1 Fig. 7.2 Fig. 7.3 Fig. 7.4 Fig. 7.5 Fig. 8.1 Fig. 8.2 Fig. 8.3 Fig. 8.4 Fig. 8.5 Fig. 8.6 Fig. 8.7 Fig. 8.8 Fig. 8.9 Fig. 8.10 Fig. 8.11 Fig. 9.1 Fig. 9.2 Fig. 9.3 Fig. 9.4 Fig. 10.1 Fig. 10.2 Fig. 10.3 Fig. 10.4 Fig. 10.5 Fig. 10.6 Fig. 10.7 Fig. 10.8 Fig. 11.1 Fig. 11.2 Fig. 11.3 Fig. 12.1 Fig. 12.2 Fig. 12.3 Fig. 12.4 Fig. 13.1 Fig. 13.2 Fig. 14.1 Fig. 14.2

xxi

Supplier steering committee as decision-making body for supplier measures������������������������������������������������������������������������������������������������������� 98 Supplier manager as central contact person�������������������������������������������������� 99 Flow chart for supplier workshops��������������������������������������������������������������� 99 Example of a supplier file��������������������������������������������������������������������������� 100 Escalation levels in supplier management�������������������������������������������������� 101 Principles of the lean production system���������������������������������������������������� 106 5R and 7R targets in lean production��������������������������������������������������������� 107 Line shapes in production��������������������������������������������������������������������������� 108 Customer cycle and other key figures in production���������������������������������� 109 Example of a Yamazumi diagram��������������������������������������������������������������� 111 Visualization and senses����������������������������������������������������������������������������� 112 Visualization in production������������������������������������������������������������������������� 112 Shadowboard���������������������������������������������������������������������������������������������� 113 Andon example������������������������������������������������������������������������������������������� 114 Calculation of total equipment effectiveness (GAE)���������������������������������� 116 Occupational health and safety������������������������������������������������������������������� 120 The elements of DIN EN ISO 9001:2015��������������������������������������������������� 125 Process audits���������������������������������������������������������������������������������������������� 126 Audit at Mitsubishi heavy industries���������������������������������������������������������� 128 5S audits at the Berliner-Kindl-Schultheiss brewery���������������������������������� 129 The 4-level CSR pyramid according to Caroll������������������������������������������� 133 Two-dimensional CSR model according to Quazi and O’Brien����������������� 134 Core areas according to Carroll and Schwarz. (Source: Adapted from (Schwartz and Carroll 2003))��������������������������������������������������������������������� 135 The dimensions of sustainability in the three-­pillar model������������������������ 136 The concept of corporate citizenship in a broader sense. (Source: own representation)�������������������������������������������������������������������������������������������� 139 CSR in supplier management��������������������������������������������������������������������� 141 UN Global Compact Principles������������������������������������������������������������������ 143 Sustainability at VW����������������������������������������������������������������������������������� 145 Characteristics of services�������������������������������������������������������������������������� 150 Supplier management for services�������������������������������������������������������������� 153 Lean food ordering processes��������������������������������������������������������������������� 154 Phase model of corporate crises����������������������������������������������������������������� 159 Effects on P&L of measures in supplier management�������������������������������� 161 Effects on the balance sheet������������������������������������������������������������������������ 161 Restructuring measures������������������������������������������������������������������������������� 165 Project phases��������������������������������������������������������������������������������������������� 172 Interdisciplinary project groups with supplier management���������������������� 173 Levels in innovation management�������������������������������������������������������������� 180 Supplier management in innovation management�������������������������������������� 180

xxii

Fig. 14.3 Fig. 14.4 Fig. 14.5 Fig. 15.1 Fig. 15.2 Fig. 16.1 Fig. 16.2 Fig. 16.3 Fig. 16.4 Fig. 16.5 Fig. 16.6 Fig. 17.1 Fig. 17.2 Fig. 17.3 Fig. 18.1 Fig. 18.2

List of Figures

Fields of action in innovation management������������������������������������������������ 182 Innovation versus improvement������������������������������������������������������������������ 183 Phases of innovation management�������������������������������������������������������������� 184 Processes and phases in claim management����������������������������������������������� 193 Claims are recognised in profit or loss������������������������������������������������������� 194 Elements in change management���������������������������������������������������������������� 200 Change management in 3 phases according to Lewin�������������������������������� 202 Change management curve according to Kübler-Ross������������������������������� 203 Stages of change according to Kotter��������������������������������������������������������� 205 McKinsey 7S model����������������������������������������������������������������������������������� 208 Changes and personalities��������������������������������������������������������������������������� 211 Ishikawa diagram as a tool for waste identification������������������������������������ 216 Ishikawa diagram with examples���������������������������������������������������������������� 216 Ishikawa diagram in supplier management at Porsche������������������������������� 225 AirSupply as a unified platform for supply chain integration�������������������� 230 AirSupply as standard solution������������������������������������������������������������������� 231

List of Tables

Table 1.1 Table 9.1 Table 10.1 Table 10.2 Table 12.1 Table 12.2 Table 13.1 Table 13.2 Table 15.1 Table 15.2

Supplier management in comparison to classic purchasing and procurement������������������������������������������������������������������������������������������������ 16 Audit types����������������������������������������������������������������������������������������������� 124 Extract from the sustainability statement of some companies����������������� 138 Maturity levels for sustainability�������������������������������������������������������������� 142 Reasons for corporate crises��������������������������������������������������������������������� 158 Actions in case of financial difficulties���������������������������������������������������� 164 Project criteria������������������������������������������������������������������������������������������ 172 Recommendations for supplier management in projects������������������������� 176 Defensive and offensive claim strategies. (Source: own representation)���� 194 International arbitration tribunals. (Source: Helmold et al. 2020)����������� 195

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1

Supplier Management, Purchasing and Procurement

Understanding means acting. Taiichi Ohno (1912–1990)

1.1 Classification and Value of Supplier Management 1.1.1 Importance of Supply and Value Chains Companies are facing significant challenges. The Covid 19 crisis, advancing globalization, the need for worldwide digitization and the drive for ever faster and new innovations are forcing companies to radically change their strategy and traditional guiding principles. The increasing global and, above all, digital networking of customers, manufacturing companies, suppliers and other stakeholders, the almost unrestricted exchange of data and information and the associated maximum transparency of a large part of the value-adding activities within global supply chains raises the question of the future generation of competitive advantages for manufacturing, trading and service companies. In this context, supplier management, i.e. the function that controls the entire value chain across the entire depth of value creation, is becoming much more important than it has been in recent years. This is because only the integrative approach from the customer order to planning, procurement, production, logistics and the returns process provides companies with the necessary decision-making basis for their future actions. The tasks in supplier management have evolved from a purely procurement function to a value-shaping, leading and value-­ creating function (Fig. 1.1).

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_1

1

2

1  Supplier Management, Purchasing and Procurement Added value

Input

Transformation

(input factors, especially from suppliers)

(Value creation and change)

Output

(Products & Services)

Fig. 1.1  Input-transformation-output model

1.1.2 Value Creation and Value Networks By concentrating on core competencies and shifting services to supplier networks that are in competition with each other, new models, strategies and processes are emerging that are leading supplier management into a central role for every company. The focus in the future is therefore no longer only on raising internal cost advantages, but much more on the exchange of information and the exploitation of global cross-company potentials. Value-­ added scopes can no longer be handled by the manufacturer alone, but must rely on innovative, efficient and flexible supplier structures. Increasing competition, global trends, the COVID-19 pandemic, sustainability elements, technological change and shortened product life cycles are placing ever greater demands on companies and their suppliers in numerous industries. Increasing product diversity, shorter innovation cycles, and cross-­ industry business models with digital business processes further expand the complexity of managing value networks in the future. However, the planning, control and monitoring of the upstream value creation networks, i.e. the supplier networks, is becoming more difficult, so that these tasks must be covered by a holistic, standardized and innovative supplier management. However, modern supplier structures are becoming increasingly volatile. Consequently, the management of external value creation networks must also adapt to the new requirements. Risk prevention in the supply chain therefore plays a central role in every company. However, only 17% of companies operate a preventive supplier management with early and standardized involvement of their suppliers, and more than two-thirds only assess a selection of suppliers (Dust 2016). These alarming figures emerge from the study “Total Supplier Management  – Strategic Competitive Advantages through Risk Prevention in Supplier Management”. The representative survey of 221 companies from various sectors of industry, trade and services was conducted by the Technical University of Berlin in cooperation with the BME region Berlin-Brandenburg (Dust 2016). Figure 1.2 shows that the proportion of peripheral competencies outsourced to external suppliers has increased to more than 80%. In-house core competencies, i.e. processes and skills from which competitive advantages are developed for the own company, on the other hand, are at about 20%.

1.1  Classification and Value of Supplier Management

3

External value creation networks (suppliers) Relocation of value creation (outsourcing) Internal value added (company) 80% 20%

Company (core competencies)

20 %

Suppliers (peripheral competencies)

80 %

Fig. 1.2  Value creation networks in the context of supplier management

Tier 3

Tier 2

Tier 1

Supplier Supplier Supplier Supplier Supplier Supplier

Supplier Supplier Supplier

Supplier

• Synchronization of processes • Unification of ERP systems • Joint Lean Management Workshops • Standardized processes • Focus on value creation

Custo

Supplier Supplier

Supplier Supplier

Tier 1

Supplier

Production

Custo Custo

• Partnership approach • Cultural alignment • Strategic alliances • Participations in important material groups • Involvement of experts • Sustainability in supply chain management • Supply chain transparency

Upstream Supply Chain Management Management Supplier or supply side

Tier 2

Custo Custo

Custo

Custo

Downstream Supply Chain Customer or demand side

Fig. 1.3  Value chain with suppliers and customers

1.1.3 Value Chain with Suppliers (Upstream) and Customers (Downstream) The value chain includes the supply chain, the own company and the customers, as Fig. 1.3 shows. The central task is the connection of value creation networks and companies that are related to each other via upstream and downstream links. Supplier management has the task of planning, controlling and executing the supplier side so that activities and

4

1  Supplier Management, Purchasing and Procurement

processes are integrated and synchronized with the own company. Upstream, the upstream part of the supply chain, includes the company’s suppliers, processes, and relationships with them. Downstream, the downstream part, consists of the organizations and processes for distribution and delivery of products to the end customers (Helmold 2020). Value creation activities in this context involve integrative approaches to managing the overall flow of a distribution channel from supplier to end user. Each product and service has its own supply chain, which can be global, complex or intricate. Building a distribution channel therefore includes suppliers, manufacturers, distributors and customers linked by a common process through a series of supporting links in terms of location, transportation and other intermediaries.

1.1.4 Value Chain According to Porter The value chain in Fig. 1.4 represents the stages of production as an ordered sequence of activities. These activities create value, consume resources and are interconnected in processes. The concept was first published by Michael E. Porter in 1985. According to Porter, there are five primary activities that describe the actual value creation process: internal logistics, production, external logistics, marketing & sales, and service. There are also four support activities that complement the value creation process: Enterprise Infrastructure, Human Resources, Technology Development and Procurement. Each corporate activity represents an approach to differentiation and contributes to the relative cost position of the company in competition. Figure 1.5 shows Porter’s value chain with supplier management as the central function for managing and controlling supplier networks.

Secondary functions

Technology & Development Finances & Controlling Human Resources Management (HR)

Supplier

Primary funcons

Supplier Supplier

Profit

Supplier Management & Purchasing

Primary funcons Incoming logiscs

Producon

Supplier

Fig. 1.4  Value chain according to Porter

Markeng & Distribuon

Corporate Funcons

Outgoing Logiscs

A­er sales

1.1  Classification and Value of Supplier Management

5

Transformation

Secondary functions

Information Systems Finance & Controlling

Profit

Human Resource Management (HR)

Primary functions

Logistics

Supplier Management

Development

Production

After Sales

Marketing & Sales

Corporate Functions

Fig. 1.5  Transformation to supplier management as a primary function Fig. 1.6  Value creation and waste Hidden Waste

Added value (increase)

(Reducon)

Customer is willing to pay for it

Obvious waste (elimination)

1.1.5 Value Creation and Waste In terms of optimal supplier management, it is important to optimize processes, lead times and activities, eliminate waste and synchronize processes with one’s own company by planning, controlling and integrating supply chains. Throughput times are thus reduced due to the complete elimination of waste (Jap.: Muda). Types of waste can be divided into open and hidden waste, as shown in Fig. 1.6. The types of waste of overt (obvious) and hidden (concealed) waste are shown in the pie chart. Obvious (overt) waste includes all activities and operations that are obviously not necessary to add value to the product. The customer is not willing to pay a fee for these activities and pay for them. Covert waste

6

1  Supplier Management, Purchasing and Procurement

includes activities that do not add value but must be done under the circumstances. The customer also sees no reason to pay for these activities. All other aspects (activities that add value to the product) are value-added activities and are borne by the customer. The only effective way to eliminate waste is to take away the apparent certainty (Fig. 1.7). By making the real problems transparent, easy identification of the problem drivers occurs, as does the compulsion for quick resolution. By eliminating the causes of waste in a sustainable manner, lower lead times and thus automatically lower inventory levels are made possible. A key approach to supplier management is sustainable improvement, i.e. replacing waste with value creation, not compression or performance compression. The main goal of any supplier management should therefore be to transfer the JIT philosophy from one’s own company to the supplier chain and to replace waste with value creation. Figure  1.6 shows starting points for optimizing the supply chain by eliminating seven types of waste in the suppliers’ production process or in the supply chain.

Category Value-adding processes

Task

Hidden waste

Description • Customer is willing to pay • Customer recognizes added value • Process is necessary to achieve customer satisfaction

Obvious waste

• Inefficiencies not immediately visible

• Customer is not willing to pay • Process is not necessary to achieve customer satisfaction

Task

Concentration increase

• Customer is not willing to pay • Process is not necessary to , achieve customer satisfaction

Task

Destination

• Customer does not recognize the Necessity of the process

Fig. 1.7  Focus on value creation and elimination of waste

Minimization Elimination

Minimization Elimination

7

1.2  Types of Waste in the Value Chain

1.2 Types of Waste in the Value Chain Eliminating wasteful activities is one of the most important requirements for building a successful business. This concept is integral to lean thinking and helps you increase profitability. The idea of eliminating waste of any kind comes from the Toyota Production System. Taiichi Ohno, considered one of the founding fathers of lean manufacturing, dedicated his career to establishing sound and efficient work processes. During his journey, Ohno described three main obstacles that can negatively affect a company’s work processes: Muda (wasteful activities), Muri (overwork), and Mura (irregularities). Based on his observations and deep analysis, he categorized the seven types of waste (7 mudas), which later became a popular practice of cost reduction and optimization of resources (Helmold 2020). Figure 1.8 shows the seven types of waste: • • • • • •

Transport Inventory and Stocks Motion and Movement Waiting times Overproduction Overprocessing and Revisions

1. Transport 2. Stocks

7. Defects

6. Defects⨃㝢

Transport Defects

Inventory 3. Movement

6. Superfluous processes

Waste

Muda

Overprocessing

5. Overproduction

4. Waiting

Overproduction

Waiting

Fig. 1.8  TIMWOOD – 7 types of waste

Motion

8

1  Supplier Management, Purchasing and Procurement

• Defects In practice, checklists (Fig.  1.9) have proven useful for examining departments, areas, processes or workstations for waste and value creation.

1.2.1 Waste Due to Transport Excessive transportation (Fig. 1.10) is a significant waste because the customer does not care about the time, labor, energy, effort, and resources required to move items and does not want to pay for it. Examples of transportation waste include moving product from one functional area, such as pressing, to another area, such as welding, or using material handling equipment to move batches of material from one machine to another within a work cell. This wastes time as operators devote the available time of the workday to moving objects from one location to another. It wastes energy and resources because employee time could be better spent and because some tools used for moving (forklifts, trucks, pallet jacks) consume energy, such as electricity or propane. By spending time on wasting activities, machines and operators are no longer free to take on value-added activities. Figure 1.11 shows the description, causes, consequences, and examples of transportation waste. Reasons can be inadequate layouts and long distances between operations. The consequences of this waste are increased time requirements and reduced productivity. Reduced productivity leads to higher operating costs and can affect the profitability of the company.

Checklist: Area

T

Transport

Transport

I

Inventory

Stocks

M

Motion

Movement

W

Waiting

Waiting times

O Overproduction Overproduction O Overprocessing

Overwork

D

Defective

Defects

Fig. 1.9  Checklist: TIMWOOD

1.2  Types of Waste in the Value Chain

9

1. Transport (Transport) Definition • Unnecessary material transport • Unnecessary tool transport • Unnecessary transport of information • Transport is a necessary type of waste, but should be kept to a minimum

Possible causes • Inadequate arrangement of the required materials and equipment • Physical distance between material delivery and use • Intermediate storage of material (buffer)

Example

Consequences • Additional space for transport • Capacity blocking due to additional logistics effort • Additional capacity utilisation • Possible damage to products

• Long or additional transport of: • Raw materials • Semi-finished products • Finished products • Tools and equipment • Information

Fig. 1.10  Waste due to transport

2. stocks (inventory) Definition • More is needed than can be processed or produced • Raw materials and commodities • Semi-finished products • Work-in-Progress (WIP) material • Finished products and finished goods

Causes • Planning and logistics processes • Insufficient supplier quality • Deficient processes in the value chain • Non-synchronized value strings • High product diversity

Consequences • High capital commitment costs • High storage costs • Duplications within the Value chain • Double touch • Scrap and rejects

Example • Overcrowded warehouses • Too much material at workstations • Buffer stocks • Clogged corridors and aisles • Safety stock

Fig. 1.11  Waste due to inventories

1.2.2 Waste Due to Inventory and Stocks Inventory consists of excess material of finished goods, semi-finished goods or raw materials. Finished goods inventory is generally the most expensive inventory because it involves labor and other overhead costs, along with material costs consumed during production. Process improvements are needed to reduce this inventory, as well as greater accuracy in forecasting customer requirements. Inventory waste refers to waste generated by unprocessed inventory. This includes wastage of inventory, wastage of capital tied up

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in unprocessed inventory, wastage in transportation of inventory, containers in which inventory is stored, lighting of the storage room, etc. In addition, excess inventory can hide original waste. The environmental impacts of inventory waste are packaging, deterioration or damage to work-in-process, additional materials to replace damaged or obsolete inventory, and the energy used for lighting and either heating or cooling for the inventory room. Figure  1.11 shows the definition, reasons, consequences, and examples of inventories. Inventories represent capital commitment costs. Therefore, they will have a negative impact on working capital and cash flow, so sophisticated production planning must focus on optimal inventory levels throughout the value chain and across the operation (Helmold and Terry 2016).

1.2.3 Waste Due to Motion and Unnecessary Movements Unnecessary movement is another aspect that significantly reduces productivity. Unnecessary movement includes both small-scale movement, such as handing tools or reaching to components that are unnecessarily far away, and large-scale movement, such as going to the central tool dispenser to get a replacement tool. Often, poor or lack of workplace ergonomics is the reason for unnecessary movement, which not only limits an employee’s efficiency, but in many cases can lead to workplace accidents or poor quality. In order to improve workplace ergonomics, work processes must be analysed in detail so that optimal conditions can then be created for the workflow. Significant improvements can usually already be achieved through the correct arrangement of components and operating equipment on the assembly table, the complete availability of all required materials and tools and the right environmental conditions, such as lighting and table height. Unnecessary movement on a larger scale manifests itself by the employee regularly wandering around within the work area or by the employee even having to leave his own work area, for example, in order to obtain missing items from other areas. Disorder is therefore very often a reason why a lot of working time is wasted searching for tools or materials. During such searches, the employee often covers considerable distances, during which he or she naturally cannot add value. The application of the 5S method, in which unneeded items are rigorously sorted out at the workplace in the first step and then, in the second step, organisational systems are installed to ensure that the items that are actually needed are available, can quickly provide a remedy in such cases. Figure 1.12 shows the definition, causes, consequences and examples of waste in the area of movements.

1.2.4 Waste Due to Waiting Times Waiting times are unproductive times during which no added value can be generated. Often a large part of the waiting time is caused by machine downtime. However, waiting times can also affect manual operations where the sequence of activities is not

1.2  Types of Waste in the Value Chain

11

3. movement (motion) Definition • Any type of movement that serves or is part of the value-added process

Causes • Incorrect or missing analysis of the work processes • Improper arrangement of workstations • Insufficient provision of materials, tools or information

Consequences

Examples

• Declining productivity

• Long distances between stations

• Increase in lead times and lead times

• Long distances for material supply

• Capacity fluctuations

• Missing materials, tools or Information

• Inadequate ergonomic processes

• Long tool procurement routes

• Health damage and disease

Fig. 1.12  Waste due to movements

synchronized and downstream process steps have to wait for parts or products from the previous station. The reduction of waiting times or the reduction of machine downtimes increases the available machine time and thus the output. With the same available machine time, productivity (=output/input) also increases. As a logical consequence, this means that machine downtimes, whether planned or unplanned, must be reduced to a minimum. Basically, it should be noted that waste cannot be completely avoided. The goal is to eliminate waste where it can be eliminated (e.g. rejects) and to minimize it in the remaining areas (e.g. transport routes). Especially in the case of machine downtimes, preventive maintenance aims to avoid the occurrence of damage-related and thus often costly plant downtimes through comprehensive planning and implementation of maintenance measures. A distinction must be made between the following measures: • • • •

Inspection Maintenance Preventive repair or replacement of machine components Installation of monitoring systems

In all measures, the duration of the planned shutdown should be kept as short as possible and the interval between shutdowns as long as possible in order to achieve long production times. The installation of monitoring systems provides information about the service life of the wearing parts without the machine having to be shut down for this. In this way, the service life of the components can be fully exploited before they are replaced. Figure 1.13 shows the description, reasons, effects and examples of waiting times.

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4. waiting times (Waiting) Definition • Periods and time windows in which no activities take place • Employees are forced to wait • No value is added during waiting times • Products and services are waiting for processing and further treatment

Consequences • Lower productivity • Demotivation • Long production times • High throughput times • Inefficiencies • High stocks

Causes • Insufficiently synchronized processes • Uncoordinated material flows • Unbalanced activities in the wards • Missing materials, tools or information • Missing staff at stations

Examples • Waiting for materials, tools or information • Lack of well-qualified employees • Production interruptions

Fig. 1.13  Waste due to waiting times

5. Overproduction Definition Definition

• If more is produced than is demanded internally or externally by customers • If inventories are built up with the aim of satisfying demand • Building up stocks for security of supply

Consequences Consequences

• High stocks • Use of additional storage space • Blocked capacities at machines and plants • Declining productivity • Double touching of products and materials

Causes Possible reasons

• Insufficient transparency for actual needs • Production according to optimal sales • Unstable processes • Utilisation of capacity without taking into account actual demand

Examples • Overcrowded warehouses • Rented storage space • obstruction material • Accessed corridors

Fig. 1.14  Waste due to overproduction

1.2.5 Waste Due to Overproduction Overproduction (Fig.  1.14) occurs when a company produces more than the customer actually needs. This can include both the production of products or components for which there are no current orders and the production of more parts than are currently needed. Overproduction is the worst type of waste because it usually multiplies all other types. It increases scrap and rework rates, inventories, cycle and waiting times, and unnecessary movement and transportation.

1.2  Types of Waste in the Value Chain

13

1.2.6 Waste Due to Redundant Processes and Over-Processing Over-processing is described in Fig. 1.15. This includes still needed (extra) steps in a production process. It can also involve the production of output that is of a higher quality than required. This can be caused by incorrectly used equipment, errors in rework, poor process design or poor communication. Often, however, it simply results from not checking exactly what the customer actually needs.

1.2.7 Waste Due to Defects The defects shown in Fig. 1.16 refer to a product that deviates from the standards of its design or from the customer’s expectations. Defective products need to be replaced; you need paperwork and human labor to process them. You could potentially lose customers. The resources put into the defective product are wasted because the product is not used. In addition, a defective product leads to waste at other levels that may have led to the defect in the first place. A more efficient production system will reduce defects and increase the resources required to fix them in the first place. The environmental costs of defects are the raw materials consumed, the defective parts of the product that must be disposed of or recycled (wasting other resources for reuse), and the additional space and increased energy consumption required to fix the defects.

6. Reworking, incorrect processes (overprocessing) Definition Definition

• Process weaknesses in terms of sequence, order, content, technology and resources • Over-engineering" is when processes or production methods are unnecessarily complex without being necessary for the end product.

Consequences Consequences

• High production costs • Waste of material • Low efficiency • High resource requirements (employees, machine, material)

Fig. 1.15  Waste due to overprocessing

Causes Possible reasons

• Inadequate technology and inefficient procedures for the process • Inadequate analysis and design of processes • Due to process problems, the product requirements in the specification are higher than required by the customer

Examples • High tolerances • Incorrect, faulty and unrecognised process steps • Non-optimal use of resources • Duplication and duplications

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7. defects (Defects) Definition Definition

Causes Possible reasons

• Not reached the first time • Defective parts and products • Important characteristics are not fulfilled

• Lack of preventive maintenance • Insufficient training • Insufficient product classifications • Unstable processes • Lack of failure mode analysis

Consequences

Examples

• Additional raw materials necessary • Additional work equipment, tools and activities necessary • Rework and repairs • Additional capacities for machinery and equipment • Extended lead times

• Increase in nonconformities • Expensive repairs • High scrap costs

Fig. 1.16  Waste due to defects and deficiencies Added value Determination of the strategy

Customer satisfaction

Input (input factors, especially from suppliers)

Transformation

Output

(Value creation and change)

(Products & Services)

Integration of all functions Primary functions

Procurement

Quality performance Production

Marketing & Distribution

Secondary functions

Focus on value creation

Cost and financial performance

Delivery performance

Other performance targets

Fig. 1.17  Controlling value creation through supplier management

1.3 Tasks and Delimitation of Supplier Management 1.3.1 Tasks of Supplier Management The production of goods and services comprises three core processes, which are shown in Fig. 1.17. These core processes include the use of resources (input) through the procurement of input factors, production and the operational result (output) with delivery to the customer. Procurement as part of supplier management is the first function in the operating

1.3  Tasks and Delimitation of Supplier Management

15

process. It thus forms the interface between the company and its procurement markets. In this sense, supplier management links procurement with the company’s own production and the sales function, because ultimately every exchange of goods is the subject of both sales management and procurement management. Global trends, digitalization, continuous technological innovations, shortened product development cycles and the development of new business models are presenting today’s companies with ever greater challenges. The increasing digitalization of products and processes in particular is permanently changing purchasing, procurement and supply chain management. Information and communication technology, social media, Big Data and networked systems through digitalization are playing an increasingly important role for future business models. Value creation is not only internal to the company, but is also largely provided by supplier networks. This share of external value creation will continue to increase in the future, so that the design and management of the emerging partner networks represent an increasingly critical factor for success in companies. The resulting new opportunities and risks at the interface to the supplier side require a rethinking in almost all corporate divisions. In the past, classical purchasing defined itself by focusing on supplier management via material costs and cost prices. Procurement was responsible for the operational execution. The focus here was on the contractual implementation of purchasing targets and purchase prices (Dust 2019). Supplier management, on the other hand, does not just selectively control individual suppliers, but looks at entire supply networks and supply chains, and does so preventively through the use of standardized tools (Helmold and Terry 2016). Purchasing and procurement of raw materials, components and systems will continue to be of great importance for the company’s results in the future. However, due to the increasing complexity of value networks, the far greater potential lies in the efficient management of the entire value chain. The control and evaluation of these heterogeneous partner networks is becoming increasingly complex and difficult with conventional purchasing methods. As a result, companies are forced to consider not only the material costs but also the control and process costs of the value chain. In contrast to supplier management, which plans and controls supply chains preventively, conventional purchasing and procurement have tended to be reactive. The holistic approach of modern supplier management therefore refers to quality, cost, delivery and sustainability targets. The goals are implemented through a good relationship with the supplier. New products combining different technologies are giving rise to new tasks. Environmental requirements and sustainability goals lead to new mobility concepts, which in turn lead to innovations in information and communication technology. This means that the dynamics of innovation are also creating new ways of joint development and collaboration between customer and supplier. As a result, the dependence of individual companies on each other in global partner networks will continue to increase in the future, since only cross-industry cooperation can ensure the availability of required production factors and technologies. Such trends have been observed for some time. However, despite this change, cooperation between buyers and suppliers is still partly characterized by

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traditional power relationships. As a result, suppliers have optimized their interface processes with customers into a single point of contact (Single Point of Contact, Key Account Manager). Customers are also increasingly shaping their business relationships with a single point of contact for suppliers (supplier manager).

1.3.2 Differentiation of Supplier Management from Classic Purchasing Supplier management deals with the overall planning, design and improvement of the supplier-customer relationship. The aim is to build up and maintain a supplier base whose members are characterized by continuity, performance and readiness to deliver. In most cases, supplier management is still reactive. However, preventive approaches are increasingly being found, since efficient and preventive management of the supplier base is now crucial to success due to the increased external provision of services. In the future, procurement as a value creator must play a significantly greater role in the internal coordination and management of the supplier base throughout the entire product life cycle. Supplier management assumes the key central role by integrating all functions and departments as the primary function. Therefore, supplier management is a strategic competitive advantage. Table 1.1 shows the differences. Purchasing comprises the sum of all operational and strategic activities of a company that are to be carried out within the framework of the procurement of materials, goods, operating resources and services. The purchasing spectrum of a company or the derived product groups can be differentiated as direct and indirect requirements. Direct purchasing describes the procurement of materials that flow directly into the end product and forms the core business in purchasing in most companies. In manufacturing and industry, direct materials often account for 70–85% of the total purchasing volume. All other procurement Table 1.1  Supplier management in comparison to classic purchasing and procurement Supplier management Holistic approach and focus on quality, cost, delivery and sustainability targets Preventive planning, management and control of supplier networks Standardized tools and processes for supplier development

Purchasing, procurement Primary focus on optimizing material costs and cost prices Reactive activities in the event of supply disruptions and failures Non-standardized tools and processes in purchasing and procurement Integration of all functions through supplier management as Purchasing and procurement as the primary function. Supplier management as a strategic responsible function for supplier competitive advantage issues Single point of contact for suppliers and central control of all Multiple contact persons due to functions different functions Source: Own representation

1.3  Tasks and Delimitation of Supplier Management

17

categories are managed through indirect purchasing. They do not go into the final product, but rather are intended for use within the company. These include services, IT and marketing. Since the focus in manufacturing companies is often on direct purchasing, indirect purchasing is sometimes neglected. Tasks of the purchasing department are: • • • • • • •

continuous procurement market research Carrying out market analyses and comparisons of offers Invitations to tender, examination of tenders, preparation of price lists Selection of suppliers Contract negotiation and drafting Preparation of framework agreements Planning of strategic order processing

Figure 1.18 shows the differences and delimitations of the functions procurement, procurement in the broader sense, purchasing, supplier management and supply chain management.

Supply chain management Supplier management

Purchasing Procurement by extension

Procurement Procurement logistics

Supply Chain Management: Control of the value chain from the supplier (or upstream supplier) to the end customer. The focus is on the end customer.

Supplier Management: Holistic and preventive planning, management and control of supplier networks. Use of standardized tools. Integration of all supply activities into the value chain. Alignment aims at suppliers. Purchasing: The sum of all operational and strategic activities of a company that are to be carried out within the framework of the procurement of materials, goods, operating resources and services. Procurement in the broader sense: Supply of goods and services to the consumers at the production sites. This also includes the procurement of labor, information, capital, rights, material goods and services. Procurement: Supply of goods and services to the users in the production facilities. Procurement Logistics: Physical supply of the demand carriers. Control of the flow of materials and information.

Fig. 1.18  Delimitation of procurement, purchasing and supplier management

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1.3.3 Procurement and Procurement Logistics The function of procurement on the supplier side is sales or distribution (also marketing and sales), whereby the procurer appears there in the role of the customer. In the execution of procurement measures, therefore, functional units of both sides interact with each other simultaneously. According to definition of the term the procurement serves the maintenance of the supply with the input factors necessary for the operational processes, which are not available in the enterprise itself The term procurement management covers however the decisions going beyond the individual case of need over the supply of the demand carriers in the production plants with goods and achievements. This also includes the procurement of labor, information, capital, rights, material goods and services. Procurement tasks are: • • • • •

Maintenance of supply operational order processing Call-off management of necessary products and services Decision on short-term alternatives for security of supply Taking measures in the event of delivery and service disruptions

Procurement logistics as part of procurement takes over logistical tasks. The term procurement logistics as part of procurement and logistics refers to all activities of goods purchasing up to the transport of the material to the incoming warehouse or to production: Tasks of procurement logistics are: • • • • • •

Coordination of carriers and forwarders Organization of delivery transports Incoming goods Incoming goods inspection Warehouse Logistics Internal transport logistics

1.4 Case Study: Sustainable Supplier Management in the BMW Group BMW has a global supplier network that makes a significant value contribution to the value creation, quality and innovative strength of the BMW Group. It makes a decisive contribution to the success of the BMW Group. Suppliers thus have a significant influence on sustainability and other important components of BMW’s corporate success. (BMW 2020). BMW works with approximately 12,000 suppliers in 70 countries. It is important

1.4  Case Study: Sustainable Supplier Management in the BMW Group

19

for the company that all value creation partners meet the same ecological and social standards by which BMW measures itself. The BMW Group uses the sustainability standard for the supplier network as a basis. This includes, among other things, respect for internationally recognised human rights as well as labour and social standards. At BMW, cooperation with suppliers is characterised by a common understanding of product and production quality, security of supply, competitive prices and innovative strength, as well as by the consistent integration of our sustainability claim. In view of global, complex supply chains and the large number of suppliers and sub-suppliers, this claim is an enormous challenge, but also a great opportunity. Due to the increasing share of e-mobility, much greater attention will have to be paid to upstream value creation in the future when it comes to CO2 reduction – for example, in view of the energy-intensive production of high-voltage storage systems. This is because without countermeasures, CO2 emissions per vehicle in the BMW Group supply chain would rise by more than a third by 2030 due to the increased share of electrification. The company not only wants to avoid this increase, but also to reduce CO2 emissions per vehicle by as much as 20% compared to 2019. To this end, the BMW Group will, among other things, establish the CO2 footprint of the supply chain as an award criterion in its decision-making processes. In doing so, the company is taking on a pioneering role as the first automobile manufacturer with concrete CO2 targets for its supply chain. This consists of around 12,000 Tier 1 partners worldwide alone, who supply materials and components for vehicles, as well as other suppliers who provide production facilities or tools, for example. In total, the BMW Group has a purchasing volume of over 60 billion euros per year, of which around two-thirds is accounted for by direct vehicle volumes. In order to comprehensively ensure sustainability in the supplier network and to continuously improve, BMW focuses on two main areas: Managing risks sustainably and exploiting opportunities. Managing and minimising risks: To this end, BMW’s risk management identifies and analyses potential sustainability risks along the supply chain. Since 2009, BMW has asked suppliers to submit an assessment of their sustainability management and corresponding activities. In addition, supplier locations with an increased risk of sustainability violations and locations where a violation is suspected are reviewed by independent auditors. Exploiting opportunities and leveraging potential: BMW achieves this by working with suppliers, for example on resource efficiency, training and empowering employees and suppliers, and actively engaging in initiatives and with stakeholders. The BMW approach is to ensure sustainability standards across the board, i.e. with all our direct suppliers, through comprehensive risk management on the one hand, and to analyse specific raw materials or materials in depth along the entire supply chain on the other. With the BMW Supplier Innovation Award, the BMW Group rewards outstanding innovations and development achievements by its suppliers (BMW 2020).

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References BMW (2020). BMW Group. Lieferantenmanagement. Globales Lieferantennetzwerk. Abgerufen am 7.10.2020. https://www.bmwgroup.com/de/verantwortung/lieferanten-­management.html. Dust, R. (2016). Lieferanten-/Risikomanagement. Bislang wenig Risikoprävention in der Supply Chain. In BME.  Abgerufen am 28.9.2020. https://www.bme.de/ bislang-­wenig-­risikopraevention-­in-­der-­supply-­chain-­1468/. Dust, R. (2019). Total Supplier Management. Hanser Verlag München. Helmold, M. & Terry, B. (2016). Lieferantenmanagement 2030. Springer Gabler Wiesbaden. Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham.

Further Reading Büsch, M. (2019). Fahrplan zur Transformation des Einkaufs. Springer Gabler Wiesbaden. Dust, R., Goldschmit, J.P. & Gürtler, B. (2011). Total Supplier Risk Monitoring – Datenqualität als zwingende Grundlage einer effektiven Lieferantenbewertung. Qualität und Umweltmanagement, 10/2011, 10–11. Dyer, J.H. (1996). Specialized Supplier Networks as a Source of Competitive Advantage: Evidence from the Auto Industry. Strategic Management Journal, 17 (4), 271–291. Dyer, J.H. (2000). Collaborative Advantage. Winning through extended Enterprise Supplier Networks. New York, Oxford University Press, 21, 71–87. Ellram, L.M. & Liu, B. (2002). The financial Impact of Supply Management. Supply Chain Management Review, 6 (6), 30–36. Ellram, L.M. & Cooper, M.C. (1990). The Relationship Between Supply Chain Management and Keiretsu. International Journal of Logistics Management Review, 4 (1), 1–12. Helmold, M. & Terry, B. (2013). Praxis und Forschung. Gesamtheitliches Best-in-class-­ Lieferantenmanagement implementieren. In Procure.ch. procure.ch – Beschaffungsmanagement 11/2013. S. 22–24. Helmold, M. & Terry, B. (2017). Global Sourcing and Supply Management Excellence in China. Springer Singapur. Helmold, M. & Dathe, T. & Büsch, M. (2017). Praxisbericht aus der Bahnindustrie – Bombardier Transportation. Veränderte Anforderungen durch Global Sourcing. In: Beschaffung aktuell. 4.5.2017. Abgerufen am 17.9.2020. https://beschaffung-­aktuell.industrie.de/einkauf/ veraenderte-­anforderungen-­durch-­global-­sourcing/. Heß, G. (2017). Strategischer Einkauf und Supply-Strategie – Schrittweise Entwicklung des strategischen Einkaufs mit der 15M-Architektur 2.0. 4. Auflage Springer Gabler Wiesbaden. Heß, G. & Laschinger, M. (2019). Strategische Transformation im Einkauf. Springer Gabler Wiesbaden. Hofbauer, G., Mashhour, T. & Fischer, M. (2016). Lieferantenmanagement: Die wertorientierte Gestaltung der Lieferbeziehung. DeGruyter Oldenbourg Berlin. Kalkowsky, M. (2004). Nur Porsche hat das Lean Management begriffen: Interview with Prof. D. Jones. Produktion. 31, 16. Kleemann, F.C. & Glas, A.H. (2020). Einkauf 4.0., 2. Auflage, Springer Gabler Wiesbaden. Schupp, F. & Wöhner, H. (2017). Digitalisierung im Einkauf. Springer Gabler Wiesbaden. Van Weele, A. & Eßig, M. (2017). Strategische Beschaffung. Grundlagen, Planung und Umsetzung eines integrierten Supply Management. Springer Wiesbaden.

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Transformation and Cultural Change Towards Innovative Supplier Management

Dissatisfaction is the mother of improvement. Shigeo Shingo (1909–1990).

2.1 Transformation Requirements in Supplier Management Supplier management is facing significant challenges due to crises and trends. Global digitization and the drive for ever faster and new innovations are forcing companies to radically change their strategy and traditional guiding principles. Situations such as the financial crisis of 2008 and the COVID-19 pandemic of 2019/2020, the increasing global, and above all digital, interconnectedness of customers, suppliers and stakeholders, the worldwide networking, as well as the accompanying maximum transparency over a large part of the value-adding activities within global supply chains raises the question of the future generation of competitive advantages of manufacturing, trading but also service companies. In this context, supplier management, i.e. the function that controls the entire value chain, is becoming much more important across the entire value chain than it has been in recent years. This is because only the integrative approach from the customer order to planning, procurement, production, logistics and the returns process provides companies with the necessary decision-making basis for their future actions. The tasks of purchasing and supplier management have evolved from being purely procurement and cost depressors to being value-creating and value-creating functions, as Fig. 2.1 shows. The tasks and the value contribution to the company’s success have evolved from pure procurers and cost depressors to value-shaping and value-creating functions.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_2

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High

Change in the guiding principles of supplier management

Value creator Pioneer

Maturity levels

Trailblazer Cost-pushers Procurer

Management of value networks

Low

1980

2015

2000

2020

2030

Fig. 2.1  Development of supplier management

Secondary functions

Technology & Development Finances & Controlling Human Resources Management (HR)

Profit

Primary functions

Supplier Management & Purchasing Incoming Logistics

Production

Marketing & Sales

Outgoing Logistics

After Sales

Corporate Functions

Fig. 2.2  Transformation in supplier management

Supplier management sits at the interface to suppliers and innovations that companies need for their transformation. It plans, designs and manages the value creation networks and partnerships in the increasingly digital world, with system suppliers, technology and software companies, startups and other drivers of the value chain, on whose collaboration companies will be even more dependent in the future. Figure 2.2 shows the transformation of corporate functions based on Porter’s value chain. Close collaboration with internal and external partners is permanently changing the role of supplier management as a cost depressor and cost optimizer. At the same time, supplier management must standardize,

2.2  Supplier Management as a Competitive Advantage for the Company

23

digitize and automate its own processes. Therefore, new processes, methods and models are needed at the supplier-company interface, as well as an even more intensive exchange within the company and with the procurement markets. Supplier management will continue to retain classic procurement functions in the future. It will continue to manage and bundle requirements, negotiate prices, select suppliers, qualify suppliers and ensure that materials are reliably available in the required quality. However, strategic tasks and processes are added. Supplier management is becoming a core function within the company, a business partner of all departments at eye level, such as technology and development, production or marketing. Especially by shifting services to supplier networks (outsourcing), which are in competition with each other, new guiding principles are emerging within the value chain as well as strategies, responsibilities and processes, which have to be mastered by modern supplier management. The focus in the future is therefore no longer only on raising internal cost advantages, but much more on the exchange of information and the exploitation of global cross-company potentials. The strategic planning and control of global supply chains will be the decisive tasks of the future. This requires that supplier management transforms into a smart and agile organization that can deal with technological, economic, ecological, political and cultural change and the associated demands on procurement (sustainability, supply risks, innovations). Supplier management will therefore take on the central key role in the future.

2.2 Supplier Management as a Competitive Advantage for the Company The concept of holistic supplier management as a competitive advantage and value proposition includes 15 key categories as well as maturity analyses in each of these categories for preventive, successful and innovative supplier management. The goal in this concept is to strive for excellence in each of the categories through targeted actions (Helmold and Terry 2016). The consequence of a lack of supplier management can lead to significant loss costs and image damage. In contrast, the transformation to a company with an innovative and holistic supplier management represents a sustainable competitive advantage and has a positive impact on the company’s financial situation in the medium and long term. Targeted implementation in the developed categories is therefore necessary: 1. Alignment of the corporate strategy 2. Organizational alignment 3. Selection of suppliers, including sub-suppliers 4. Cooperation with suppliers 5. Manageability of the value chain 6. B2B cooperation with suppliers 7. Cost transparency in the supply chain 8. Risk management in the supply chain

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9. Demand alignment and synchronization of production systems 10. Quality performance of suppliers 11. Creation of a supplier academy and continuous qualification 12. Supplier management in an international context 13. Supplier regression and contract management 14. Dual sourcing strategies for strategic material groups (Dual Sourcing Paradox) 15. Establishment of comprehensive teams for the preventive avoidance of delivery disruptions They each comprise maturity levels from supplier management laggards, beginners, users, professional users, industry leaders and global leaders. Figure 2.3 shows the respective maturity levels for modern supplier management. Even though there is a need for action, in practice not all companies can immediately implement all categories. For this reason, Dr. Marc Helmold, with the help of expert interviews and studies, has developed a model that helps companies to determine where they stand in 15 supplier categories and to derive the necessary need for action in order to achieve industry best practice or industry excellence. Empirical results show that, depending on the initial situation, characteristics and degree of maturity, implementation in the respective categories can take up to 5  years. Successful supplier management starts with corporate strategy: Excellent companies have integrated the goals of preventive supplier management into their mission and corporate goals. Based on the corporate strategy, organizational alignment is one of the keys to “best-in-class” supplier management. Analogous to a “key account manager” in sales, excellent companies have a single point of contact with the supplier who represents all interface issues with the supplier both externally and internally. This is the basis for

1. Supplier management Global front-runner

2. Supplier management Industry leader 3. Supplier Management Professional User 4. Supplier Management Standard User 5. Supplier Management Beginners 6. Supplier Management Laggards

Fig. 2.3  Maturity levels in supplier management

2.2  Supplier Management as a Competitive Advantage for the Company

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supplier selection (category 3), including subsequent suppliers. In most cases in the study, companies have jointly developed strategies with their suppliers for 3–5 years. Cooperation and supplier relationships are formed by the outstanding companies on an equal footing. Collaborations include logistics, quality, and production processes and may include mergers, joint ventures, strategic alliances, or looser ties. Japanese-influenced companies in particular focus on value creation and the elimination of waste along the value chain. For manageability, companies with excellent supplier management use IT systems, some of which extend to third-tier subcontractors. In the empirical study, it was evident that even Chinese suppliers mirror their customers on the SAP side in order to achieve greater transparency. In addition to SAP-side harmonization, excellent value chains access overarching Internet portals that include processes in quality, logistics, and other functions. The added value justifies the costs involved in the transformation to modern supplier management. In addition to transparency along the value chains, a fair “open cost policy” is one aspect of best-in-class supplier management. Here, too, Japanese companies represent excellence by seeking concerted cost reductions and optimizations along the value chains of all companies already in the product development process with suppliers. Risks are shared by customers and suppliers and made transparent. In addition to macro risks such as natural disasters, there are micro risks that are more the responsibility of suppliers. Excellent companies have a risk management which includes the supplier levels one, two and three (Engl.: Tier 1, 2 and 3). The ninth category is optimal demand alignment and constant implementation of the draw principle. Quality milestones and processes are jointly developed and include subcontractors. Quality data from the past is used here to generate future trends for preventive avoidance of incidents. Converting retroactive data into models to identify future incidents or potential incidents is one of the most difficult issues in implementing the 15 categories. Through a supplier academy and a learning organization, own employees and suppliers are trained. Especially due to budget restrictions this is often not easy to implement. However, the added value through improvements is many times higher than the monetary investment. When doing business in an international context, specialists and purchasing offices who understand the particularities of the respective country of reference are of service. Cooperation on a solid legal basis Contract issues in supplier management are handled in excellent companies by so-called contract managers or “claim managers” with legal knowledge. Although disputes should not be settled in court, cooperation should be built on solid contractual foundations. For important product and commodity groups, excellent companies prefer a dual supplier strategy; even if a single-supplier strategy seems more sensible from the point of view of lean production, companies implement a two-supplier strategy to ensure competitiveness and supply security. As the last of the 15 categories, companies with a best-in-class supplier management deploy cross-­ divisional teams that use qualitative methods to improve quality, costs and logistics. The decisive factor here is the integration of suppliers into these teams and the open cooperation of all parties involved. By using the holistic concept, companies can analyze with internal or external experts where they stand in each individual category. Based on this, it is imperative to define the necessary action requirements. On this basis, an action plan

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follows, which is to be checked regularly and continuously for implementation. Although some categories are easy to implement, the realization in the areas of “implementation of preventive supplier management in the corporate strategy” is of a long-term nature. However, companies that do not implement these challenges in the face of increasing value creation in the supply chain will be lost to competition in the long run (Helmold and Terry 2016).

2.3 Keiretsu-Based Supplier Management The term “keiretsu” (Japanese: 系列, literally: order, row, line) originates from Japanese and means economic composite groups. Keiretsu emerges from the Japanese control model of supply chains, which has also been adopted by European companies, as pointed out by Liker (2004). Companies focus on eliminating waste in their supply networks and lean process integration of suppliers into their own organization (Helmold 2020). Keiretsu supply networks have a long-term scope and relationship (Liker 2004). Collaborative networks focus on partnerships in terms of technology, strategies, and logistics, but are not as tight as keiretsu supply networks in terms of synchronizing production systems (Choi et al. 2001). Collaborative relationships are looser and based on trust and shared strategies. A keiretsu supplier network (Jap.: integration, ordering, or system of suppliers) provides a means of mutual assurance, especially in Japan, and typically includes large manufacturers and their suppliers of raw materials, systems, and components (Freitag 2004). Keiretsu networks have received much attention in the European automotive and transportation sectors due to the success of Japanese companies, such as Toyota, Hitachi, and other conglomerates, in achieving improved customer service, better inventory control, and more efficient overall channel management (Freitag 2004). Keiretsu, a form of Japanese corporate network, shares many of the goals of SCM. The concept of keiretsu supply networks was introduced by Toyota in the mid-1980s (Ohno 1990) and transferred to affiliated companies and suppliers outside Japan (Kalkowsky 2004). Keiretsu networks often involve the partial ownership of each supplier. Control relationships between pairs of firms represent a form of bilateral exchange. The keiretsu school can lead to extensive functional and cultural changes for companies that use the system. Keiretsu networks with financial and commercial links develop quasi-administrative relationships through mutual participation. Keiretsu networks have two sides: (1) horizontal relationships based on mutual support and (2) vertical structures based on asymmetric exchange and control between financial firms and industrial firms. In various articles and books, Liker explains the Toyota Way and the principles of Keiretsu supply networks. Many OEMs and their suppliers have now adopted this system (Helmold 2020).

2.4  Supplier Management as an Initiator of Cultural Change

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2.4 Supplier Management as an Initiator of Cultural Change Supplier management and efficient supply chain processes have a positive impact on the company’s performance in terms of profitability, quality, costs, logistics and other objectives (Helmold 2020). However, it is necessary to anchor organizational infrastructures and a culture in the company that are required for an effective and sustainable implementation of supplier management. Still numerous companies see the procurement side as cost optimizers and not as managers of the supplier value network and value creators (Helmold 2020). The implementation of a strategy towards preventive supplier management or important change programs often fails not least because of insufficient attention to the cultural roots of a company. Targeted changes in corporate culture are always a complicated undertaking. Dealing with cultural as well as “internal” traditions, ways of thinking and acting requires a lot of intuition, since the foundations of the corporate culture, which have grown over many years, are not obviously manifested in company brochures, mission statements, manuals or the like. Rather, they are expressed in the way certain things are approached and in internal manners and perspectives. The cultural web is a representation of these fundamental assumptions and paradigms that define a culture, as well as the physical effects of the culture. The Cultural Web, developed by Gerry Johnson and Kevan Scholes in 1992, provides such an approach to looking at and changing your organization’s culture. In this way, companies can identify recommended cultural actions and seek to align organizational and cultural elements with corporate strategy (Helmold 2020). These infrastructures need to integrate cultural elements, as shown in Fig. 2.4. The outer circles represent the individual assumptions that shape the cultural paradigms of the company. The paradigms represent people’s basic assumptions about the company (e.g. orientation towards aspects such as service, public benefit, profit and profitability, social aspects, environmental protection, appreciation of existing know-how, etc.). Routines describe “how we do things around here”. They determine how people behave towards others inside and outside the company (cooperatively, in partnership, hierarchically, bureaucratically, etc.). Such routines can be an important prerequisite for the effective functioning of corporate processes. However, if certain ways of acting are taken for granted, they can lead to problems in change projects.

2.4.1 Stories and Myths Stories and myths include stories, rumors and narratives that exist about the company. Stories circulate in and about probably every company and are often retold when the opportunity arises, for example, when a new employee joins the company. These stories reflect the history of the company, often important events or special personalities. But they also represent episodes from the company’s everyday life and history that give clues about the culture in which people interact. In this way, the stories also form a kind of informal

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Fig. 2.4  Elements of corporate culture: the cultural web

Stories

Rituals and routines

Control systems

Symbols

Mission Statement: Cultural change and transformation to supplier management

Power structures

Organisational structures

legitimation for certain typical company behaviors. They are used, consciously or unconsciously, as a means of describing to others what is important in the company. Important questions in the Stories category are: • What values are reflected in the stories? • Do the stories refer to: 1. Strengths or weaknesses? 2. Successes or failures? 3. Conformity or deviation? • Who are the heroes and losers? • What norms do escapees deviate from?

2.4.2 Symbols Symbols represent characteristic features of the company. They include, among other things, company logos, offices, company cars, titles or the company’s internal use of language, including typical terminology. For example, in highly hierarchical companies, symbols are typically found to delineate levels such as titles, authority boundaries, office size and equipment, and privileges. In companies that exhibit a large number of such symbols, particular difficulties are likely to be encountered in the implementation of strategies

2.4  Supplier Management as an Initiator of Cultural Change

29

aimed at realigning towards flatter organisational structures and greater individual responsibility. Within Lean Management it is necessary to eliminate status symbols and to show that employees are the most important resource for the company. • • • • •

What language and terms are used? How accessible are these linguistic codes to outsiders? What aspects of the strategy are highlighted publicly? What are the status symbols (official and informal)? Are there any special symbols that are typical for the company?

2.4.3 Power Structures The internal power structures also provide information about the company’s self-image. The most influential individuals and groups within management are often closely related to the basic assumptions about the roots of the company’s success. The large auditing and management consulting firms are a vivid example of this. Their origins are usually in auditing. Although, due to changes in the market environment, they now offer a wide range of complementary consulting services that contribute greatly to corporate growth and success, one still finds a disproportionately high share of auditors in top management and among partners. The following aspects are of central importance for the change to lean management within the category of power structures: • • • •

What are the values related to leadership and management? How strong are these values? How is power distributed within the company? What are the main blockages to change?

2.4.4 Organisational Structures Organizational structures include the hierarchical composition of the organization and formal relationships between people from these different levels of the organization. The informal and unwritten power structures are an important factor of organizational structure. These power structures are also reflected in the organizational structures. These also depict supporting relationships and the roots of organizational success. Furthermore, conclusions can be drawn from the degree of power structures, complexity, formality, hierarchy and centralization of corporate structures as to the resistance that far-reaching change projects are likely to encounter. The following points are important when evaluating organizational structures:

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• • • •

2  Transformation and Cultural Change Towards Innovative Supplier Management

How flat or hierarchical are the structures? How formal or informal are the structures? Do the structures encourage cooperation or internal competition? Which power structures are supported by the existing structures?

2.4.5 Control Systems From the point of view of a lean corporate culture, metrics and remuneration or bonus systems are particularly important as control systems. They provide indications of what is considered important in the company (e.g. individual performance bonuses vs. team bonuses, orientation of bonuses to quantities vs. quality level vs. customer satisfaction, etc.). Public companies, for example, have a reputation for paying more attention to the use of available funds than to the quality and needs-based nature of their services. Control systems should be examined for the following issues: • • • • •

What is monitored and controlled most closely? Is the emphasis on reward or punishment? Do the control systems arise historically or from the current strategy? How much control and surveillance is there? What levels of autonomy are there for employees?

2.4.6 Rituals and Routines Rituals encompass other aspects of life within the company. They concern relatively formal processes (e.g. training programmes, promotion processes, company outings, fixed-­ schedule team conferences) as well as informal habits (e.g. going to the pub together after work, chatting in the coffee kitchen). Routines and rituals provide people in companies with orientation points according to which they can align their behaviour and adapt it to the generally accepted norms. Examples of routines and rituals are: • • • • •

Which routines are emphasized? What behaviors are encouraged by these routines? What are the most important rituals and what values do they represent? What values and behaviors do internal training programs promote? How hard is it to change routines and rituals?

With the help of the cultural web, it is thus possible to identify culturally determined blockages and driving forces in the company that stand in the way of a transformation to a lean company (lean management). This makes the model an important tool for the concrete implementation planning of change projects. It shows both which internal obstacles

2.5  Culture and Elements of Lean Management in Modern Supplier Management

31

need to be taken into account and which factors have a beneficial effect and should therefore be integrated accordingly. Another application is the identification of necessary changes in the prevailing corporate culture. For this purpose, the currently existing characteristics of the cultural web are compared with the ideal state that the corporate culture must have in order to achieve certain strategic objectives. The deviations provide information about areas in which changes must be brought about with greater or lesser priority. Figure 2.4 provides suggestions for questions that are helpful in analyzing the cultural web for a company. It should be noted that it is not so much the answers given by individuals that are relevant, but the overall picture of the company.

2.5 Culture and Elements of Lean Management in Modern Supplier Management 2.5.1 Lean Principles and Lean Management as Part of Supplier Management Global trends, competitive pressure, climate change or the COVID 19 pandemic have significantly changed the framework conditions in numerous companies and redefined the term market constancy. Conventional competitive factors such as price and quality are losing importance as unique selling points. Lean management principles are now of central importance for high-tech companies as well as for consumer goods or capital goods specialists. This is because lean processes and value-added systems that are flexibly aligned with customer needs are becoming a lever for the long-term success of companies and their managers. The increasingly complex requirement for company managers, especially in manufacturing companies, is: to map as many customized, individual product variants and services as possible, to ensure delivery capability with short throughput times, and to maintain flexibility in the face of customer requirements. This means that production and logistics processes must be designed to meet these requirements. The transformation process and the cultural change are therefore mandatory determinants for a successful market presence. Three components are part of this transformation process: Lean Transformation Management focuses on essential strategic approaches that play a role in process optimization: • cultural change to a lean company • Radical restructuring (transformation), i.e. a usually abrupt, fundamental change of process and strategy with strong involvement of top management • Involvement of all employees and functions • Process reengineering or process optimization • continuous change, in which many stages of change are initiated sequentially one after the other

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2.5.2 Change Towards an Open and Creative Enterprise (Chiiku) Chiiku (Jap.: 知 育) means mastering intellectual knowledge and developing logical thinking for basic survival skills. Creativity and the freedom to think play a central role in Chiiku. For businesses to remain profitable, they first need stability based on a concrete understanding of their needs and priorities. By leveraging their unmet resources, they can then begin to innovate. Understanding this fundamental business survival need is the foundation for future prosperity and should also be the basis for leadership development in the workplace. Chiiku focuses on this logical understanding of business in a larger context. This is like thinking of a forest as a whole ecosystem, not just a collection of trees. For business leaders, Chiiku means calculating a sense of urgency and communicating it at all times.

2.5.3 Leadership in Lean Management (Tokuiku) Tokuiku (Jap.: 徳育) means to develop rational interpersonal skills as a leader. Rational development (Tokuiku) is different from logical development (Chiiku). Logical thinking is based on cause and effect, while rational thinking is based on quantity and scope. Logical thinking can tell us what to do, but we must be rational to understand why it benefits each individual. Individuals must evolve by not remaining satisfied with the current state and rationally comparing it to other possibilities. Leaders must first develop the courage to take risks and go beyond the status quo. This is like ensuring the survival of the forest by understanding the needs of each organism that makes up the ecosystem. While Chiiku focuses on the survival of the organization as an entity, Tokuiku focuses on ensuring the enrichment and success of the individuals that make up that entity.

2.5.4 Mental and Physical Strength in Lean Management (Taiiku) Modern educational systems understand Taiiku (Jap.: 体育)as Physical education (PE). It is simply seen as a way to get students to exercise their bodies through sports. However, PE is not just about building muscles and developing a sense of competitiveness. Taiiku focuses first on strengthening one’s willpower and emotions to compel the right actions. Taiiku is about leaders learning the skills to inspire a culture of immediate action, not just words. Leaders must learn to help others break the status quo. This means learning the self-criticism (hansei) mentality (Ohno 1990).

2.6  Case Study: Leadership in Toyota Motor Corporation

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Fig. 2.5  Supplier management in China

2.5.5 Implementation of Ideas Through Employee Involvement (Yattakoto) YWT (Yatta Koto: What we have done; Wakatta Koto: What we have learned; Tsugi Ni Yarukoto: What we will do next). The approach is used in Japan and by Toyota to summarize and improve lessons learned. The Y summarizes a specific experience, the W seeks to gain the insights and knowledge gained, and the T seeks to identify where this learning can be applied to a new situation. Used as a quick feedback and insight session, often within a minute, often after a meeting or at the end of each day on a project. Can be done verbally, but is often used with written notes. Figure 2.5 shows a training and lean workshop at a leading global manufacturer of transportation industry components and system. Lean management is a philosophy that should be applied sustainably to all areas of the company and all employees. Especially in the case of international value chains, it is crucial that value creation partners are involved in the transformation process (Helmold 2020).

2.6 Case Study: Leadership in Toyota Motor Corporation Toyota Motor Corporation’s organizational and leadership culture defines how employees respond to challenges the company faces in the marketplace. As a global leader in the automotive industry, Toyota uses its organizational culture to maximize human resources

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in innovation. The company also benefits from its organizational culture in terms of problem solving support. The different characteristics or features of Toyota’s organizational culture indicate a careful approach to facilitating organizational learning. The company undergoes significant changes from time to time and this is reflected in the change in its organizational structure in 2013. Toyota’s organizational culture emphasizes the importance of developing an appropriate culture to support global business success. Toyota’s organizational culture effectively supports the company’s efforts to innovate and continuously improve. Understanding this organizational culture is helpful in identifying beliefs and principles that contribute to the strength of the company’s business and brands. Following the 2013 restructuring, Toyota’s organizational culture has changed accordingly. Prior to 2013, the organizational culture emphasized a sense of hierarchy and secrecy, which was reflected in the employees’ perception that all decisions must come from the headquarters in Japan. However, after 2013, Toyota’s organizational culture characteristics are sorted by importance: • • • •

Cooperation and teamwork continuous improvement through learning Quality standards and innovations Non-disclosure to outsiders

Toyota uses teams in most of its business areas. One of the company’s principles is that the synergy of teamwork leads to greater capability and success. This part of the organizational culture emphasizes the involvement of employees in their respective teams. To ensure that teamwork is properly integrated into the organizational culture, every Toyota employee undergoes a team building training program. Toyota’s organizational culture facilitates the company’s development as a learning organization. A learning organization uses information gained through the activities of individual workers to develop policies and programs for better results. Toyota’s organizational culture emphasizes learning as a way to develop solutions to problems. In this way, the company can continuously improve processes and outputs with the support of its organizational culture. Quality is at the heart of Toyota’s organizational culture. The company’s success is usually attributed to its ability to provide high quality automobiles. To effectively integrate quality into its organizational culture, the company uses Principle No. 5 of the Toyota Way, which states, “Build a culture of stopping to fix problems and doing quality right the first time.” The Toyota Way is a set of principles that define the business approaches used in Toyota’s organizational culture that have a significant level of secrecy. In recent years, however, secrecy has decreased following the company’s restructuring in 2013. Prior to 2013, information about workplace problems had to be received at the corporate headquarters in Toyota City, Japan. However, after the restructuring, the company’s organizational culture de-emphasizes secrecy. For example, problems at U.S. plants are now disseminated, analyzed, and resolved at Toyota’s North American business unit. The characteristics of Toyota’s organizational culture enable the company to continue to grow. Innovation is based on

References

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continuous improvement through learning. Quality improvement and problem solving are achieved through the activities of work teams. However, the secrecy feature of Toyota’s organizational culture has potential drawbacks as it reduces the flexibility of the organization in solving problems quickly.

References Choi, T. Y., Dooley, K. J. & Rungtusanatham, M. (2001). Supply networks and complex adaptive systems: control versus emergence. Journal of Operations Management, 19 (3), 351–366. Freitag, M. (2004). Toyota. Formel Toyota. Manager Magazin, 12, 12–14. Helmold, M. & Terry, B. (2016). Lieferantenmanagement 2030. Springer Gabler Wiesbaden. Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham. Kalkowsky, M. (2004). Nur Porsche hat das Lean Management begriffen: Interview with Prof. D. Jones. Produktion. 31, 16. Liker, J. K. (2004). The Toyota Way. Madison: Mc Graw-Hill. Ohno, T. (1990). Toyota Production System. Beyond large Scale Production. New  York: Productivity Press.

3

Supplier Management as Part of the Corporate Strategy

It’s not enough to want, you have to do. Johann Wolfgang von Goethe (1749–1832).

3.1 Supplier Management as a Strategic Competitive Advantage of Corporate Strategy In the competition for customers and markets, companies have to make countless strategic, operational and tactical decisions every day in order to secure or expand competitive advantages and their own market position (Johnson and Scholes 1997; Porter 1985). In this context, strategic management and strategic supplier management provide methods and tools with which companies can develop and implement sustainable and successful strategies along the entire value chain in order to achieve long-term success. In this context, strategic management and strategic supplier management are understood as conscious, logically structured decisions and activities that influence the fundamental orientation of a company. They serve the goal of ensuring the long-term success of the company by generating competitive advantages. Strategic management must encompass the entire value chain with all its functions and stakeholders. Means for this are here the evaluation of supplier markets, development of sales markets, the positioning in the market, internationalization, the organization of the resource basis of the enterprise and decisions, in which degree own or external production scopes for the production of products and services to provide. Strategic decisions of a company are defined by higher management and require tactical and operational implementation. The ideal typical process of strategic management consists of the steps of strategic analysis, strategic selection, and

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_3

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strategic implementation, as shown in Fig.  3.1. These three phases are known as the Strategic Triangle according to Johnson and Scholes (Johnson and Scholes 1997). Figure 3.2 shows the possibilities of internationalization through own or external resources (Dathe and Helmold 2018). Resources in this sense are buildings, machines or plants. If a company decides to produce outside the borders of Germany within the framework of its own resources, this is referred to as international in-house production (red border). If a company outsources and purchases products or services from suppliers, this is referred to as global sourcing or international outsourcing (Dathe and Helmold 2018). The strategic goals of supplier management deal with the long-term planning, control and optimization of the company’s external and internal supplier base. Based on categoryor material group-specific procurement strategies, it is important to define precise development measures that enable a continuous increase in supply quality or a reduction in procurement costs. The supply risk can be sustainably reduced, for example, through the collaborative optimization of cross-company processes. The early establishment of possible alternative suppliers and the targeted control of the procurement volume prevent dependencies of the company. In addition, the relationship with strategically important suppliers and suppliers that are difficult to substitute should be strengthened through cooperative and integrative measures. In this way, the competitiveness of one’s own company is secured. Due to the long-term orientation, all measures to achieve the strategic goals should be regularly reviewed as part of a continuous process and adjusted if necessary (Helmold and Terry 2016).

Strategic analysis Mission Introduction of a holistic supplier management

Strategic implementa tion

Vision

Corporate strategy Supplier management

Analysis of the initial position with regard to external value creation, material groups and suppliers

Strategic selection

Selection of the appropriate strategy

Fig. 3.1  Phase model in strategic management – strategic triangle

3.1  Supplier Management as a Strategic Competitive Advantage of Corporate Strategy

Own resources (e.g. plant and machinery)

External resources (e.g. plant and machinery)

National locations

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International locations

Outsourcing National subcontracting

Global sourcing International subcontracting

Make or buy

National In-house production

Offshoring International In-house production

Fig. 3.2  In-house and external production in an international context

3.1.1 Strategic Analysis Step one begins with the strategic analysis (Johnson and Scholes 1997). This serves as a comprehensive information gathering as a basis for strategy formulation. It mainly consists of analysis and forecasting of the company’s environment, i.e. macro-framework conditions, industry, customers and competition (external analysis) and analysis and forecasting of the company itself (internal analysis) (Johnson and Scholes 1997). Analyses within this phase include the environment, expectations, capabilities, competencies, and resources. Environmental analysis (English: PESTEL, Political, Economic, Social, Technological, Environmental and Legal) is a suitable tool in an international context. Other tools, such as the industry or strengths and weaknesses analysis, are also suitable as a means of preparing for negotiations.

3.1.2 Strategic Selection To formulate the strategy, first of all, based on the analyses in the previous phase “strategic analysis”, strategy alternatives and options are developed that appear suitable for generating competitive advantages. These alternatives are then evaluated on the basis of evaluation criteria, whereby the evaluation criteria must reflect the company’s goals. Among the alternatives, the one that promises the best possible achievement of the company’s goals is now selected; it represents the future corporate strategy (Johnson and Scholes 1997). Porter recommends to choose either cost leadership or performance leadership as strategy option (Porter 1985). These generic strategies can be industry-wide or focused only in one

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industry. Whereas cost leadership focuses on optimal costs, performance leadership focuses on unique selling points in quality or other areas from the customer’s perspective. Both strategic orientations require the long-term integration of the supplier side into the company’s own processes. In addition to generic strategies, there are numerous other strategies, such as internationalization strategies, segmentation strategies, target group strategies, market development strategies or positioning strategies.

3.1.3 Strategic Implementation Once a strategy has been chosen, it must be successfully implemented, i.e. translated into concrete actions that steer the company in the direction of the formulated strategy (Porter 1985). To do this, it is first necessary to operationalize the strategy to such an extent that management at all levels associates it with goals that correspond to their respective areas of responsibility. This hierarchical breakdown of goals is often reflected in strategic and operational planning, which serves to control resources in line with the strategy (Porter 1985). In order for strategy to be lived in a company, it must harmonize with the structures and systems in the company. Strategic implementation must therefore always be accompanied by appropriate design of organization, processes, management information systems and incentive systems as Johnson and Scholes point out (Johnson and Scholes 1997). In addition to these prerequisites, employees must be won over and enthused about the implementation of the strategy. Information, motivation and qualification of employees, i.e. change management, plays an important role in this process. The last important element in strategy implementation is systematic control. This refers to the progress of the implementation, the effectiveness of the measures and the success of the strategy for the company. Another form of control is the continuous monitoring of the premises of the chosen strategy. If the conditions in the company’s environment change, the strategy may need to be adjusted again. Premise monitoring is identical to strategic analysis, which makes it clear that strategic management is a continuous process. Strategic management takes place on several levels. At the corporate level, the primary focus is on issues related to managing the portfolio of business lines. In particular, corporate strategy must ensure that the company as a whole is worth more than the sum of its individual businesses (Johnson and Scholes 1997). If a company comprises several business units, strategic management also takes place at the business unit level. The focus of the business strategy is the behavior of the company in the respective market and competitive environment. It is therefore often referred to as the competitive strategy (Porter 1985). In connection with the overall strategy, the concepts of mission, vision and mission statement are often referred to as well as strategic management. Sub-strategies or strategic objectives (sales strategies, procurement strategies, in-house or external production strategies, marketing strategies, financial strategies, etc.) are defined as subordinate and must be implemented tactically (in the medium term). In this context, supplier management with internal or external stakeholders is

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necessary. Stakeholders are all groups that are indirectly or directly involved in the company’s performance. Stakeholders are customers, suppliers, banks, the tax office or other groups.

3.1.4 Designing the Strategic Direction: Strategic Pyramid A helpful tool for supplier management is the strategic pyramid (Fig. 3.3) according to Johnsons and Scholes (1997). In this context, strategy is the long-term positioning and the decision of the company as to which business areas are to be successfully conquered with which strategies. Strategy is therefore “the fundamental, long-term orientation and design of a company to achieve competitive advantages in a changing environment through the use of resources and competencies and to realize the long-term goals of the stakeholders”. This orientation is described in the mission, which describes the long-term and overarching purpose of the company. The definition of the mission is followed by the vision, which manifests the desired future status of the company. The time frame here can be assumed to be 3–5 years.

3.1.4.1 Mission and Vision Mission and vision encompass the long-term purpose of the company and the strategic intent of the company (Johnson and Scholes 1997). The mission and mission represent the strategic framework of a company and are the basis for the definition of corporate values and strategic goals. Most often, the concept of mission is translated as mission statement with corporate mission statement. However, it is more the case that the vision statement describes the mission statement, while the mission statement is the philosophy of a

Mission Vision Generic targets Values Specific objectives

Mission Holistic and partnership-based planning and control of value-added and supplier networks with an integrated supplier management for a sustainable and competitive positioning of the own company

Core competencies Strategic implementation Strategic architecture Strategic control and execution Fig. 3.3  Strategic pyramid based on Johnson and Scholes (1997)

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3  Supplier Management as Part of the Corporate Strategy

company. A vision is the motivating, positively formulated idea of the state you want to achieve with your company. With a vision statement, you indicate the direction in which you want your company to develop. The vision expresses where and what you want to stand for in the future.

3.1.4.2 Values and Values Concepts Corporate values create a basis for decision-making, a code of conduct, an orientation for action and standards of behaviour. Corporate values create loyalty and bind employees to the company. Corporate values are more or less the character traits of an organization. They create identity, generate perceptibility and dock goal-oriented to the needs and/or sensitivities of the decisive stakeholders. A self-committed attitude of all executives and employees is created. Ideally, employees identify with these values and act authentically. 3.1.4.3 Generic Goals and Specific Objectives The mission and vision are followed by the generic and specific goals. Generic goals are not quantified and are more general; specific goals, on the other hand, are quantified and specific. The next step is to quantify the generic goals. The scientists Johnson and Scholes distinguish between longer-term and generic goals and shorter-term and quantified objectives for the company (Johnson and Scholes 1997). Quantified goals can basically include revenue, financial, quality, logistics, cost and alpha goals (Helmold and Terry 2016). Objectives must be created according to the SMART methodology (specific, measurable, achievable, realistic and timely), i.e. objectives must be defined as specific, measurable, achievable, realistic and timely. 3.1.4.4 Core Competencies Mandatory for the implementation are the core competencies. These describe the resources, skills or knowledge that lead to a competitive advantage. As part of the alignment process, companies must conduct a detailed analysis of core competencies. Johnson and Scholes define core competencies as a competitive advantage over competitors through which companies can differentiate themselves. 3.1.4.5 Strategic Implementation of the Objectives After determining the mission, vision, goals and core competencies, the translation into strategic goals follows. The long-term implementation of these elements is defined as a strategic objective. In the implementation of the strategic goals, the previously mentioned strategies in supplier management come into play. 3.1.4.6 Infrastructure Infrastructure in the sense of strategic management includes not only buildings, machines, plants, offices, resources or employees, but also the company’s knowledge and innovations that ensure long-term success. For this, facilities, buildings, factories or offices are needed, which represent the strategic infrastructure. In addition, other success criteria such

3.2  Internationalization of Supplier Management

43

as resources, knowledge, experts, name recognition, network or innovations are also of central importance.

3.1.4.7 Performance Review and Execution (Target/Actual Analysis) The last element of the strategic pyramid is the control of success (control and execution) as well as a target-performance comparison. A suitable tool for this step is the Balance Scorecard (BSC) or an action plan. The instrument of the BSC was already developed in 1992 by Professors Norton and Kaplan. A BSC is an instrument in strategic management and contains four categories (Johnson and Scholes 1997): • • • •

Customer satisfaction Financial category internal processes and improvements learning organization

3.2 Internationalization of Supplier Management Supplier management in an international context is becoming more important than ever for companies, considering the balance of trade in Germany. Furthermore, the authors Dathe and Helmold state that internationalization will continue to advance, especially in countries such as China, Japan or South Korea. If we look at imports and exports in 2016 and 2017, we see that Germany was the world export champion in both years. In 2017, more than €1279 billion worth of goods and commodities were exported from Germany to other countries. The most important countries for export are the United States of America, France, the People’s Republic of China, the Netherlands and the United Kingdom. On the other hand, goods and commodities worth € 1034 billion were imported. Here too, in addition to Italy, the United States of America, France, the People’s Republic of China and the Netherlands are among the top five countries. As the Federal Statistical Office further reported on the basis of preliminary results, German exports in 2017 were thus 6.3% higher and imports 8.3% higher than in 2016. Exports and imports in 2017 surpassed the previous highs of 2016, when goods worth €1203.8 billion were exported and goods worth €954.9 billion were imported. The foreign trade balance ended 2017 with a surplus of more than €244.9 billion. In 2016, the balance of foreign trade had reached €248.9 billion, the highest level ever in Germany’s history. In 2016, Germany’s current account balance had shown an asset balance of €259.3 billion. The foreign trade balance closed with a surplus of €18.2 billion in the month of December 2017. Adjusted for calendar and seasonal effects, the foreign trade surplus was €21.4 billion in December 2017 (Figs.  3.4 and 3.5). Figure 3.6 shows the complexity of international value chains for the production of a pair of jeans. Cotton is transported as a raw material by truck from Texas (U.S.A.) to Los Angeles (U.S.A.). After transfer to a container ship, further transport takes place by ship

44

3  Supplier Management as Part of the Corporate Strategy

118,66

USA 106,73

France 95,97

China

91,59

Netherlands 78,88

United Kingdom 68,09

Italy Austria

66,09

Poland

65,91

Switzerland

56,37

Belgium

46,14

Czech Republic

44,51

Spain

44,32

Hungary

27,03

Russia

26,54

Sweden

24,91 Export volume in billions of euros

Fig. 3.4 The most important export trading partners for Germany. (Source: Press release No.039 of 8 February 2018: German exports in 2017: + 6.3% on 2016. Exports and imports reach new record levels. Retrieved 15.3.2018. https://www.destatis.de/DE/PresseService/Presse/ Pressemitteilungen/2018/02/PD18_039_51.html)

in a container to Shanghai (PR China), and within China by truck to the respective factories. In the factories the raw material is processed into fabric. After consolidation, the finished fabric is shipped to Malaysia. Zippers are shipped by air from Japan. The finished products are then shipped to Hamburg and from there delivered to the respective retailers via distribution centres. Figure 3.7 shows the managing directors Dr. Helmold and Mr. Li of the Midas company in China. In international trade, close partnerships are of significant importance.

45

3.4  Case Study: Siemens and the Selection of Suppliers via SCM Star

The 5 most important import trading partners for Germany 2017 in billions of euros Italy

U.S.A.

France

Netherlands

VR China

0

20

40

60

80

100

120

Fig. 3.5  The most important import trading partners for Germany. (Source: Press Release No.039 of 8 February 2018: German exports in 2017: + 6.3% on 2016. Exports and imports reach new record levels. Retrieved 2018-03-15. https://www.destatis.de/DE/PresseService/Presse/ Pressemitteilungen/2018/02/PD18_039_51.html)

3.3 Supplier Management as a Key Role in the COVID 19 Pandemic The Covid 19 pandemic poses unprecedented challenges to companies across all industries, the extent of which cannot be estimated at this time. Due to its sudden onset and the lack of opportunity to prepare, this pandemic poses risks to companies’ supply chains. Now it is important for companies to react to these in a targeted, swift and effective manner. In this sense, supplier management means the proactive and preventive design of all supplier relationships of the company across all areas with the aim of developing, procuring and manufacturing products or services better, faster and at lower costs through better cooperation with direct suppliers (but also upstream suppliers).

3.4 Case Study: Siemens and the Selection of Suppliers via SCM Star The quality, availability, productivity and innovation of suppliers across the entire value chain make a valuable contribution to the company’s business success. That is why the company selects its suppliers very carefully and across all functions. Siemens’ suppliers

46

3  Supplier Management as Part of the Corporate Strategy

Material and

Stage location

International value creation and logistics

1.

Cotton from Texas (U.S.A.)

Transport by truck from Texas (U.S.A.) to Los Angeles (U.S.A.). By ship in container to Shanghai (PR China), within China by truck.

2.

Fabric and yarn from Consolidation by logistics service provider in China. Transport by ship to Malaysia. China

3.

Zippers from Japan

Transport via airplane from Japan to Malaysia.

4.

Jeans from Malaysia

Packing and consolidation in Malaysia. Transport to Hamburg.

5.

End product

Order picking and distribution according to demand in Germany.

Fig. 3.6  Production of a pair of jeans through international value added

are among the best and most innovative, meet minimum requirements and continuously evolve faster than the market. In return, proven suppliers gain access to global markets by working with Siemens as a worldwide technology leader. They can also sustainably expand their product, solution and service portfolio and their customer base. In our cooperation with all suppliers, we are not only concerned with innovative products and solutions, but also with supporting them in their continuous development. Siemens jointly derives relevant development measures from the performance evaluations carried out and the required business strategy. These are laid down in a target agreement and implemented on a sustained basis. The goal is to optimize the performance and cost position across the entire value chain and to minimize or mitigate identifiable risks at an early stage. In this way, both parties continuously improve themselves in order to continue to have a competitive advantage in a constantly and rapidly changing world. The registration and qualification of all suppliers is carried out in a standardized manner via the global IT application SCM Star. In the first step, suppliers register with all the necessary information and commit themselves to complying with general standards and principles for sustainability in the supply chain, which are documented in the Siemens Code of Conduct. Based on various criteria, such as product or service portfolio, suppliers then go through selected qualification modules. These include, for example, a self-disclosure and commitment to corporate sustainability or obligations to comply with specific requirements in the areas of environmental protection, health management and safety. After successful completion, Siemens

References

47

Fig. 3.7  Managing Director Dr. Helmold and Mr. Li

suppliers receive the status “Ready for Business” (R4B) and can participate in electronic tenders and auctions.

References Dathe, T. & Helmold (2018). Erfolg im Chinageschäft. Handlungsempfehlungen für kleine und mittlere Unternehmen (KMU). Springer Gabler Wiesbaden. Helmold, M. & Terry, B. (2016). Global Sourcing and Supply Management Excellence in China. Springer Singapur. Johnson, G. & Scholes, K. (1997). Exploring Corporate Strategy. Text and Cases. 4th Edition. Prentice Hall London. Porter, M.E. (1985). Competitive Advantage. Creating and sustaining superior Performance. Free Press New York.

4

Phases of Supplier Management

Education is teaching what you do not know and training is repeated practice of what you do know. We need not only education, but also training. Taiichi Ohno (1912–1990).

4.1 Supplier Management as a Cross-sectional Function: Integration of All Functions Increasing globalization, megatrends and crises such as the COVID-19 crisis have shown that the management of supply chains and pine networks has taken on a central role in internationally and nationally oriented companies. Furthermore, digitization is advancing worldwide and the need for ever faster and new innovations are forcing companies to rethink and change old strategies and traditional concepts (Kleemann and Glas 2020). The networking of customers, suppliers and interest groups, the almost unrestricted exchange of data and information, and the accompanying maximum transparency across a large part of the value chains within global supply chains raises the question of the future generation of competitive advantages for manufacturing, trading and also service companies (Schupp and Wöhner 2017). In this context, the cross-cutting function of supplier management, i.e. the function that manages the entire value chain, is becoming much more important across the entire depth of value creation than it has been in recent years (Dust 2019). As a cross-­ departmental, cross-sectional function, supplier management therefore assumes an integrated responsibility with tasks such as developing a purchasing strategy, controlling and planning supply chains, procurement market research and marketing, purchased parts supplier management, order processing, logistics planning, internal and external transport, © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_4

49

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4  Phases of Supplier Management

Choice of means of transport, optimization of the flow of materials and information on all value chains, inventory controlling, material storage including goods receipt, warehouse organization, management, determination of requirements, order quantity calculation, order scheduling, residual materials management and process optimizations along the entire value chain (Büsch 2019). This is because only the integrative approach from the customer order to planning, procurement, production, logistics and after-sales service provides companies with the necessary decision-making basis for competitive advantages. Optimal supplier management includes the following steps in particular: supplier strategy (supplier classification), supplier selection (selection of suppliers), supplier evaluation (recording of performance based on uniform evaluation criteria) supplier development (definition of targets for the supplier through joint optimization programs), supplier integration (expansion of the range of tasks for suppliers with the aim of bringing activities forward), supplier controlling (continuous comparison of target fulfillment levels, identifying and eliminating weaknesses at an early stage). In this sense, Fig. 4.1 shows the six phases of supplier management with the selection of the appropriate supplier strategy, supplier selection, evaluation, development, integration and supplier controlling (Helmold and Terry 2016). Therefore, supplier management undertakes the planning, management and integration of suppliers from procurement to the delivery of products or services to the customer. Measurement indicators for the continuous evaluation of performance include key figures such as quality, costs or finances, delivery targets and other areas (e.g. sustainability or maturity).

Supplier Management Determination of the strategy

Suppliersstrategy

performance management

Supplier selecon

Supplier evaluaon

Procurement P Producon

Supplier integraon

Quality performance

Integraon of all funcons Primary funcons

Supplier development

Markeng & Distribut

Secondary funcons

Cost and financial performance

Delivery performance

Other performance targets

Fig. 4.1  Phases in supplier management

Supplier controlling

Focus on value creaon

4.2  Supplier Strategy

51

4.2 Supplier Strategy 4.2.1 Subject Matter and Elements of the Supplier Strategy By shifting services to supplier networks that are in competition with each other, new models, strategies and processes are emerging within the value chain that need to be mastered. The focus in the future has therefore long ceased to be on raising internal company cost advantages, but rather on the exchange of information and the exploitation of global cross-company potentials. In general, supplier management aims to provide a uniform methodology for analyzing potential and existing suppliers in order to make strategic decisions based on the results. On an operational level, this means making supplier performance comparable, uncovering optimization potential, and reducing procurement costs. The strategic dimension of supplier management, on the other hand, is primarily aimed at defining suitable procurement strategies based on a transparent decision-making basis in order to reduce supply risks and dependencies and to increase procurement quality. The strategic goals of supplier management deal with the medium – to long-term optimization of the company’s supplier base. Based on category – or material group-specific procurement strategies, it is necessary to define precise development measures that enable a continuous increase in supply quality or a reduction in procurement costs. The supply risk can be sustainably reduced, for example, through the collaborative optimization of cross-­ company processes. The early establishment of possible alternative suppliers and the targeted control of the procurement volume prevent dependencies of the company. Figure 4.2 shows the first of the six phases of supplier strategy. In addition, the relationship with strategically important suppliers and suppliers that are difficult to substitute should be strengthened through cooperative and integrative measures. Thus, one secures the competitiveness of one’s own company. Due to the long-term orientation, all measures to achieve the strategic goals should be regularly reviewed as part of a continuous process and adjusted if necessary. Figure  4.3 shows the main elements in the supplier strategy phase with segmentation of suppliers, development of a material group strategy, feasibility studies on in-house or third-party manufacturing, evaluation of degrees of digitalization in

Suppliersstrategy

Supplier selecon

• • • • • •

Supplier evaluaon

Supplier development

Selecon of the right suppliers for the right material groups Applicaon of the right tools in supplier management Correct classificaon into preferred, alternave or market suppliers Proper consideraon of the depth and scope of value creaon Selecon of the right digizaon strategy and connecon of suppliers Ensuring sustainability along the enre value chain

Fig. 4.2  Supplier strategy as the first phase in supplier management

Supplier integraon

Supplier controlling

Classificaon (supplier segmentaon

Sustainability (supply chain)

Supplier strategy

Digisaon (networking)

Categorizaon (material groups)

In-house or external producon

52

4  Phases of Supplier Management

Classification (supplier segmentation)

Sustainability (supply chain)

Supplier strategy

Digitisation (networking)

Categorization (material groups)

In-house or external

Fig. 4.3  Elements of the supplier strategy

supply chains and continuous review of sustainability requirements of suppliers. The main tasks can be described as follows: • • • • • •

Selection of the right suppliers for the right material groups Application of the right tools in supplier management correct classification into preferred, alternative or market suppliers proper consideration of the depth and scope of added value Selection of the right digitization strategy and connection of suppliers Ensuring sustainability along the entire value chain

4.2.2 Supplier Classification Any supplier strategy must be aligned with core elements such as classification, categorization, digitization, in-house or third-party manufacturing, digitization, and sustainability. Figure 4.4 shows these elements. Supplier segmentation involves grouping suppliers into company-wide classes of preferred, alternative, benchmark, market and other suppliers. Preferred suppliers are selected suppliers with outstanding performance characteristics in terms of innovation, quality, costs, delivery reliability, sustainability and processes. Preferred suppliers are given preferential treatment and receive fixed volumes, order scopes and procurement quotas. Preferred suppliers are usually involved in the company’s own development and product creation process at an early stage. The relationship is based

4.2  Supplier Strategy

Quality performance

Cost and financial performance

53

Preferred suppliers

Selecon for important projects based on Q-K-L + alpha criteria

Delivery performance other (alpha) Performance targets

Evaluaon Q-K-L + alpha

Alternave delivery anten

Possible selecon for important projects (in bidding)

Benchmark suppliers

Market suppliers

Other suppliers

Possibility to be included in the circle of alternave suppliers

Possibility to get into the circle of benchmark suppliers

No consideraon

Fig. 4.4  Supplier classification and supplier categorization

on partnership. Alternative suppliers are suppliers who can be used alongside preferred suppliers. Alternative suppliers are in the bidding circle, but do not perform as well as the preferred suppliers in terms of quality, cost, delivery and other characteristics, so they usually receive only smaller scopes and procurement quotas. The alternative suppliers are followed by benchmark suppliers who serve as comparators and can be included in the bidding process. Benchmarking in supplier management is a useful method for the systematic and structured acquisition of information and the comparison of suppliers on the basis of characteristics such as innovative strength, technological leadership, cost efficiency or quality awareness. Benchmarking is thus a continuous creative performance process for improving the supplier portfolio by identifying and comparing the best known performance of existing suppliers and comparing it with new suppliers that demonstrate particularly strong performance characteristics (Engl.: Benchmark  =  the best; Best Practice). By adopting and further continuously improving the identified best practice processes, the performance of the own area, the competitiveness and ultimately the customer satisfaction are improved. Seen in this light, a benchmarking project in the context of a tender offers the possibility of comparison with best solutions, identifies deficits and weak points, clarifies the need for action and can be used as an ideal tool for the development of new suppliers and constant competition. Benchmarking is not only a comparison of key figures or operations, but is a comprehensive, holistically applicable process analysis for performance improvement, which can be applied to all service areas and the entire company. Benchmark suppliers are followed by market suppliers and all other suppliers. Market suppliers can be included in the group of benchmark suppliers if they are qualified and the supplier management has been evaluated. All other suppliers are not considered (Helmold and Terry 2016).

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4  Phases of Supplier Management

4.2.3 Material Group Strategies A material or product group or category (Engl.: Commodity or Category) combines different individual parts or categories in a material group, which are usually made from the same basic material or raw material or can be classified in the same category. The distinction of material groups can be freely defined and can be relatively coarse or fine, this depends on the purpose. Examples of material groups: Iron or ferrous metal, copper, plastic, rubber, leather, wood, etc. Other divisions are made, for example, according to electrics, mechanics, aluminium or steel. For bottleneck materials, the primary goal is to secure supply. To reduce the supply risk, one should look to the global procurement markets. Local markets usually offer insufficient sourcing opportunities for bottleneck materials. By expanding the number of suppliers, the dependency on individual suppliers for bottleneck materials is reduced. The focus is not on the cost price of the material, but on securing the supply. Since these are mostly low-value individual parts, product development tends not to be important. Standardization of bottleneck materials can reduce the supply risk. Figure 4.5 shows the possible material group strategies. This matrix is subdivided into strategic, leverage, bottleneck and non-critical material groups and market segments (suppliers). For strategic material groups and market segments, it is recommended to establish a close relationship

Entering into strategic partnerships

Strategic products

exploit market power

Leverage products

Encourage compeon

Boleneck products

Non-crical products

Carry out operaonal processing

Uncrical Market Segment

Fig. 4.5  Material group strategies

Boleneck Market Segment

Leverage Market Segment

Strategic Market Segment

4.2  Supplier Strategy

55

with suppliers. This can take place through collaboration, joint or competing development projects, cooperation or even company mergers (e.g. formation of a new company or a joint venture). For leveraged products, companies should bundle volumes and proactively approach potential suppliers to achieve the ideal strategy here. Purchasing collaborations can also help gain advantages in the marketplace. In the case of bottleneck products, the strategy must focus on demand security, so that long-term contracts prove to be advantageous. Global tenders or substitution are other strategies to ensure security of supply. For standard products or standard products, on the other hand, it is advantageous to regularly examine the market and exploit the potential. B2B platforms, single-source C-parts management or the bundling of requirements after a detailed market investigation (Helmold and Terry 2016).

4.2.4 Make-or-Buy Strategies A make-or-buy decision addresses the in-house production or external procurement of a product. It is a question of producing a product oneself (make) or buying it (buy). The operational function of production is always understood as in-house production. Goods are produced with the company’s own resources, employees, production factors and production processes. In-house production means internalization, i.e. the organization of economic activities and production of a group of materials within one’s own company organization. External production, on the other hand, means that material groups and production scopes are outsourced to vendors. In the case of external production, only variable costs are usually incurred. In in-house production, fixed costs are added. The difference between the two variable cost amounts is used to cover the fixed costs more with each unit (fixed cost degression) until they are completely covered. Figure 4.6 shows recommended actions for companies according to the strategic importance and relevance of the material group on the Y-axis and skills and competences for developing and manufacturing the material group on the X-axis. Companies must therefore focus on their own capabilities and competencies for the development and production of the material group and prefer a strategy of in-house production (make) in this segment, especially if the strategic importance and relevance of the material group is very high. If the capabilities and competencies for a product group are equally high, but the strategic relevance and value is relatively low, a hybrid strategy with partial outsourcing can take place. However, companies must ensure that the knowledge for this material group remains within their own company. If the own company does not have competencies in a special material group that has a high strategic importance, partnership cooperations with one or a few suppliers (external production or buy) are recommended. Due to the strategic importance, it is worthwhile to pursue long-­ term contracts, cooperations or joint project developments with suppliers. In the case of less relevant material groups and no know-how in the own company, the market potential and competition can be fully exploited.

4  Phases of Supplier Management

Low

Strategic importance and relevance of the material

High

56

Low

In-house production Make

External production Buy (Partnerships)

(concentration) Make or buy

External production Buy (Exploitation of market potential)

In-house production Make

(Partial Outsourcing)

Own skills and competences for the development & production of the material group

High

Fig. 4.6  Strategic make-or-buy analysis

The decision to outsource should therefore be carefully considered. Therefore, it is important to think about basic advantages and disadvantages in advance. Some important ones are listed below. Advantages with External Procurement • Concentration on core competencies and focusing of activities and resources on the own core business • Possibility and opportunity to establish proactive and preventive supplier management • Reduction of vertical integration and transformation towards a lean production structure • long-term optimisation of the cost structure through the reduction of fixed costs or the change from fixed to variable costs • Improvement of the liquidity situation and, if necessary, improvement of the balance sheet ratios (among other things, by reducing the debt-equity ratio if investments for which loans have to be taken out are not made) • flexible reaction to changes in demand and shifting part of the entrepreneurial risk to the supplier • Possibility of partnerships and obtaining innovations that are not in the own area of competence

4.2  Supplier Strategy

57

Disadvantages with External Procurement • Deep cuts in existing structures in the event of outsourcing and unrest among the workforce • Loss of know-how and personnel with a possibly significant dependence on one supplier • Long-term commitment to suppliers restricts flexibility to react actively to market changes oneself • Possibility that trade secrets are not kept, especially in international business • increasing coordination effort, especially in logistics and other departments involved in the value creation process

4.2.5 ABC-XYZ Analysis and Strategies The ABC-XYZ analysis is a procedure in supplier management for the classification of material groups according to consumption, value and the forecast reliability of the consumption of procurement volumes in a company. For the procurement of products, the planning of production quantities and for other logistical questions, the ABC analysis is often linked with the XYZ analysis. While the ABC analysis is primarily concerned with the value and importance of customers, products, suppliers or purchased parts, the XYZ analysis analyzes their plannability and the possibility for forecasts. It is composed of the ABC-XYZ analysis as shown in Fig. 4.7. ABC Articles • A-article: High value share of approx. 70–80% • B articles: Average value share of approx. 15–20% • C-articles: Low value share of approx. 5–10%.

XYZ article • X-Article: Articles with a constant demand and high forecasting accuracy • Y-items: Articles with fluctuating demand and medium forecast accuracy • Z-items: Articles with irregular demand and low forecasting accuracy AX and BX articles have a high value share and are easy to forecast in terms of consumption, as they are subject to uniform consumption. They are therefore relatively easy to control. AZ and BZ articles are problematic. They account for a high proportion of sales, but are difficult to control due to their irregular demand. If too many items in this category are stocked, it has increasing inventory costs. If too few are stored, bottlenecks can occur within production.

58

4  Phases of Supplier Management Value and strategic relevance

A

B

C

Forecasting capability and consumption

High value product or material, Medium value product or usually lower quantity item. material, usually lower Very high strategic importance. quantity item . Medium strategic importance.

Low value product or material, usually low quantity item . Low strategic importance.

X

• High value share • Consumption plannable • Detailed planning • Little or no stock • Ensure fast call-off at the supplier • JIT deliveries

• Mean value share • Consumption plannable • Detailed planning • Low or no stock • Ensure rapid availability from the supplier • JIT deliveries

• Low value share • Consumption plannable • capital commitment low • Uncritical treatment

Y

• High value share • Consumption irregular • Detailed planning • Possibly create a safety reserve with the supplier. • Ensure fast call-off at the supplier

• Mean value share • Consumption irregular • Detailed planning • Treatment like AY or BY • Ensure callability at the supplier

• Low value share • Consumption irregular • Consumption cannot be planned • Create safety reserves if there is no bottleneck in the warehouse.

Z

• High value share • Chaotic and sporadic consumption • Agree safety reserve with the supplier • JIT deliveries

• Mean value share • Chaotic and sporadic consumption • Agree safety reserve with the supplier • Ensure callability at the supplier • Like AZ or CZ

• Low value share • Chaotic and sporadic consumption • Consumption cannot be planned • build up safety margins

Relatively uniform, small fluctuations in consumption. High prediction accuracy, very well plannable

Volatile, missing or rising trend. Seasonal business with fluctuations. Medium forecast accuracy. Can be planned to a limited extent

Unstable and absolutely irregular demand. Very low forecasting accuracy. Poorly plannable.

Fig. 4.7  ABC-XYZ analysis in supplier management

4.2.6 Internationalisation Strategies Supplier management must ensure resilience in international transactions and business. In 2019, German companies imported €606 billion worth of intermediate products, which accounted for just over 55% of Germany’s total imports of goods. Two-thirds of imported intermediate goods came from other EU member states, with a further 5.3% and 5.0% from the US and China respectively (Kolev and Obst 2020). Supplier management must ensure that international supply chains are stable and do not lead to supply bottlenecks through a clear structure and risk assessment. The COVID-19 crisis in particular showed that strategies for products from the health sector were not sustainable and good, resulting in supply shortages, e.g. masks or protective equipment (Helmold et al. 2020).

4.2.7 Sustainability Strategies The primary task of classic supplier management is to create value-adding supply chains based on suitable criteria and strategies. This happens on the basis of the criteria of quality,

4.2  Supplier Strategy

59

costs, delivery performance and other significant aspects (QCD plus Alpha). In times of political unrest, trade in an international context, climate change, stricter environmental regulations, rising energy prices and enlightened consumers demanding environmental friendliness, supplier management has a key role to play in ensuring sustainable supply chains. Studies show that “sustainability” as an integrated part of value chains offers companies good opportunities to differentiate themselves from the competition and thus increase sales. Sustainability (Fig.  4.8) includes elements such as working conditions, environmental protection, human rights, anti-corruption, social standards, respect for human rights or respect for intellectual property. Chap. 10 deals with the topic of sustainability in detail.

4.2.8 Digitisation Strategies In the medium term, digitization and the linking of one’s own company with the supply chain will significantly widen the gap between companies that successfully apply this to their business model and those that miss this opportunity. However, digitalization also opens up an opportunity for smaller, faster and more flexible companies to leapfrog entire evolutionary stages of organizations, move past their competitors and create their own markets. This also applies to supplier management or, more broadly, supply chain management (Immerthal 2017). In the medium term, digitalization will significantly widen the gap between companies that successfully apply it to their business model and those that miss this opportunity.

Fig. 4.8  Sustainability and Corporate Social Responsibility (CSR)

working conditions Intellectual Property

Anticorruption

CSR elements Human rights

Environment Supplier Management

Social standards

Compliance Laws

60

4  Phases of Supplier Management

4.3 Supplier Selection 4.3.1 Shifting of Peripheral Competences to Suppliers Every company has its specific strengths, the so-called core competencies, on which it must focus. Core competencies refer to skills, processes, technologies, knowledge advantages or activities that a company can perform better than its competitors and has thus gained a competitive advantage. Core competencies are therefore the abilities of a company to do something better than others. Therein lies a strategic competitive advantage. Core competencies are determined by four characteristics: • • • •

Customer benefit Imitation protection Differentiation Diversification

The concept is a variant of the resource-based approach, which considers the positioning of the company in the market to be decisive. With customer value, companies must ask themselves whether sustainable added value can be provided for the customer on the basis of core competencies? In contrast, imitation protection aims at exclusivity and unique selling propositions. Do companies have exclusive control over core competencies or can they be easily imitated by competitors? Differentiation reflects the duration of the advantage. Does the core capability lead to a long-term and sustainable advantage over competitors? Diversification focuses on markets and market segments. The key question here is whether the core capabilities provide potential access to new markets? Marginal capabilities, on the other hand, can be contracted out to suppliers and outsourced as they do not provide a competitive advantage. This relocation is called “outsourcing” and involves a corporate strategy of outsourcing individual product scopes, tasks, sub-areas or even entire business processes to third-party companies. The selection of suppliers for the relocation of products, processes and services is part of supplier management and the second phase after the supplier strategy, as Fig. 4.9 shows. Supplier selection

Supplier strategy

• • • • • •

Supplier evaluation

Supplier development

Selection of the right suppliers for the right material groups Application of the right tools in supplier management Correct classification into preferred, alternative or market suppliers Proper consideration of the depth and scope of value creation Selection of the right digitization strategy and connection of suppliers Ensuring sustainability throughout the value chain

Fig. 4.9  Supplier selection as a subphase of supplier management

Supplier integration

Supplier controlling

4.3  Supplier Selection

61

4.3.2 Minimising Risks in the Selection of Suppliers Supplier selection involves actions that companies take before a need arises and contact is made with a supplier. One of the main objectives of supplier selection is to minimize risk. This is because if a company chooses an unsuitable supplier, it exposes itself to one or more of the following risks: • • • • •

Non-performance of the contract because a supplier is in economic difficulties breach of agreement Supplier delivers inferior quality lack of timeliness too high a price for the services provided

In order to contain these risks, careful supplier selection is necessary. Within the framework of supplier evaluation, certain criteria are used to assess performance according to a defined system. With regard to the trend that supplier integration in corporate processes is becoming increasingly important, the requirements placed on suppliers are rising. An ideal supplier portfolio is created when certain requirements are taken into account during the selection process. • • • • • •

Selection of suppliers on the basis of the supplier strategy Interdepartmental supplier decisions and coordination processes Selection on the basis of objective and uniform evaluation criteria Use of qualitative and quantitative criteria transparent, cost and time efficient selection process Selection of the most innovative and best supplier based on the selection criteria

Quality management systems, such as DIN EN ISO 9001:2015, also refer to a selection of suppliers taking into account key elements such as selection and evaluation of suppliers. The standard indicates that provided processes, products and services meet the requirements and that companies must determine and apply criteria for selection and evaluation.

4.3.3 Criteria and Supplier Selection Matrix Before a cooperation and contractual agreement is reached, a supplier selection must take place based on standardized selection criteria in a supplier selection matrix. Important criteria for the selection of suitable suppliers are shown in Fig. 4.10. One of the central criteria is the quality and characteristics of the products and services supplied. In addition, there are other important elements that must be considered. An excellent supplier is not only characterized by high quality, low costs and stable delivery performance, but also in

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4  Phases of Supplier Management

Criteria for supplier selection Supplier 1

Supplier 2

Supplier 3

Supplier 3

1.

Quality

10

10

5

5

2.

Costs

9

5

5

5

3.

Delivery performance

10

5

5

5

4.

Technology leadership

5

5

0

5

5.

Relationship Management

10

10

0

5

6.

Innovative capacity

10

5

10

5

7.

Financial power

5

5

10

5

8.

Quality management system, e.g. ISO 9001:2015

10

5

10

5

9.

Sustainability elements

10

5

5

5

10.

Other criteria

10

5

5

5

Overall result

89

60

55

50

- Delivery quality - Field quality - Complaint processing - Cost of materials - One-off costs, e.g. development costs - Cost reduction ideas - Timeliness - Flexibility for quantity changes - Subsequent deliveries

Fig. 4.10  Supplier selection matrix

other respects. The following criteria should therefore be considered when selecting a supplier: • • • • • • • • • • • •

high quality of the goods and low error rate Quality management system, e.g. DIN EN ISO 90001:2015 pronounced goodwill behaviour on the part of the supplier when complaints are made constant readiness to deliver and high adherence to delivery dates strict adherence to promised delivery times or changes good accessibility and fixed contact persons at the supplier high flexibility (enables fast reaction, e.g. to customer requirements) Price guarantees (how long are negotiated prices promised) few or well-justified or only moderate price increases in the past financial stability and good credit ratings Offer transparency (no hidden costs, fees or minimum quantities) Sustainability and innovative capacity

4.4  Supplier Evaluation

63

4.4 Supplier Evaluation 4.4.1 Subject of Supplier Evaluation The third phase in supplier management is supplier evaluation. The instrument of supplier evaluation – a comparable systematic assessment that is intended to evaluate the performance of suppliers or service providers on the basis of previously defined characteristics – is primarily used for continuous and preventive supplier monitoring. Supplier performance is monitored regularly in order to identify changes in performance at an early stage. In this way, supplier evaluation helps you to select suppliers objectively and systematically, to build up an optimal supplier portfolio, and to implement a continuous improvement process. The supplier evaluation is carried out with the help of certain evaluation criteria which are important for the evaluation of the supplier. Evaluation criteria are static and dynamic factors. Figure 4.11 shows an example of a supplier evaluation with internal and external data.

4.4.2 Selecting the Right Criteria for Supplier Evaluation Depending on the complexity and industry spectrum, the specialist departments of quality, purchasing, production, logistics, sales, data processing, finance or research and development can be included in the process. Supplier management takes over the coordination of this interface between the company and its suppliers. The result of the supplier evaluation is recorded in the form of a holistic degree of fulfillment and can later be used for strategy derivation and selection. The criteria used to evaluate suppliers should be defined and weighted appropriately for the company. The basis for determining the criteria is the objectives that the business has in working with suppliers, as well as any special requirements for the supplier or the product or service to be provided. The best way to determine the evaluation criteria is to conduct a requirements analysis. Depending on the exact requirements of a company for the supplier and its product or service, the evaluation

Supplier strategy

Supplier selection • • • • • •

Supplier evaluation

Suppliers development

Selection of the right suppliers for the right material groups Application of the right tools in supplier management Correct classification into preferred, alternative or market suppliers Proper consideration of the depth and scope of value creation Selection of the right digitization strategy and connection of suppliers Ensuring sustainability along the entire value chain

Fig. 4.11  Supplier evaluation

Supplier integration

Supplier controlling

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4  Phases of Supplier Management

criteria can also be different and, above all, their weighting can vary. However, there are some criteria that must be considered in most cases to evaluate a supplier. These include: • • • • • • • • •

Quality of the product/frequency of defects Costs and price conditions Delivery time, delivery reliability and logistics Terms of payment Capacity Reliability/risk of delivery failure Location and transport Flexibility Sustainability

The most important supplier evaluation procedures are point evaluation, profile analysis and price structure analysis. A point evaluation procedure for supplier evaluation is a relatively simple way of evaluating and comparing suppliers on the basis of an allocation of weighted points or scores. A point evaluation procedure is most informative on the basis of measurable key figures. In a profile analysis for supplier evaluation, supplier performance profiles are compared with each other. In this way, a profile analysis makes the advantages and disadvantages of the individual suppliers visible. The biggest difference between the point rating procedure and the profile analysis is that in the profile analysis, the individual criteria are not weighted and are not combined into a single performance value. The price structure analysis is primarily concerned with the criterion of the costs that a supplier incurs. For the price structure analysis, the price criterion is therefore broken down into cost and profit elements for the vendor. The subcriteria here are material costs, hourly rates, procurement costs, and so on.

4.4.3 Supplier Evaluation as a Control Tool in Supplier Management As an essential component of supplier management, supplier evaluation contributes to the control of supplier relationships, the development and maintenance of suppliers and improved quality and logistics performance. In order to achieve these goals in the best possible way and to obtain a global picture of the performance of the suppliers, an evaluation is necessary which not only relies exclusively on so-called “hard facts”, such as adherence to deadlines and quantities, but also on “soft facts”, such as communication skills. In addition, the supplier evaluation is carried out globally according to the same standards and criteria, thus allowing a location-based evaluation and comparability of supplier performance. By expanding the evaluation criteria, it will be possible in the future to optimize cooperation with suppliers at all key interfaces and to reward them constructively. Supplier evaluation is often carried out digitally using real-time data, but it can also be carried out monthly, quarterly or semi-annually (Fig. 4.12).

4.5  Supplier Development

External/internal information available

65 Suppliers Mission, Vision and Values Lean Management System

External/internal information available

Supplier evaluation

Quality

Preventive

e.g. defects

Costs

Reactive

e.g. workshops

Alpha Targets

Delivery

e.g. qualification, CSR etc.

e.g. delivery quality Reliable statement on the default risk through a combination of internal and external information

Other factors Insolvency risk

Fig. 4.12  Supplier evaluation with internal and external company data

Supplier strategy

Supplier selection

• • • • • •

Supplier evaluation

Supplier development

Supplier integration

Supplier controlling

Selection of the right suppliers for the right material groups Application of the right tools in supplier management Correct classification into preferred, alternative or market suppliers Proper consideration of the depth and scope of value creation Selection of the right digitization strategy and connection of suppliers Ensuring sustainability throughout the value chain

Fig. 4.13  Supplier development

4.5 Supplier Development 4.5.1 Object of Supplier Development The term supplier development refers to the activities and improvements of close, partnership-­based and long-term relationships between customers and supplier networks within the value chain (Helmold and Terry 2016). Experts such as Hofbauer et al. (2016). describe supplier development as a continuous process to improve current or new suppliers. The basis of the development are the results of the supplier evaluation and metrics that have been described in the previous chapters. In contrast, other specialists in the field of supplier management define supplier development as a support process through direct or indirect actions. Here, too, the primary goal is to improve supplier performance (Emmett and Crocker 2009).

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Figure 4.13 shows three categories, strategic, preventive and reactive supplier development, of supplier development in connection with the life cycle of a product. Product phases can be divided into development, start-up, series, phase-out and after-service phases.

4.5.2 Strategic Supplier Development Strategic supplier development already takes place in the development phase. In most cases, measures are transferred to the start-up phase of a product. The strategic approach of supplier development aims at the long-term, conscious and continuous (further) development of the supplier’s performance (potential). Strategic supplier development is proactively initiated to maintain competitive advantages in the long term. An essential difference to merely reactive supplier development lies in the conscious search and selection of fields for development measures. Strategic supplier development is basically carried out through the direct participation of the customer, who invests in supplier development measures and thus also in the supplier himself. An essential characteristic for the application of direct vendor development is a strategic partnership with the vendor, since amortization of the development activity over the relationship life cycle is required. A supplier’s development capability in the strategic sense means the creation of room for maneuver through options for action for the buyer.

4.5.3 Preventive Supplier Development Preventive supplier development aims at the early and forward-looking improvement of suppliers on the basis of performance characteristics by supplier management. Preventive measures are intended to prevent poor performance in the areas of quality, costs or delivery performance and usually have a longer time horizon. The need is not yet acute, but sensors and early warning systems (audits, supplier evaluation, incidents) show deviations in supplier performance. Preventive measures are defined in the best case during the start­up of a product before series production.

4.5.4 Reactive Supplier Development Supplier development includes measures taken by the customer as merely reactive improvement in the event of short-term deterioration in the performance of a supplier in series production, in discontinuation or in after-sales service. It is usually initiated by a current, concrete problem in the exchange of services with the supplier (poor performance). The development measure has a short-term time horizon. The necessity arises from problems on the part of the supplier, for example, to deliver on time (security of supply in operations) as well as in the case of quality defects in the product or service itself.

4.6  Supplier Integration Strategic supplier development

Development phase

67 Preven ve supplier development

Start-up

Series phase

Reac ve supplier development

Phase-out

Aer-ServicePhase

Fig. 4.14  Preventive and reactive supplier development Supplier strategy

Supplier selecon

• • • • • •

Supplier evaluaon

Supplier development

Supplier integraon

Supplier controlling

Selecon of the right suppliers for the right material groups Applicaon of the right tools in supplier management Correct classificaon into preferred, alternave or market suppliers Proper consideraon of the depth and scope of value creaon Selecon of the right digizaon strategy and connecon of suppliers Ensuring sustainability along the enre value chain

Fig. 4.15  Supplier integration

In the case of reactive supplier development, suppliers only come to the attention of the customer when acute problems occur, so that it is a matter of very short-term countermeasures (English: troubleshooting) (Fig. 4.14). Suppliers are often required to comply with target agreements (based on key figures) whose deficits have been identified by the supplier evaluation in the categories of quality, costs or delivery performance.

4.6 Supplier Integration 4.6.1 Subject of Supplier Integration Supplier integration is the integration of the supplier into the company’s corporate structures and procedures so that processes and systems are synchronized in order to be able to work together more effectively and successfully, as Fig. 4.15 shows. In supplier integration, independent companies work together to optimize their processes and structures in order to coordinate them as well as possible to increase success. This can be quite a hurdle-­ laden undertaking in detail, and not only for the purchasing department. However, a goal-­ oriented implementation ideally creates a win-win situation for the market partners involved. Supplier integration begins where the company’s own boundaries end. The prerequisite for a functioning integration of external actors into the own process chains is therefore an opening towards the selected partners. There must also be a willingness to change internal work processes, ways of thinking and also the key figure/reward systems.

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4  Phases of Supplier Management

Depending on the industry, there are numerous opportunities for close, long-term cooperation with suppliers. Important processes that must be taken into account in supplier integration include the following areas: • Research and development: Even further upstream in the value creation process, the involvement of external partners begins in the research and development area. In this way, suppliers and customers can each contribute their specific know-how in joint project teams, bundle knowledge and achieve synergy effects in the development of new products. • Purchasing: Supplier integration often starts due to the naturally existing contacts in the purchasing area, for example with the agreement of specific delivery windows or packaging units up to the fully responsible warehouse management by the supplier. This requires, for example, the forward-looking provision of medium- to long-term production and sales planning. • Production: If supplier integration extends into the production processes of the company, so-called supplier parks are often created in the direct environment of the customer, for example to implement just-in-time production. • IT: An optimal exchange of information can only be guaranteed by IT standards and the common use of appropriate IT applications.

4.6.2 Supplier Integration Through Coaching and Collaboration Supplier coaching is the systematic, collaborative improvement of supplier competencies through measures implemented by supplier management together with the supplier. Coaching measures can be carried out at suppliers, distributors and sub-suppliers, at external providers, in a (supplier) academy or in a seminar room. Coaching activities require special coaching competencies of the supplier management staff, which will be specifically addressed later (Chap. 6). Coaching activities usually cover a specific topic area within the supply chain (project management, quality management, lean production methods, etc.). Regardless of whether they accompany projects in the planning phase, series production or in the after-sales service phase, coaching measures lead to rapid improvements. The increase of product and process quality is the focus of supplier management in coaching. Many companies have established their own supplier academy (Porsche, ZF Friedrichshafen, Bosch). These help their own company to develop or coach new suppliers or risk suppliers to the required level of maturity in terms of standards or quality requirements. The goal is the sustainable quality improvement of your suppliers. Relevant factors are above all quality, time and costs; practical evidence, e.g. the reduction of rejects and rework. Lean, flexible, efficient and sustainable. Experts and so-called supplier coaches (Engl.: Trainer, Coach) in all questions of comprehensive quality, project and series support. Among other things, manufacturing processes of supplier parts are analyzed (incl. Manufacturing and testing concepts) and solutions and implementation options for

4.7  Supplier Controlling

69

process and product optimization are developed. In addition, standardized supplier management programs and concepts also support warranty target cost processes. The necessary requalification and/or empowerment measures/upgrading measures, e.g. in quality or complaints management. All measures must be based on sustainability. Coaching in supplier management requires method and training competence through analysis and qualification.

4.6.3 Supplier Integration Through International Purchasing Offices International purchasing offices or global supplier management centers are part of the internationalization and the change in guiding principles in supplier management. Multinational corporations, such as Volkswagen, Daimler, Siemens, Bosch or Bombardier, have purchasing offices in regions such as China, India or Eastern Europe that offer savings potential or are geographically far away from the parent company. As recently as November 2015, Deutsche Bahn opened an international purchasing office in Shanghai. Companies such as Bombardier are represented on the purchasing side in China at more than six locations. In the meantime, the value added share of Chinese products in sectors such as the automotive or railway industry is more than 20–30%. In terms of network-­ oriented supplier management, this is referred to as Best Cost Country Sourcing (BCCS). Traditional companies use terms such as Global Sourcing (GS) or Low Cost Country Sourcing (LCCS). Of course, international sourcing or supplier management offices come with costs. For a purchasing office in China, one can calculate about 50 thousand EUR to 80 thousand EUR p.a., which is the full cost of one full-time position (1 full-time employee including salary and fringe benefits, office space, travel expenses, training, etc.). These costs must be amortized through savings. It is not just large companies that benefit from international factor costs. Not only multinational corporations, but also medium-sized companies have the opportunities to move on the international stage. German centers in China provide, among other things, office space and production capacities in key industries/processes. In addition, international purchasing cooperations can be established by sharing the fixed costs for a purchasing office. International offices in supplier management are centers of excellence and should not be confused with the so-called “shared service centers” (SSC) that are emerging more and more.

4.7 Supplier Controlling The term “controlling” has its origins in practice. It was formed by Deyhle in analogy to the concept of marketing and has a close relationship to the tasks of controllers. The scientific discussion of the term controlling began on a broader scale in the 1970s. The first basic understanding of controlling was to provide business information for management purposes. In this sense, controlling is supposed to fulfill a business transparency function.

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4  Phases of Supplier Management

Controlling is then concerned with the systematic definition and allocation (“breaking down”) of the goals to be pursued, the measurement of their achievement, the determination of target-performance deviations and the development of measures to eliminate them. In other words, controlling aims at managing the company through and with the help of planning and the resulting plans. The latter permeate the entire company, from strategic to operational planning. Controlling in this sense can also be understood as a cybernetic process, which is illustrated by the control loop of planning and control. Supplier controlling as the last phase in supplier management assesses supplier performance, is the basis of objective key figures and forms the basis for supplier control and supplier management (Fig. 4.16). Typical key figures are the quantity and on-time delivery of goods as well as the complaint rate. Which key figures are used in individual cases depends on the selected supplier management scenario. For example, there are differences between central, group-wide vendor management on the one hand and local, plant-related management on the other. The meaningfulness of the key figures depends directly on the quality of the data that is used to calculate the key figures. In industries with low production depth, supplier controlling based on key figures is crucial for the success of the company’s own products. The quality of supplier controlling is only as good as the quality of the underlying data. Four case studies from the automotive industry show the state of practice in supplier controlling and form the basis for an integrated architecture design. The architecture for data quality management in supplier controlling identifies the essential design elements and their relationships to each other. The basis for performance measurement, target definition and result monitoring in strategic and operational supplier management is a traceable key figure system for each supplier. A key performance indicator system consists of various key performance indicators from different areas, which can be calculated on the one hand from “hard” factors available in the system and on the other hand from objectified subjective assessments, i.e. “soft” factors. Excellent KPI systems enable the procuring company to perform a 360 ° analysis through which preventive measures can be taken. The influence of the various key figures on an overall key figure is determined by their weighting. The key figures determined in an evaluation cycle – and thus the degree of target fulfillment – form the basis for measures to further develop the supplier relationship in strategic and operational supplier management. The key figures, which are calculated from automatically determined “hard” factors, include quality data such as delivery quality, complaint rate, defects (measured in

Supplier strategy

Supplier selecon

• • •

Supplier evaluaon

Supplier development

Supplier integraon

Suppliercontroling

Selection of suitable key figures from significant areas with the help of the specialist departments Target/actual analysis - joint analysis of all key figures by supplier management in cooperation with the supplier Defining goals and actions to ensure long-term performance

Fig. 4.16  Supplier controlling

4.8  Case Study: Volvo Opts for In-House Production in the Field of Electromobility

Supplier Controlling Key Figures

Quarter 1 TARGET-ACTUAL

Quarter 2 TARGET-ACTUAL

Quarter 3 TARGET-ACTUAL

71

Quarter 4 TARGET-ACTUAL

Purchasing volume

- Framework contracts (Euro) - Savings (%) - Utilisation rate of framework agreements (%) ...

Process key figures

- Number of orders (Euro and %) - Number of framework contracts (euro and %) - Number of supplier transactions (# and %) ...

Quality

- Delivery quality (%) - Field quality (%) - Complaint processing (time per case) ...

Costs

- Cost of materials (Euro) - One-off costs, e.g. development (Euro) - Cost reduction ideas (Euro and %) ...

Delivery performance

- Adherence to delivery dates (%) - Flexibility in the event of changes in quantities (%) - Subsequent deliveries (%) ...

Key financial figures - Turnover (Euro) - Profitability (%) - Productivity (%) ...

Fig. 4.17  Example of key figures in supplier controlling

English: Parts per Million, PPM), cost and financial key figures, delivery information, quantity reliability, sustainability factors or innovation key figures. KPIs can be kept in a supplier file, which contains important information about the supplier. Figure 4.17 shows key figures in supplier controlling.

4.8 Case Study: Volvo Opts for In-House Production in the Field of Electromobility The battery is the heart of an electric car. It’s clear that manufacturers would like to have the expertise to produce them in-house. Volvo, for example, now manufactures the battery packs itself in Ghent, Belgium. However, the Swedes continue to buy the necessary battery cells. In 2017, Volvo was one of the first manufacturers to initiate a departure from the combustion engine. The development of new diesel engines was the first to be stopped, and since 2019 all new models – but only completely new ones, no facelifts – are to always drive forward electrified: that is, with electricity-assisted mild hybrid drives, as a plug-in model with a socket connection or as a pure electric car. Volvo Cars has inaugurated a battery assembly line at its Belgian production plant in Ghent. The first batteries for the XC40 Recharge P8 will be assembled there before the end of March. Production of the first

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4  Phases of Supplier Management

electric Volvo is also due to start in Ghent in the autumn. These are big plans for a manufacturer that doesn’t exactly shine with economical engines and doesn’t have a single electric vehicle in its range. That won’t arrive until the end of 2020, in the form of the XC40 Recharge, a compact SUV with an expected range of around 400  km. Granted: Volvo is not entirely clueless on the electricity terrain. After all, the brand itself already has a few hybrids on offer and once gained experience with the small series “C30 electric”. The Swedes have also founded their own e-brand, Polestar, and the Chinese parent company Geely and Volvo’s lifestyle sister Lynk & Co have been on the road with battery-­ powered models in their home market for some time. The tech for the electric XC40 isn’t witchcraft; the city SUV uses the group’s CMA compact platform, which the Geely F11 and all Lynk & Co models are built on, along with the Polestar 2. The most exciting part, in the truest sense of the word, as with any electric car, is the battery. From now on, Volvo will manufacture it itself: At the plant in Ghent, Belgium, where the XC40 comes off the production line, the automaker has started up its first battery production facility; the next one is to follow at the new U.S. location in Charleston, South Carolina. However, Volvo only assembles the battery packs for the car at its plants. The cells, i.e. the actual power storage units, will continue to be sourced from suppliers, specifically CATL from China and the South Korean supplier LG Chem.

References Büsch, M. (2019). Fahrplan zur Transformation des Einkaufs. Springer Gabler Wiesbaden. Dust, R. (2019). Total Supplier Management. Hanser Verlag München. Emmett, St. & Crocker, B. (2009). Excellence in Supplier Management. How to better manage contracts with suppliers and add value. Best practices in Supplier Relationship and Supplier Development. Cambridge: Cambridge Academic. Helmold, M. & Terry, B. (2016). Lieferantenmanagement 2030. Wertschöpfung und Sicherung der Wettbewerbsfähigkeit in digitalen und globalen Märkten. Springer Gabler Wiesbaden. Helmold, M., Einmahl, R., Rassmann, K. & Carvalho, L. (2020). In IUBH Discussion paper. Lessons from the COVID-19 Situation: Rethinking Global Supply Chain Networks and Strengthening Supply Management in Public Procurement in Germany. Abgerufen 31.10.2020. https://www. iubh-­university.de/wp-­content/uploads/DP_Logistik_Helmold_4_2020fin.pdf Hofbauer, G., Mashhour, T. & Fischer, M. (2016). Lieferantenmanagement. Die wertorientierte Gestaltung der Lieferbeziehung. München Oldenbourg Verlag. Immerthal, L. (2017). Lieferantenmanagement im Wandel. Die Digitalisierung im Lieferantenmanagement beginnt mit guter Kommunikation. In Beschaffung aktuell. Abgerufen 31.10.2020. https://beschaffung-­aktuell.industrie.de/einkauf/die-­digitalisierung-­imlieferantenmanagement-­beginnt-­mit-­guter-­kommunikation/ Kleemann, F. & Glas, A. (2020). Einkauf 4.0. Digitale Transformation der Beschaffung. 2. Auflage. Springer Gabler Wiesbaden. Kolev, G. & Obst, T. (2020). Die Abhängigkeit der deutschen Wirtschaft von internationalen Lieferketten. Institut der deutschen Wirtschaft. IW-Report Nr. 16. 23. April 2020. Abgerufen 31.10.2020. https://www.iwkoeln.de/studien/iw-­reports/beitrag/galina-­kolev-­thomas-­obst-­die-­ abhaengigkeit-­der-­deutschen-­wirtschaft-­von-­internationalen-­lieferketten.html Schupp, F. & Wöhner, H. (2017). Digitalisierung im Einkauf. Springer Gabler Wiesbaden.

5

Organization in Supplier Management

The boss completely reorganizes the business from time to time. But that does no harm, because everything remains the same. Kurt Tucholsky (1890–1935).

5.1 Supplier Management as a Key Function in the Company Industrial and service companies are increasingly networking their procurement management with the upstream stages of the value chain. The central supplier management takes over the planning and control. Well-structured supplier management and the expansion of a qualified supplier base are imperative to ensure the future viability of companies (BME 2017). Furthermore, supplier integration into the production process enjoys high priority for globally operating companies and small or medium-sized enterprises. Supplier managers can significantly increase the performance characteristics for new product development as well as for process optimization of the value chain through lean processes, intensive qualification measures and audits of the supplier. Therefore, supplier managers in companies should strive for long-term, high-quality partnerships with selected suppliers. The internal implementation of supplier management requires intensive cooperation between supplier management and the specialist departments. Ideally, employees from supplier management, purchasing, logistics, product development, quality management, production and marketing should form teams that deal with systematic supplier management, standardization, reducing the depth of added value, supplier integration and “global sourcing”. The teams create know-how through group-wide collaboration to generate indispensable product, market and supplier knowledge. Professional supplier management

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_5

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5  Organization in Supplier Management

has become increasingly important in recent years. However, consistent implementation in the company often fails due to a lack of standardization of work processes. As a result, suppliers are not optimally managed, the necessary transparency is lacking and significant cost potentials remain undiscovered. The right selection of the future supplier and in particular the development from a simple supplier to a partner on an equal footing, on the other hand, can uncover enormous potential for innovation and savings. In addition, stringent supplier management can minimize default risks and ensure high delivery quality. The establishment of a supplier management system is by no means only relevant for larger companies and corporations. Smaller companies in particular usually do not have sufficient reserves to be able to absorb supply bottlenecks or even excessively high prices and insufficient quality over a long period of time (BME 2017). Figure 5.1 shows the central elements for successful supplier management with mission, vision, corporate values, strategic goals and the organizational structure and process organization. The organizational pyramid forms the foundation for every functioning company and supplier management (Helmold 2020).

5.2 Structure and Process Organisation of Supplier Management 5.2.1 Object of the Organizational Plan The organizational structure of supplier management forms the hierarchical and organizational framework of a company and the organization (Emmett and Crocker 2009). Whereas the organizational structure is based on the structure of supplier management, the process organization refers to processes and activities (Helmold and Terry 2016). The organizational structure defines the organizational framework, i.e. which tasks are to be handled by

Mission Vision

Mission Statement and Transformaon

Corporate culture and values

Strategy

Corporate strategy and goals Process and phases in supplier management

Processes

Plaorm

Supplier strategy

Structure

Supplier selecon

Alignment

Supplier evaluaon

Supplier development

Guide

Tools

Organizaon

Fig. 5.1  Organizational pyramid for modern supplier management

Supplier integraon

Supplier Control

Competencies

5.2  Structure and Process Organisation of Supplier Management

75

which functional units and sub-departments (Hofbauer et al. 2012). In contrast, the process organization regulates the work and information processes in supplier management that take place within this framework. Companies usually have a line organization or a project matrix organization.

5.2.2 Line Organisation A line organization (single-line or multi-line organization) describes the hierarchy structure in a company. The single-line organization, also referred to as a single-line system, is characterized by a corporate hierarchy in which each organizational unit (e.g. department head, employee) has exactly one superior. There is clear authority to issue directives and the flow of information is from top to bottom. This form of organization is often found in small and medium-sized companies. The multi-line organization, also known as the multi-­ line system, is characterized by a corporate hierarchy in which each organizational unit (e.g. department head, employee) has several superiors and each superior can delegate tasks to each employee in a specific area. The structure is linear, so that each department and each employee receive their instructions from a clearly identified superior. The top level of the line organization is usually the executive or company management, as Fig. 5.2 shows. This is where strategic decisions are made. The next levels are divided into divisions or departments. Supplier management, production, quality management, marketing and sales, finance and controlling, and human resources, among other functions, can be departments defined in a company. Each level is headed by a person who has the necessary expertise in that particular area. This is therefore the department manager or main department manager, who has decision-making authority and authority to issue directives to the employees at this level. Accordingly, Supplier Management has a main department head

Management

Supplier management

Supplier management as a cross-seconal funcon to producon, quality management and markeng

Producon

Quality management

Markeng & Sales

Finances & Controlling

Staff

Supplier management

Producon planning

Quality planning

Strategic markeng

Strategic financial

Personnel planning

Purchasing

Producon control

Quality control

Operaonal markeng

Accounts payable

Personnel procurement

Procurement logiscs

Toolmaking & Assembly

Quality assurance

Adversing & Communicaon

Accounts receivable

salary and wages

Indirect purchasing

Improvement projects

Audits

Distribuon & Sales

Controlling

Qualificaon

Fig. 5.2  Organizational structure of supplier management in the line organization

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5  Organization in Supplier Management

and various departments such as Supplier Management, Purchasing, Procurement Logistics and Indirect Purchasing under him and is authorized to issue directives. Other departments, such as Production or Marketing, have the same structures. In a line organization, Supplier Management does not have direct authority over other departments. However, supplier management assumes the cross-sectional function with the integration of all functions and supplier networks.

5.2.3 Project Organisation In project organization, all areas are organized according to projects that work independently of each other and work their own resources. In this context, the project organization comprises the totality of all organizational and procedural arrangements for handling a defined project. Figure 5.3 shows a project organisation in which the projects each have their own functions, such as supplier management, purchasing, production or marketing. A major disadvantage of project organizations is the possibility of multiple contacts with suppliers by multiple supplier managers and the lack of coordination of supplier activities. For companies that have not yet worked with the pure project organization, the introduction is very time-consuming and cost-intensive. The organizational form of the respective company has to be changed. In addition, new employees often have to be hired so that the line organization does not suffer. Therefore, the completion of a project is also costly: The employees have to be returned to the line organization. Here, their positions are usually

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Fig. 5.3  Organizational structure of supplier management in the project organization

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already occupied. These difficulties are multiplied if not only one project is carried out in its pure form, but several projects are pursued in parallel in an appropriate manner. On the other hand, project organizations have certain advantages: • • • • • •

Instruction and decision-making authority of the project management on all functions Implementation of complex projects clear allocation of responsibilities precise allocation of responsibilities increased motivation and willingness to perform through identification with the project ideal coordination of all functions and areas

5.2.4 Divisional Organisation The divisional organization, also referred to as the division organization or business area organization, structures organizational units on the second hierarchy level according to object viewpoints or work areas. These units are called business areas, lines of business or divisions, as Fig. 5.4 shows. The divisional organization creates organizationally independent divisions for which a profit is calculated. They have profit responsibility and can be thought of as a company within a company, but they are legally dependent. In a divisional

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Fig. 5.4  Divisional organization

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organizational structure, each division has a supplier management department. Other departments, such as purchasing, production, marketing or logistics, can also be found in each division.

5.2.5 Functional Organisation Functional organisation is the division of the units of an organisation according to tasks on the second hierarchical level below the company management. The company management has the task of coordinating the various areas. Management is based on the single-line system. The main departments are divided according to functions and have regions within their functional responsibility. Figure 5.5 shows the functional organisational structure.

5.2.6 Matrix Organisation A matrix organisation is an organisational structure of a business enterprise in which different functional organisational areas and with the organisational station of the product areas overlap and form a matrix. A matrix organization is a possible structural principle in the organization of a business enterprise, according to which responsibility and accountability can be structured. A matrix organization is therefore a form of multi-line organization. In this case, the management function is distributed between two independent, equal dimensions (e.g. execution and products). In Fig. 5.6 it can be seen that in addition to the divisions and projects, there are also line functions that support them with specialist knowledge and experts. Today’s common and often very successful implementation of a matrix organization distinguishes between the disciplinary line function, usually shown in the vertical, and the technical line function in the horizontal. The functional management

Management

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Fig. 5.5  Functional organization of supplier management

5.2  Structure and Process Organisation of Supplier Management

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Divisions or projects Division A

Division B

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Fig. 5.6  Matrix organization with supplier management as a cross-sectional function

is very often project-related and thus designed for a specific project period. Supplier management thus has functional directive authority for the planning, management and control of suppliers (Helmold 2020). The Following Advantages can be Mentioned • Shorter communication paths in case of prevention or escalation • Specialization of the management function with simultaneous relief of the top management • Problem solving taking into account different points of view and the primacy of expertise over hierarchical position, as well as the promotion of teamwork • Cooperation between all departments

From the Employee’s Point of View there are Further Advantages • If the matrix is implemented appropriately, this results in close professional control of the employee at the horizontal level. • A permanent contact person is available in the line organisation who can act and mediate in the interests of the employee and his or her development. • The social environment and thinking beyond one’s own department is promoted.

The Disadvantages and Dangers of this Organization of Job Relationships Include • Conflicts of competence, i.e. power struggles and unsatisfactory compromises • Attribution problems of successes and failures

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• • • • • •

Lack of transparency and necessary, clear regulations of competences high communication effort additional planning efforts and high overhead costs during project breaks cumbersome and lengthy decision-making process Uncertainty of the implementing agencies due to multiple subordination challenging performance control by decreasing the willingness to perform if this is not recognised by the line management • it is difficult for other departments to estimate the capacity utilisation of the employee, as the overall picture is often not available

5.2.7 Agile Form of Organisation Agile companies are able to adapt their organization and their business model to new market requirements in a short time. Furthermore, agile organizations are proactive and proactive in seizing opportunities as they arise. This applies to all areas of the company. Agility in business is the right mix of “doing agile” (methods) and “being agile” (mindset). In the course of digital transformation, agility is a necessary leadership and organizational principle to be successful in digital markets. Agile transformation is becoming an essential cornerstone of successful digital transformation. Figure 5.7 shows a prototype of the agile Supplier management Producon

Suppliers

Markeng & Sales

Management Customer

Finances & Controlling

Staff

Logiscs

Fig. 5.7  Agile organization

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organization. Agile companies have a DNA all their own. Their success is difficult to attribute to individual measures or methods. Rather, their success is based on six pillars, such as mission, customer centricity, agile and (re)imagined leadership, agile methods, continuous improvement, and agile corporate culture. In agile organizations, the customer is part of the value creation and not simply the last link in the chain. Requirements are formulated in user stories, value is created starting from the customer and thinking along the customer journey, rather than from the inside out (Helmold 2020). An ideal and impressive symbolism for the position of the customer is to give him a free chair in every meeting. As a silent, yet permanent reminder of what it is all about. This form of customer centricity also means that the customer is actively involved in the development of services and products. At an early stage, the customer is given prototypes and minimally functional products to give his feedback based on. Based on this feedback and their needs, agile organizations continuously develop their offerings. In this way, agile organizations gain a high level of clarity at an early stage about what customers really value in their offering and which aspects of performance they do not need to pursue. Supplier management takes a lead role in the agile organization, linking suppliers and their own departments with the customer. Production, operations and processes are synchronized and regularly reviewed. Agile supplier management must be organized in such a way that there are units for traditional purchasing business as well as for support in exploring in complex situations (Kleemann 2020). Agile working in supplier management works differently than conventional methods. Instead of a high level of detail in planning, many tasks and challenges are tackled simultaneously. Agile working does not mean no more planning at all. Rather, agile working means delegating as many tasks as possible to small teams with supplier management control and facilitation. The cross-departmental teams then work together on solutions, including with suppliers across company boundaries. For this to succeed, there needs to be a clearly defined goal and project mandate to achieve. Teams approach solutions in many small steps. They divide a large goal into numerous intermediate tasks (Pfannstiel et al. 2020). This makes it easier to react to changing conditions and to constantly adapt. Companies and teams can thus survive better in an environment that is difficult to predict if they rely on agile methods rather than linear working.

5.2.8 Virtual Forms of Organisation A virtual organisation (VO) is a form of organisation in which legally independent companies and/or individuals join together virtually (usually via the Internet) for a certain period of time to form a joint business association. Figure 5.8 shows the virtual organization across national borders. There are maturity levels in supplier management, which are shown in Fig. 5.9. Companies with a high maturity level have virtually set up competence centers and expert teams that operate globally.

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Supplier management

Europe (Headquarters) Central supplier management

Supplier management

North America

Japan

Supplier management

South America Supplier management

Australia

Supplier management

High

Fig. 5.8  Virtual organization

Degree of flexibility and responsibility for supplier managers

Hybrid: Virtual and central control of supplier managers with decentralized experts on site. Rapid response team of supplier managers. Decentralized organizaon: supplier managers in all regions Central organizaon with regional specialists: supplier managers in different regions and me zones Central organizaon: Occasional exchange of supplier managersacross regions

Low

Central organizaon: Supplier managers have fixed regions and fixed supplier bases.

Low

Degree of collaboraon between supplier managers

High

Fig. 5.9  Maturity levels of virtual organizations

5.3 Process Organization of Supplier Management In organization theory, process organization in supplier management refers to the description of dynamic and systematic work processes, taking into account the management, guidance and control of supplier networks, whereas organizational structure is mainly

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concerned with the static structuring of a company into organizational units, jobs and departments (Hofbauer et al. 2012). In particular, defining and modeling process flows is understood as a scientifically supported approach. Working in a chained process follows a control method for a flow shows. Process flows are divided into main processes and sub-­ processes. The main processes in supplier management can be defined as follows (Chap. 4): • • • • • •

Supplier strategy Supplier selection Supplier evaluation Supplier development Supplier integration Supplier controlling

The organizational structure and process organization usually consider the same objects from different aspects. The descriptions and the underlying structures depend on each other (interdependence). The organizational structure considers organizational resources, the process organization deals with the (temporal or final) chain of individual work steps using these resources. Figure 5.10 shows the combination of organizational structure and process organization.

Defrosng organizaon Management

Supplier Management Suppliers¬ management

Supplier management as a cross-seconal funcon for producon, quality management and markeng

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Fig. 5.10  Structure and process organization in supplier management

Supplier controlling

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As part of the realignment of supplier management in the direction of “value creator”, a review of the existing processes and their redesign is indispensable. In parallel, the realignment must adapt the structure and process organization of supplier management and take into account aspects of the new mission statement. For this purpose, the responsibilities in the group-wide supplier management must be newly and efficiently regulated and the material groups must be strategically aligned and correctly assigned to the respective supplier managers. Material groups (Engl.: Commodities or categories) are combinations of material and product groups or categories with the same characteristics. Organizational structures, responsibilities and division of departments and sub-­departments are part of the organizational structure, the processes and procedures are part of the process organization. Particularly due to globalization and digitalization, realignment must be carried out virtually and across regional borders. Experience has shown that it makes sense to position the supplier managers in such a way that supplier managers for material group interior parts are spatially or virtually connected with the global developer and quality manager in this material group (networks). Automotive companies have platforms or product groups (clusters) in which the developer, the quality manager and the supplier manager are physically co-allocated and collaborate. Within these platforms there are uniform goals and cross-functionally defined strategies. For the tasks of supplier management controlling, tools have to be developed that support the head of supplier management and the supplier managers as well as the strategic and operative buyers in their daily work. The tools offered range from the standardization of inquiry documents for development parts, to benchmarking tables for commodities, to profitability calculations as a basis for decision-­making before changing suppliers. The developed tools help the supplier managers to handle the purchasing processes in a structured and efficient way. For example, the standardization of inquiry documents for development parts is used to first check all required documents so that the supplier does not have to make additional inquiries about the parts. Furthermore, this tool provides all documents from development and design with clear assignments to responsible persons, so that in case of queries the clarification process is as simple and fast as possible and the supplier manager can be the central point of contact to the supplier. The classification into a material group structure is a further point for the improved assignment of responsibilities and thus a clearer and more efficient procurement structure. Benchmarking for the individual commodities is used to quickly identify potential savings. For this purpose, the parts of a material group are compared with each other, taking certain characteristics into account. This is already possible with the help of simple benchmarking tables describing the parts for the individual commodities. With the help of these tables, purchasing potentials can be identified in a targeted manner and simple price controlling can be carried out, e.g. as an effect of changes in aluminium world market prices. The profitability calculation also serves to reduce the total costs of purchasing in a targeted manner. It is only carried out for parts that have been selected according to certain criteria. The calculation takes into account the remaining life of the parts, the savings resulting from the change of supplier and the corresponding costs.

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From this, the appropriate conclusions can then be drawn about the focusing of activities with regard to the targeted savings.

5.4 Supplier Management and Digitalization in Indirect Purchasing Indirect procurement concerns materials or services that do not flow directly into the production process but are nevertheless of central importance to a company. The purchase of indirect goods and services, in short “indirect purchasing”, has largely established itself as a separate organizational unit in companies. Despite company-specific characteristics, the items to be procured in indirect purchasing are also very similar in different companies. In order to realize best prices for these requirements in purchasing, they must be bundled across companies: In this way, the volume to be procured is increased, and as a consequence, the market power is increased and an improved negotiating position is achieved. For individual companies, SMEs and larger corporations, this means a significantly increased benefit in terms of conditions and performance. Thus, indirect purchasing assumes a pioneering role in digital procurement (Kerkhoff Group 2016). With the help of digital solutions (eProcurement) and the constant bundling of customer requirements, they realize added value for each individual company in indirect purchasing. This makes savings possible which no company can realize on its own, but which become tangible through classic condition spreading in the form of discount and quantity scales as well as negotiation competence in the conclusion of framework agreements. In addition to optimal support of collaborative processes with indirect suppliers by supplier management, however, catalog functions are also important. After all, indirect material is usually not ordered by professional buyers, but by the specialist departments in the company. For them, the purchasing process should be as simple as possible. Role models here are Amazon or Alibaba. The same applies to services, which can also be procured via catalogs. Here it is also advisable to integrate quantity queries in the catalog. This way, the requester can ask suppliers with pre-negotiated prices for the desired scope of a service directly via the shopping cart without having to involve the purchasing department. According to the Kerkhoff consultancy, experience shows that a doubling of the purchasing volume results on average in an improvement of conditions between 6 and 8%. In addition to these quantitative advantages, the service level can be optimized at the same time and an A-status rating of the suppliers can be enforced. The eProcurement tools that characterize this approach not only support market monitoring, but also quarterly tenders, price analyses and a new form of negotiation – Advanced Negotiation. Another key benefit of this approach is the creation of transparency in purchasing processes and the associated guarantee of compliance security: with the help of the eProcurement system and quarterly reports, a reduction in the maverick buying rate can be achieved. Based on this long-term reduction, further savings of 2–5% are realistic, as the mandatory use of framework agreements eliminates unnecessary transaction and opportunity costs. Reporting tools support quality reporting by

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permanently comparing demand, order and invoice quantities and additionally ensure a continuous improvement process (Kerkhoff Group 2016).

5.5 Strategic Purchasing in Supplier Management Strategic purchasing differs from operational purchasing in that it defines a purchasing strategy consisting of systematically coordinated measures that subsequently bring sustainable success to the company. While strategic buyers conceptually design and control the procurement processes from market research to supplier evaluation and selection, operational buyers are responsible for the execution of the order.

5.6 Operational Purchasing in Supplier Management Basically, a distinction is made between strategic and operational purchasing. The operational area includes functions such as ordering and deadline tracking as well as the processing of returns and complaints. These are therefore the classic executive tasks within the scope of physical procurement.

5.7 Case Study: Global Supplier Management at Bombardier Transportation Bombardier Transportation has a global procurement volume of more than €2.3 billion for components used in the production of trams, trains and commuter trains. More than 15% of these components are procured from China. Looking at the total global sourcing share, it is even more than 50%. This trend continues to grow, and Bombardier is expanding supplier networks with a high degree of maturity in China and India in particular. The company is even considering building semi-finished trains in China at its joint venture in Qingdao, Bombardier Sifang Transportation (BST), in order to achieve cost advantages over international competitors in Europe, Korea, China and Japan. In individual projects, such as Metro Stockholm, which is manufactured at Bombardier’s largest plant in Hennigsdorf near Berlin, the car body with interior fittings already comes from China. The car body is one of the largest parts of the value chain for trains. In other projects, all the components are manufactured in India and delivered to Australia. Figure 5.11 shows an example from Bombardier in which all supplier management activities are bundled and coordinated by a global commodity leader. The lead buyer organization is assigned to strategic purchasing at the headquarters in Berlin and consists of a global network at various locations. For aluminum, steel and other materials for car bodies, the lead buyer is located in Derby, England. Within the lead buyer network, there are interfaces to the regional (Central Europe, Western Europe; Asia-Pacific, Americas, China

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References Global responsibility

Region Western

Asia-Pacific region

Region Central Europe

Global supplier manager

American region

Global team of experts

Expert quality

Greater China

Africa region

Expert development

Expert commissioning

Fig. 5.11  Example of global supplier management at Bombardier Transportation

and Africa) and divisional supplier managers. In addition, supplier quality (quality manager), industrialization and development are integrated into global material group management and supplier management. The blue outer boxes show the different regions and regional projects, e.g. Metro Stockholm projects in the Central Europe Division or Queensland New Generation (QNGR) in the Asia-Pacific Division, which are awarded globally to suppliers in line with the central material group strategy. Due to this reorientation towards a virtual and network-focused organization, additional requirements are imperative in addition to traditional purchasing competencies such as procurement market knowledge, product expertise, negotiation skills, materials management know-how and basic foreign language skills. Compared to the traditional and mostly hard requirements, the new requirements are due to a higher complexity of supplier networks and greater internationalization. Suppliers have changed into competing and complex value networks. In sectors such as the automotive industry, mechanical engineering, the railway industry or aircraft construction, supply oligopolies for certain components have formed in specialized markets. Furthermore, supplier networks are also operating more and more internationally.

References BME (2017). Leitfaden Strategisches Lieferantenmanagement. Bundesverband Materialwirtschaft, Einkauf und Logistik e.V. (BME). Abgerufen am 14.10.2020. https://www.koinno-­bmwi.de/fileadmin/user_upload/publikationen/Leitfaden_Lieferantenmanagement.pdf Emmett, St. & Crocker, B. (2009). Excellence in Supplier Management. How to better manage contracts with suppliers and add value. Best practices in Supplier Relationship and Supplier Development. Cambridge Cambridge Academic Publishing.

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Helmold, M. and Terry, B. (2016). Lieferantenmanagement 2030. Sicherung der Wettbewerbsfähigkeit durch wertfokussierte Lieferantenbeziehungen. Springer Gabler Verlag. Wiesbaden. Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham. Hofbauer, G. et  al. (2012). Lieferantenmanagement. Die wertorientierte Gestaltung der Lieferbeziehung. 2nd Edition. München Oldenbourg Verlag. Kerkhoff Group (2016). Vom Underdog zum Favoriten: Indirekter Einkauf übernimmt eine tragende Rolle in der digitalen Beschaffung. IN Tagespiegel. Abgerufen 14.10.2020. https:// www.kerkhoff-­analytics.com/presse/presseartikel/presse-­details/news/vom-­underdog-­zum-­ favoriten-­indirekter-­einkauf-­uebernimmt-­eine-­tragende-­rolle-­in-­der-­digitalen-­beschaffung/?no_ cache=1&tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&cHas h=d29f31603df3d5167a3fb5920cd6e197 Kleemann, F. (2020). Agiler Einkauf: Mit Scrum, Design Thinking & Co. die Beschaffung verändern. 2. Auflage. Springer Gabler Wiesbaden. Pfannstiel, M., Siedl, W. & Steinhoff, P. (2020). Agilität in Unternehmen. Eine praktische Einführung in SAFe® und Co. Springer Gabler Wiesbaden.

6

Competence Requirements in Supplier Management

Forming people is not filling a vessel, but a To start a fire. Aristophanes (446–386 BC)

6.1 The Supplier Manager as Interface to the Supplier 6.1.1 Changed Framework Conditions Lead to New Competence Requirements By focusing on their own core competencies and due to the constantly decreasing value creation and the associated outsourcing to suppliers, many companies have understood that excellent supplier management is important for the company’s success. Numerous companies have therefore established supplier management in conjunction with strategic procurement. Due to these increasing demands within the supply chain to strategic and globally positioned system, module or component suppliers, the scope of tasks for supplier managers has also changed. As an internal and external responsible person, a supplier manager represents the central coordination point for the overall responsibility of the supplier companies, and this overall responsibility includes not only quality targets but also delivery and cost targets. He is responsible for regular measurement of supplier performance using suitable methods. Supplier managers advise suppliers holistically in the sense of supplier promotion and work closely with suppliers at the interface of quality management, purchasing, production and development and provide them with technical support in

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_6

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the implementation and optimization of qualitative and logistical processes. The work as a supplier manager includes, for example, collaboration in new product projects, start-up preparation and close cooperation with production at international locations. Supplier managers work with suppliers and are responsible for smooth production operations in series preparation and series delivery. They also plan and manage supplier promotion measures at home and abroad on their own responsibility. In the event of disruptions, the LM is supported by line departments Quality Preplanning, Purchasing, Production and all relevant departments. Continuous development of the processes and methods of the entire supplier quality management is a “must” for every supplier manager. Furthermore, it is his responsibility to define the suppliers in close cooperation with the purchasing, quality and development departments on the basis of analysis methods such as VDA 6.3 (process audit). A supplier manager must also be able to work in a cross-functional and globally networked manner. A supplier manager knows how to deploy, control and “direct” experts of a globally operating network in the respective sub-projects. He/she should have sound user knowledge in supplier and quality management. In many companies, supplier managers come from the lower or middle management levels of the specialist departments. The hard core competencies (Fig. 6.1) of a supplier manager are as follows: • sound education in the fields of business administration, engineering or industrial engineering • relevant professional experience in supplier management in the respective industry • Experience in conducting audits and supplier development activities • Experience in international purchasing • Knowledge of the product development process and understanding of technology • Contract knowledge and skills to draft contracts and draw conclusions • Logistics knowledge, in particular knowledge of lean supply chains, transport, storage • Financial knowledge, ability to evaluate the financial situation of suppliers • IT skills and knowledge in the field of artificial intelligence • Language and intercultural skills • Methodological knowledge of quality management tools • Experience in project management as well as in the area of lean production In addition to the current core requirements, a supplier manager must be methodical. Especially when introducing or expanding the principles of lean production into the supply chain, strong communication skills are required. Due to the necessity of coaching measures with suppliers, moderation skills must also be present. In addition to the core competencies, the following requirements are also indispensable: • Experience in carrying out coaching measures • Competence in managing virtual and international networks • Analysis skills

6.1  The Supplier Manager as Interface to the Supplier

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Visionary

More Competencies

Intercultural competences Enthusiasm

Flexibility

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Outcome orientation

MethodsCompetencies

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Project management

Lean methods

Analysis methods

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Key financial figures Cost

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Creativity

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Academic Skills

Contract

Business, Engineering

Study Bachelor, Master Technology

Result orientation

Willingness to learn

Computer

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Personal skills Security Age

Cour

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Fig. 6.1  Competence requirements in supplier management

• • • • •

Conflict management skills Cooperation and conflict resolution skills Assertiveness and high methodological competence high self-motivation Ability to lead virtual and interdisciplinary teams

In addition to the above-mentioned requirements, a supplier manager must also have knowledge of finance and other disciplines within the scope of a 360° analysis in order to fulfill his task holistically. The aforementioned requirements show that the requirement profile and the tasks of the supplier manager have changed radically: from being a pure “procurer” and “cost depressor” to being a “value creator” and “value shaper”. Numerous companies train their supplier managers in their own academy. In many cases, the strategic buyers take over the function of supplier management, which means that there is no separate position. In other companies, so-called tandems, consisting of a strategic supplier manager from the quality department and a strategic buyer, are responsible for supplier

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management. Another example are supplier developers who are assigned to purchasing. Important interfaces here include production and quality as well as operational purchasing as a supporting function. The organizational assignment of supplier management is a question of the philosophy of each individual company. In some cases, Purchasing is supported by an IT officer who takes over operative tasks, for example, data maintenance or keeping track of certificates. The requirements for an employee in supplier management differ from those for a strategic buyer, as a higher level of technical understanding is necessary. However the responsibilities are distributed in the respective divisions, the responsibility for the introduction and establishment lies with the purchasing department. General procedures in supplier management (for example, the definition of processes) are usually determined by a team consisting of purchasing, quality management and product development. Figure 6.1 divides the competencies of a supplier manager into personal, academic, technical, methodological and other competencies.

6.1.2 The Supplier Manager as Single Point of Contact Supplier managers are sought-after professionals in industry. They enforce compliance with high standards in the procurement of raw materials and supplies. Supplier managers work closely with the respective departments and are the sole point of contact for suppliers (Single Point of Contact, SPOC). In an organization, a Single Point of Contact is a central point of contact for one or more suppliers. Depending on the context, there are also similar terms for the SPOC concept, such as single point of contact or key account manager. In this way, they fulfill an important function as an interface to external value-added partners. They ensure that only flawless materials, services and parts enter the production process. Supplier managers perform a variety of tasks in supplier management. They are responsible for planning and conducting workshops, supplier audits and potential analyses. They are also responsible for the search, selection and approval of new suppliers. In addition, they process supplier complaints and participate in the negotiation of quality assurance agreements. Their day-to-day work involves communicating with other specialist departments within the company. Supplier managers are the point of contact for all quality issues between suppliers and internal departments. They always have an eye on process and product quality and coordinate technical supplier development: • • • • • • • •

Planning and implementation of supplier workshops Planning and implementation of supplier audits Potential analyses across the supply chain Measures to improve supplier performance Supplier search, selection and approval Introduction of necessary quality improvement measures Communication and coordination with internal departments Training of employees in the purchasing and procurement department

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• Support during the initial sample inspection of new parts and during the start of series production • Design of value chains in terms of speed, completeness and cost

6.1.3 Growing Internationalisation in Procurement Suppliers have changed into competing and complex value creation networks. In sectors such as the automotive industry, mechanical engineering, the railway industry or aircraft construction, supply oligopolies for certain components have formed in specialized markets. Furthermore, supplier networks are also operating more and more internationally. In addition to advancing digitalization and Industry 4.0, the goals of the new supplier managers focus on value creation and value-adding activities along the entire value chain. In contrast to the old model of the cost-pusher and the reactive supplier escalation based on historical data, the new model focuses on partnership-based and proactive measures for the continuous improvement of quality, costs, logistics and technology.

6.2 Networking Ability of Supplier Managers Due to this reorientation towards a virtual and network-focused organization, further requirements are mandatory in addition to traditional purchasing competencies such as procurement market knowledge, product expertise, negotiation skills, purchasing expertise and foreign language skills (mostly English). Compared to the traditional and mostly hard requirements, the new requirements are due to a higher complexity of supplier networks and greater internationalization.

6.3 Regular Development Through Training and Qualifications Continuing education brings know-how into the company, promotes innovative strength, performance and willingness as well as job satisfaction of supplier managers. As a key role, it is therefore imperative that supplier management is at the forefront of methods, processes, innovations and other aspects. This has a positive impact on supply chains and productivity. But also the external perception can be improved by further training of the employees. In addition to purchasing-related competencies in supplier management, skills and knowledge in other areas such as digitalization, project management, conflict resolution skills or quality tools are necessary. Figure 6.2 shows a competence matrix for supplier managers. The competency matrix shows with a black circle that all competencies are fulfilled. Conversely, the circles that are not fully filled show where competencies still need to be strengthened. The competence analysis should take place with the manager in the context of the development plan and annual meeting (target agreement).

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Supplier manager A Supplier manager B Supplier manager C Supplier manager D Supplier manager E Supplier manager F

Personal skills

Competence Matrix Supplier Management Academic Technical Further Method skills competences competencies competences

Fig. 6.2  Competence matrix

6.4 Case Study: Risk-oriented Management of Suppliers at the Meyer Werft Shipyard With a holistically implemented concept for risk-oriented supplier management, the Papenburg-based Meyer Werft shipyard convinced the jury of the German Association of Materials Management, Purchasing and Logistics (BME) and received the BME Award. In the construction of cruise ships – with a procurement share of more than 75% – the shipyard installs more than 15 million individual parts per ship. 800 suppliers and service providers have to be coordinated for each newbuilding. A reliable and closely networked supplier base is the basic prerequisite for securing the long-term future of the family-run shipyard and operating successfully in the market. The reason for the conception and implementation of a new supplier management is the massive increase in the output volume of the shipyard group, which is based on both the increase in the number of annual ship deliveries and the increasing ship sizes. In addition, there is the increasing complexity of newbuildings, such as LNG propulsion or innovative entertainment novelties, which require an intensive partnership with the suppliers throughout all realization phases. The same applies with regard to the long-term order book with a range into the year 2023, which in addition to the pleasing long-term capacity utilisation also shows risks with regard to long-term security of supply and future construction costs. The supplier management concept was therefore drawn up with the involvement of all interfaces of the departments in contact with the suppliers. For the first time, a completely risk-oriented approach was taken, so that risk-avoiding measures can be defined in all phases of cooperation with the supplier base – both at the operational level and strategically depending on the procurement markets. Based on the existing supplier management, a new concept was systematically started at the beginning of 2017. A specialist department created for this purpose  – directly attached to the management in purchasing  – is coordinating the

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95

implementation of the concept. The Group-wide implementation of the overall concept has been underway since spring 2018. “Our supplier network is responsible for 75% of the value-­added share of our projects,” says Klaus Lübbers, Chief Procurement Officer and Executive Board Member of the shipyard. “By realigning our risk-oriented supplier management, we are integrating this network more closely and optimizing our performance together.” “Meyer Werft has to manage significant challenges almost simultaneously, and not only within the scope of its traditional tasks,” said Dr. Michael Nießen, member of the executive BME board and jury spokesman, explaining the decision. “A wow effect is expected for each ship, as a pioneering achievement in its own right. Since adherence to price and delivery dates is particularly decisive for the success or failure of a project, not only is careful planning of the individual project steps required here, but alternative scenarios must be kept in mind. This is because there are 800 suppliers working in a very tight space, who not only have to coordinate closely, but also constantly come up with ideas to keep prices and deadlines on track. Meyer Werft has taken a risk-oriented approach here. ‘Clocking-pulling-flowing’ is the guiding principle – and instead of discussions about savings, the focus is on cost structure analyses.”

7

Control Groups and Escalation Levels in Supplier Management

Stupid thoughts everyone has, but the wise man keeps them quiet. Wilhelm Busch (1832–1908)

7.1 Supplier Management as a Central Control Function 7.1.1 Supplier Steering Group The supplier steering committee is a cross-departmental committee at management level in which all the departments concerned, such as quality, purchasing, development, production or logistics, meet regularly. Supplier management is responsible for the management and moderation of the LLK. Preventive and reactive measures are taken to improve the performance of suppliers or supply chains on the basis of standardized key figures and other tools. The aim is to make fact-based and coordinated decisions in order to avoid supply risks at an early stage. Supplier projects decided in the LLK follow an experience-­ based, standardized procedure and can be tracked at any time with regard to their progress status. Figure 7.1 shows the supplier steering committee with the department heads of the respective specialist departments.

7.1.2 Supplier Manager as Central Contact Person In the internal implementation of supplier management, intensive cooperation between supplier management and the specialist departments is absolutely essential. Employees © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_7

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Purchasing

Logistics Production

Quality Core members

Supplier Steering Committee Measures, decisions & escalation

Support Sustainability Finance

Staff

Supplier Manager Moderator Supplier Management

Fig. 7.1  Supplier steering committee as decision-making body for supplier measures

from supplier management, purchasing, supply chain management, logistics, development, quality and production must form cross-divisional teams for selected suppliers or material groups that deal with systematic supplier management, improvement, standardization, reduction of the depth of added value, supplier integration and other issues. The teams create know-how through group-wide cooperation in order to generate indispensable product, market and supplier knowledge. In this context, the supplier manager acts as an interface and central contact person, as Fig. 7.2 shows. Together with reliable partners, all parties ensure high quality standards through a standardized rule process.

7.1.3 Supplier Management Workshops A supplier management workshop (working group or think tank) is an event in which a smaller group works intensively on a topic and sub-area for a limited, compact period of time. One characteristic is the cooperative and moderated working method on a common goal. Lean Management Workshops have the goal of improving the supply chain and minimizing the potential for waste. The cross-industry usability of lean management is one of the great strengths of the concept. Figure 7.3 shows the process of supplier workshops.

7.1.4 Supplier File A supplier file contains all relevant information of a supplier. Supplier files are used by supplier management for the targeted control of performance. All information and functions relating to the supplier can be grouped together in a central location in supplier files.

7.1  Supplier Management as a Central Control Function

99

Purchasing

Quality

Marketing

Quality

Development

Supplier Manager

Supplier

Production

Finance

Logistics

Staff

Fig. 7.2  Supplier manager as central contact person Deficits in ... • Quality • Financial situation • Delivery performance • Capacity problems • Other areas

Decision by...

• Supplier Steering Committee • Supplier evaluation • Supplier performance • Supplier Management • Supplier file

Entscheidung Sensor von technology Maßnahmen shows

Supplier workshops

• Production workshops • Cost workshops • Logistics workshops • Quality workshops • Development workshops

2-4 weeks

1-2 Wochen

Decision of measures (preventive or reactive)

Analysis

Recommendation for action

1-2 weeks

Measuresimplementation

1-2 days

Control

Fig. 7.3  Flow chart for supplier workshops

The supplier file ensures that documents and information from the purchasing process are brought together in one file, for example purchase requisitions, inquiries, price comparisons, purchase orders, goods receipts, contracts, discussions and e-mails. In most cases, these files are digitized. Figure 7.4 shows the example of information and elements of a supplier file.

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Quality key figures

Costs

Supplier file Financial key figures

Key delivery

Innovation capability

Sustainability

Fig. 7.4  Example of a supplier file

7.1.5 Supplier Cockpit The supplier cockpit is a central and mostly digitalized tool for the evaluation, classification and development of suppliers. In the cockpit, certain key figures are calculated for the usually five areas of purchasing, logistics, quality, development and sustainability and visually displayed in a cockpit.

7.2 Suppliers’ Day For good business relations with a mutual exchange of information, congress-like conferences are ideal. Whether all suppliers of a manufacturer are invited as conference participants or, for example, the most important suppliers, suppliers of a continent/country depends on the objective of this supplier day. The success of a company is based, among other things, on an intensive, cooperative and trusting collaboration between the company and its suppliers. An intensive exchange and dialogue are the basis of a successful cooperation. Innovations, new products or process changes are often presented at supplier days and suppliers with very good performance are awarded.

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7.3 Supplier Academy Many companies with world-class supplier management have their own supplier academy (e.g. Porsche, ZF Friedrichshafen, Bosch), in which employees from their own company and external suppliers receive targeted training. The supplier academies help your own company to develop or coach new suppliers or risk suppliers to the required level of maturity with regard to standards or quality requirements. Furthermore, you increase the competencies of your own employees. The goal is the sustainable improvement of suppliers in areas such as quality, logistics, processes or innovations. Relevant factors are above all quality, time and costs, practical evidence e.g. the reduction of rejects and rework. Lean, flexible, efficient and fit for the future: Experts and so-called supplier coaches (Eng.: Trainer, Coach) advise and train on all issues from start-up to end of series.

7.4 Escalation Levels in Supplier Management Escalation is the increase and intensification of targeted measures. In the area of supplier management, the term “escalation” is used in this way to shift specific measures in the event of supplier disruptions and deficits in a controlled manner “upwards” to one or more hierarchical levels and to implement specific corrective measures. Figure 7.5 shows four escalation levels.

Preferred suppliers

Supplier file Supplier steering group Supplier strategy

Outphasing of suppliers

Defini on

Escala on levels

Normal case (standard activity)

Supplier activity (Stage 1)

Active support (Stage 2)

Direct support (3rd step)

Standard methods of normal project business Special measures on the part of suppliers through coordinaon of supplier management Supplier development through the use of addional capacies and experts Supplier development through deployment of addional experts and immediate measures

Fig. 7.5  Escalation levels in supplier management

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7.5 Case Study: Supplier Management at Porsche and the New 911 The changing conditions in the automotive industry, the pressure to innovate and ever shorter development cycles are leading to a new understanding of the role of supplier management at Porsche. In line with its corporate strategy, Porsche is constantly on the lookout for new impetus and solutions, which are developed through partnership-based collaboration with suppliers, start-ups and partners in the early stages. Porsche approaches the topic of “innovation management” in the procurement department on a Group-wide, proactive and cross-brand basis. In order to identify trends and developments at an early stage, the company works closely with its strategic suppliers. The strategic partners were involved in this process at an early stage as part of the trusting cooperation – an important factor in achieving improvements. Porsche’s cost of materials amounted to €4345 million in 2019 (fiscal year 2018: €4201 million). Procurement of services and non-production materials also played a key role in achieving the company’s targets. The investment volume totaled € 1992 million in the year under review. The increase compared to 2018 at €1858 million is mainly due to major infrastructure projects. At the same time, this reflects the path of sustained and sustainable growth that Porsche has taken to lead the company into the future. Supplier management also used 2019 to realign its strategy, which builds on the Porsche Strategy 2025. Part of this is a new set of goals that all managers in the division worked out together. The divisional strategy focuses on five fields: Software as a Product, Flexible Organization, Shaping Products and Services, Operational Excellence, and Culture and Competence. It also aims to strengthen cross-divisional and cross-brand cooperation. New appointments were made to the strategy teams. More than 85% of all components in the eighth 911 generation are new. For this reason, Porsche has integrated new suppliers for production in the Suppliers division in addition to proven strategic partners. Porsche involves suppliers in projects at the earliest possible stage. In doing so, all functions aim to bundle know-how, steer development in the right direction and align technically demanding components as early as possible. To this end, Porsche conducts development concept workshops within its own company (Schwarz 2019). In this way, the company has succeeded in bringing a product to the road with its suppliers that, even in its eighth generation, makes driving fun even more diverse and also smarter. Porsche has made no changes to the partnership award strategy that has already proven itself in the past. As a matter of principle, Porsche’s quality standards for all its vehicles are very high, especially for the 911, and the company relies on its commissioned business partners to work shoulder to shoulder with it to meet the quality requirements, with the involvement of all departments. The decision to select and integrate suppliers is the result of a complex mosaic. Here, all departments such as development, production, quality and series play their part in order to select the best supplier with the control of the supplier management. For Porsche, this decision and the commissioning of suppliers therefore form the cornerstone for the joint success of the project (Schwarz 2019).

References

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References Schwarz, E. (2019). Porsche 911. Hand in Hand zum Erfolg. In: Porsche Newsroom. Abgerufen 14.10.2020. https://newsroom.porsche.com/de/2019/unternehmen/porsche-­beschaffungs-­ vorstand-­uwe-­karsten-­staedter-­911-­zulieferer-­17084.html

Further Reading Büsch, M. (2019). Fahrplan zur Transformation des Einkaufs. Springer Gabler Wiesbaden. Dathe, T. & Helmold (2018). Erfolg im Chinageschäft. Handlungsempfehlungen für kleine und mittlere Unternehmen (KMU). Springer Gabler Wiesbaden. Dust, R. (2019). Total Supplier Management. Hanser Verlag München. Helmold, M. & Terry, B. (2016). Lieferantenmanagement 2030. Wertschöpfung und Sicherung der Wettbewerbsfähigkeit in digitalen und globalen Märkten. Springer Gabler Wiesbaden. Helmold, M., Einmahl, R., Rassmann, K. & Carvalho, L. (2020). In IUBH Discussion paper. Lessons from the COVID-19 Situation: Rethinking Global Supply Chain Networks and Strengthening Supply Management in Public Procurement in Germany. Abgerufen 31.10.2020. https://www. iubh-­university.de/wp-­content/uploads/DP_Logistik_Helmold_4_2020fin.pdf Immerthal, L. (2017). Lieferantenmanagement im Wandel. Die Digitalisierung im Lieferantenmanagement beginnt mit guter Kommunikation. In Beschaffung aktuell. Abgerufen 31.10.2020. https://beschaffung-­aktuell.industrie.de/einkauf/die-­digitalisierung-­imlieferantenmanagement-­beginnt-­mit-­guter-­kommunikation/ Kleemann, F. & Glas, A. (2020). Einkauf 4.0. Digitale Transformation der Beschaffung. 2. Auflage. Springer Gabler Wiesbaden. Kolev, G. & Obst, T. (2020). Die Abhängigkeit der deutschen Wirtschaft von internationalen Lieferketten. Institut der deutschen Wirtschaft. IW-Report Nr. 16. 23. April 2020. Abgerufen 31.10.2020. https://www.iwkoeln.de/studien/iw-­reports/beitrag/galina-­kolev-­thomas-­obst-­die-­ abhaengigkeit-­der-­deutschen-­wirtschaft-­von-­internationalen-­lieferketten.html Schupp, F. & Wöhner, H. (2017). Digitalisierung im Einkauf. Springer Gabler Wiesbaden.

8

Lean Methods in Supplier Management

All we do is pay attention to the turnaround time, from the moment we receive a customer order to the moment we receive the money. Taiichi Ohno (1912–1990)

8.1 Lean Principles in Lean Management Due to the increasing shift of value creation shares to supplier networks and the focus on core competencies, companies must integrate their suppliers into their own production processes and synchronize production activities. Therefore, it is necessary that lean production methods are applied holistically to all suppliers (Helmold 2020). The lean production system or just-in-time production system can be described as an ideal combination of four principles (Imai 1986). These principles are the zero defect principle, the draw principle, the takt principle and the flow principle. Figure 8.1 shows the four principles of a lean production system (Helmold and Samara 2019).

8.1.1 Zero-Defect Principle The basic idea of the Zero Defects Concept is that there are no acceptable defect rates and therefore no rework. Defects are not accepted because every defect leads to time and cost disadvantages. Since the demand for zero defects seems unrealistic, the goal should be approached through a program. One orients oneself here to the parameter error per million possibilities (ppm = parts per million; Helmold 2020). However, the basis is the creation

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_8

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Drawing principle

ZeroFehler Principle

Clock principle

Lean production system

Flow principle

Fig. 8.1  Principles of the lean production system

of optimal conditions. In order for a job to be performed without errors, tested and high-­ quality materials, well-functioning and maintained machines, and qualified personnel are necessary (Ohno 1990). It aims to motivate people to avoid mistakes by developing a constant, conscious desire to get their work right the first time. In reality, mistakes are not possible, but the concept ensures that there is no waste in a project (Helmold and Terry 2016). Waste refers to all unproductive processes, tools, people, etc. Anything that is unproductive and does not add value to a project should be eliminated, which is called the process of waste elimination. Eliminating waste leads to an improvement process and accordingly reduces costs. Common to the zero defects theory is the concept of “getting it right the first time” to avoid costly and time-consuming corrections later in the project management process. The concept of zero defects is based on four main elements for implementation in real projects. Quality is a state of guaranteeing the requirements. Therefore, “zero defects” in a project means that the requirements are fully met at that point in time: • Get it right the first time. Quality should be integrated into the process from the beginning, rather than solving problems at a later stage. • Quality is measured in financial terms. One has to assess waste, production and revenue in terms of budgetary impact. • Performance should be judged by the accepted standards, which are as perfect as possible.

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8.1.2 Drawing Principle The pull principle refers to the way in which production is controlled. As a rule, a distinction is made between push and pull controlled production (Kürble et al. 2016). Usually, both types will be found in every company, as one type alone is difficult to implement across all processes. The more sensible type is pull-controlled, as this eliminates some of the potential waste up front. In the pull principle, the demand is triggered directly from the internal or external customer (Helmold 2020), The triggered order in this way goes backwards from the end customer to the first step. Each sub-process receives the order to produce from the subsequent process. The subsequent process requests the necessary parts using the 5R or 7R method, as Fig. 8.2 shows. Working according to the 7R method means delivering the right part in the right quality at the right time in the right quantity at the right place with the right people and at the right cost (Helmold 2020). Supermarkets are a tool for production planning and control (Ohno 1990). Taiichi Ohno, the inventor of the pull methodology, transferred the idea from the supermarket to production control. In a supermarket, customers take the products they need from the shelves without waiting or ordering a product. If the stock of the product on the shelf is low, an employee replenishes the shelf from the warehouse. Nothing different happens with respect to pull manufacturing. Further optimizations of the manufacturing processes are then based on this foundation of production control. Here, the person responsible for manufacturing is guided by the eight types of waste and maximizes the degree of value creation by achieving flowing manufacturing. Optimally, this is one piece per production interval. It is also called EPEI (=Every Part, Every Interval). The PPS system focuses precisely on these optimization points. It supports production planning and control individually according to the pull principle or according to starting points for pull production. Kanban (Jap.: かんばん or 看板) belongs to the drawing principle and is a method of production process control. Kanban comes from Japanese and means “card”, “board” or “voucher”. Kanban is an implementation of the control method known under the synonyms fetch, call or pull principle. The Kanban principle is based exclusively on the actual

Objectives (5R and 7R)

5R

7R

Explanation

1. The right part

• Necessary part

2. In the right time

• Now

3. In the right place

• Here

4. In the right quantity

• One part

5. In the right quality

• zero defects

6. With the right employees

• Qualification

7. At the right cost

• Optimal costs

Fig. 8.2  5R and 7R targets in lean production

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consumption of working materials at the point of provision and consumption. Kanban makes it possible to reduce the local stocks of preliminary products in and near production, which are then used in products of the next integration level. The aim of the KANBAN method is to control the value-added chain at each manufacturing/production stage of a multi-level integration chain in a cost-optimized manner. In this process, withdrawals from the respective buffer stocks and subsequent deliveries to the same buffer stocks take place asynchronously. By distributing the buffer stores in production along the integration chain, a simple solution is achieved with simple means of information and short transport routes.

8.1.3 Flow Principle With the flow principle, the process of the production line must be arranged in such a way that a uniform flow of material is possible. The flow principle is characterized in particular by the fact that there are no accumulation stages (buffers) between the processing steps. The consequence is that the throughput time is shortened, there is no waiting time, congestion or hectic in the process and the reaction speed in the process increases. In addition, the layout of the company is aligned with the material flow. Figure 8.2 shows three different flow types. The yellow arrows show the directions of material movement. The simplest way to ensure the flow principle is the linear production line. Furthermore, in lean companies one sees the U-shaped or diagonal arrangement of production lines (Helmold 2020). An important element within the flow principle is taken by the Zentenatamadashi. Zentenatamadashi (全 点 頭 出 し) for all items, all parts, all points; and sticking their heads out): Material supply for the assembly station, translated as a one-piece presentation. For each part type, exactly one part (the first one) is available to the worker. Ideally, the smallest front faces the worker. Therefore, each part takes up a minimal amount of space around the worker, reducing the overall footprint and increasing efficiency. When a part is taken, the next part should have arrived at the workstation (Fig. 8.3).

Line-typical shape Fig. 8.3  Line shapes in production

U-typical shape

Diagonal-typical shape

8.2  Harmonisation and Levelling of the Production Flow: Heijunka Fig. 8.4  Customer cycle and other key figures in production

Available production time

Cycle time

(customer clock chimes)

Customer demand (quantity)

Optimal Employee number Line balancing LBR:

(Line Balance Ratio)

Line Efficiency LER:

109

Sum of cycle times Customer frequency (takt) Sum of all cycle times

x 100 %

Longest OP x number of OP

(Line Efficiency Ratio)

Sum of all cycle times Customer cycle (takt) x number of OP

x 100 %

8.1.4 Clock Principle The takt principle refers to the production of products in takt. The takt time specifies the maximum time in which a part must be produced. A distinction is made between the customer takt and the production takt. To determine the takt time, the available time and the customer demand are put into relation. For example, if the customer demands 15 units of a product within the available working time of 9 min (540 s), the takt time (the customer takt) is calculated as 540 s divided by 15 product units: the result is 36 s as the customer takt. Every 36 s min, a part must be produced in each workstation to meet the demand. In addition to the customer cycle, key figures such as the optimum manning level, the line balancing ratio (LBR) or the line efficiency ratio (LER) are important key figures in production (Helmold 2020; Fig. 8.4).

8.2 Harmonisation and Levelling of the Production Flow: Heijunka The Japanese term Heijunka means something like “smoothing” or “levelling”. In lean management, it stands for “production smoothing” or “leveled production” and refers to a work planning method developed at Toyota in the 1950s (Toyota Production System). The aim is to harmonize the production flow as far as possible by balancing the incoming and outgoing elements in the production line in order to avoid queues and thus waste (muda)

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due to idle and transport times. In this process, workshop production is replaced by continuous flow manufacturing (One-Piece-Flow) with short transport distances and complete processing. Heijunka allows synchronization of the production system even in complex, multi-stage production lines (Ohno 1990). A prerequisite for production controlled by Heijunka is the implementation of the pull principle, in which sales volumes are estimated as accurately as possible by means of detailed forecasts, e.g. on the basis of market research, past sales figures and after analysis of industry data. Ultimately, the customer dictates the production rate and the (also internal) scheduling (just-in-time principle); this must be taken into account in the control of the entire production process and at each individual manufacturing station. The quantity and sequence of the parts to be produced are thus predefined. This is noted (for each order) on a Heijunka card, which, similar to a Kanban card, contains all the information for the production of a product or a number of products (up to batch size 1). These cards are stored centrally on a Hejunka board, chronologically and sorted by product. (Logistics) employees take the cards in the given order, remove all the required parts for this order from the warehouse and make them available to the production line. The production material flows through the thus smoothed production process without intermediate storage and enables the production of individually configured products. Heijunka offers the following advantages: • The successful smoothing of production ensures just-in-time delivery according to customer requirements. • The consumption of supplier parts is stabilized, the production of the suppliers is synchronized with the own production. • Peak loads on people and machines are avoided by balancing the work processes and stations. • Goods receipts and issues become transparent and can be coordinated with planning.

8.3 Yamazumi Diagrams Yamazumi diagrams (山 積 み-diagram; levelling diagram, literally “heap or pile”) are bar charts to make the workload of different operators and stations transparent and balanced in a production line. Figure 8.5 shows the diagram of a lean management workshop at a supplier of welded components in the automotive industry.

8.4 Intelligent Automation: Jidoka (自働化) The Japanese term Jidoka (Jap.: 自働化, German equivalent: Autonomation for autonomous automation) refers to “intelligent automation” or “automation with a human touch”. In this type of automation, some monitoring functions are integrated into machines instead of assigning only production functions to them. Jidoka, along with the just-in-time

8.5  Visualization in Lean Management

111

Fig. 8.5  Example of a Yamazumi diagram

principle, forms a central pillar in the Toyota Production System (TPS) and is an important factor in lean management as well as quality assurance.

8.5 Visualization in Lean Management The visual representation and preparation of facts and processes has proven itself in lean management. Visualization helps to improve productivity in manufacturing and other areas, reduce downtime, lower costs, make processes transparent and increase quality. Accordingly, hardly any process or procedure is used without the aid of visualization. Visualization is not limited to on-site display; in the context of digital transformation, data is also accessible remotely and even mobile. Figure 8.6 shows the perception of the five senses. The eye, through vision, takes the largest value of memory with more than 80%. Figure 8.7 shows an example of the visualization of production and quality at a manufacturer of interior components in China. In addition to projects and production progress, the costs incurred for each product are displayed.

112 Fig. 8.6 Visualization and senses

8  Lean Methods in Supplier Management

Sehen Listen

83%

Smell

Feeling

Taste

Fig. 8.7  Visualization in production

8.6 Shadow Boards Shadowboards are part of the 5S concept. Shadowboards are foam inserts that are used to neatly sort tools and materials. The board defines where certain tools or materials should be placed when not in use. Figure 8.8 shows a shadowboard of the company Mitsubishi in Osaka Japan for screws in the production line for high speed trains (Shinkanzen).

8.7 Andon

113

Fig. 8.8 Shadowboard

8.7 Andon Andon (Japanese: ア ン ド ン or あ ん ど ん or 行 灯) is a lean manufacturing concept that refers to a system for notifying management, maintenance, and other personnel of a quality or process problem. At its heart is a device with beacons that indicate at which workstation the problem is occurring. The alarm can be activated manually by a worker using a pull cord or button, or can be activated automatically by the production equipment itself. The system may include a means to stop production so that the problem can be corrected. Some modern alarm systems include audio alarms, text, or other displays. An Andon system is one of the main elements of the Jidoka method that Toyota developed as part of the TPS and is therefore now part of the Lean concept. It gives the worker the ability and moreover the authority to stop production when a defect is detected and immediately calls for help. Common reasons for manual activation of the Andon are

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Fig. 8.9  Andon example

lack of parts, defect created or found, tool malfunction, or the presence of a safety problem. Work is stopped until a solution is found. Warnings can be logged in a database so they can be investigated as part of a continuous improvement program. The system usually indicates where the warning was generated and may also provide a description of the problem. Modern andon systems may include text, graphics, or audio elements. Audio warnings can be with coded tones, music with different melodies corresponding to the different warnings, or recorded verbal messages. The use of the word originated in Japanese manufacturing companies and is a loanword in English from a Japanese word for a paper lantern (Imai 1986). Figure 8.9 shows an example of the Andon concept at Bombardier Transportation.

8.8 Total Productive Maintenance (TPM) Total Productive Maintenance (TPM) stands for the care and maintenance of machines and work equipment. This principle is also one of those that must be applied to the entire value chain through lean management (Ohno 1990). Today, TPM is also interpreted as Total Productive Manufacturing or Total Productive Management in the sense of a comprehensive production system. TPM refers to optimised commissioning, maintenance and servicing of plant and machinery. Parallels to Kaizen or Lean Management can be seen here. From the basic idea, TPM is a program for continuous improvement in all areas of a company. The main focus is on the elimination of losses and waste with the aim of zero defects, zero failures, zero quality losses, zero accidents, etc. The main focus is in the area

8.9  Total Equipment Effectiveness (GAE)

115

of Kaizen or Lean Management. Main focus is in the area of production. The goals of TPM are: • Autonomous maintenance: The system operator is to carry out inspection, cleaning and lubrication work independently in the first stage and minor maintenance work in subsequent stages. • Planned maintenance: Ensure 100% availability of equipment and identify kaizen actions by maintenance. • Training and Education: Train employees as needed to improve operating and maintenance skills. • Start-up monitoring: To realize a nearly vertical start-up curve for new products and equipment. • Quality management: realization of the “zero quality defects” target for products and systems • TPM in administrative areas. Eliminate losses and waste in departments not directly involved in production. • Occupational safety, environmental and health protection: implementing the zero accidents requirement in the company.

8.9 Total Equipment Effectiveness (GAE) The term Overall Equipment Effectiveness or Overall Asset Effectiveness (OEE) refers to a key figure produced by the Japan Institute of Plant Maintenance. It is one of the results of decades of development of the TPM concept. It can be used to show both the productivity of a plant and its losses at a glance. The GAE of a plant is defined as the product of the following three factors: • Availability factor • Power factor • Quality factor Its value range is between 0 and 1 or between 0% and 100%. The definition of the ratio cannot be found in any standard. It is tailored very individually to the company using it. As a rule, this is a lengthy process, since the company must first gain an understanding of the way of thinking in the categories of value creation and waste. Furthermore, depending on the plants or products, it may be difficult to collect the basic data required to determine the key performance indicator. Many companies therefore rely on special software for data collection, evaluation and analysis. The overall equipment effectiveness together with the overall service effectiveness (OSE) results in the overall administration effectiveness (OAE) of a company. Companies that use OEE as a metric have had success when combining it with general lean manufacturing programs and also as part of TPM systems. When

116 Fig. 8.10  Calculation of total equipment effectiveness (GAE)

8  Lean Methods in Supplier Management

GAE (Overall Equipment Effectiveness)

OEE (Overall Equipment Effectiveness)

GAE/OEE = Availability x Performance x Quality

73.5% = 83.3% x 90.0% x 98.0%

Availability:

Performance:

Quality:

800 minutes real machine operating time 960 minutes available production time 180 Real average speed MpM (quantity per minute) 200 Available average speed MpM (quantity per minute) 24,974 Good parts (O.K. parts) 25,484 Total parts

OEE is used with these systems, the benefits become significant: Fig. 8.10 shows an example of OEE. High-performing companies can achieve OEE of more than 85% (Helmold and Samara 2019). In the calculation, OEE has the elements of availability (83.3%), performance (90.0%), and quality (98%). Based on the actual numbers, it is now possible to optimize each in the inefficient categories. The availability rate is below 90% and requires special measures for improvement.

8.10 Lean Management on the Spot: Gemba, Genjitsu, Genchi, Gembutso In addition to the previously mentioned buzzwords, there are three other important concepts that also belong to the basics of lean production. Best-in-class companies such as Toyota, Porsche or Tesla work according to the principle of Gemba (現場), Genjitsu (現 実), Genchi (現地) and Gembutso (現物). The term “Gemba” means “place of action” in Japanese. Gemba refers to the workplace in the sense of the place where value-creating processes take place in the company and where problems arise, e.g. at the workplace in manufacturing. Gemba is often referred to in connection with Lean Management and comes from the Japanese collection of terms used in Lean Management. Genjitsu means “the right facts”. Only with right facts, based on stable data from a solid performance data collection, can sustainable improvements be achieved. Genchi, Genbutsu means, simply put, “Get to the core faster! Don’t go by hearsay.” Many companies, according to users of the Toyota system, spend too little time

8.11  Focus on Essential Elements: Muda, Mura, Muri

117

formulating the problem and too much time solving it. The reverse is true. Supplier management must therefore efficiently and professionally implement the principles of Gemba, Genjitsu, Genchiand Gembutso in supplier development activities, i.e., through quick, effective investigations and definitions of sustainable corrective actions at the point of occurrence. Supplier managers must therefore focus on the core problem in supplier development, i.e., where the fundamental dysfunctions lie within the supplier chain. Most often, this fundamental core problem involves the question of why the right parts are not getting to the right place (within the supplier or to the supplier’s own company), and not at the right time in the right quantity and quality.

8.11 Focus on Essential Elements: Muda, Mura, Muri Muda, Mura and Muri represent essential terms within the lean management philosophy. The terms muda (無駄), mura (無ら), and muri (無理) are the basis for Toyota’s loss philosophy. Muda is Japanese for waste and is a part of the “three Mu”. Emphasis is placed on identifying waste. The company must apply this philosophy to all employees and the entire value chain. There are seven types of waste in total: • • • • • • •

wastage due to transport stock waste Waste due to inefficient work movements Waste due to waiting times Waste due to inefficiencies waste through overproduction Waste due to product and production defects

It is necessary to avoid muda (waste), mura (imbalance) and muri (overload) in the elements of employee technique, method, time, opportunity, means of work, material, production volume, circulating stocks, workplace, way of thinking, etc.. Specifically, this mainly refers to waste due to overproduction, high inventory, unnecessary transportation, long waiting time, poor use of resources, unnecessary operations, errors, inadequate organization (Helmold 2020). Mura means imbalance and together with Muri describes large loss potentials whose origins can be found in production that is not optimally synchronized. While some capacities are too tight and act as bottlenecks preventing the production of larger quantities (overload, muri), other means of production are below their utilization limit. Underutilized means of production represent waste in the sense of muda. Muri has the almost identical meaning of mura. Muri is a part of the three Mu, which together describe the major loss potentials according to Japanese Kaizen philosophy. Overload in the sense of Muri means that both employees and machines can be affected. This leads to physical and mental overstrain, which manifests itself in the form of increased error frequency, risk of accidents, stress and declining job satisfaction. Nuri, like muda and mura,

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is an aspect that requires remedial action. Attempts are being made to combat the increased frequency of errors by quality assurance measures such as Poka Yoke. The overloading of the machines leads to waiting times in front of the fully utilized machines and thus also represents a waste in the sense of Muda. The only remedy for both forms of overload is to adjust and harmonize the production process. By improving motivation, job satisfaction is increased and with it the quality of the employee.

8.12 Error Prevention: Poka Yoke The Japanese term Poka Yoke (Jap.: ポカヨケ, engl. “to avoid unfortunate mistakes”) describes a principle consisting of several elements, which includes technical precautions or devices for immediate error detection and prevention. Shigeo Shingō is considered the inventor of the principle. As an error-preventing principle, Poka Yoke is similar to the biochemical lock-and-key principle, which has an error-minimizing effect in the duplication of genetic information, for example. Poka refers to a wrong move in Go or Shōgi and, by extension, “silly mistakes, blunders” in general. Yoke derives from the verb yokeru (Eng: “to avoid”). The starting point for Poka Yoke is the realization that no human or system is capable of completely avoiding unintentional mistakes. With Poka Yoke, simple and effective systems are usually used to ensure that incorrect actions in the manufacturing process do not lead to errors in the end product. In doing so, Poka Yoke aims at the use of mostly technical aids. These solutions are usually inexpensive and can be introduced immediately. In order to be able to exclude the further occurrence of faults once they have been discovered, Poka Yoke is used in combination with an inspection method, the source inspection. Poka Yoke in combination with source inspection results in the methodology of the Poka Yoke system. Shape coding of a telephone plug to prevent incorrect assembly. Poka Yoke is integrated into numerous processes in the production of components in many companies. However, we also see that Poka Yoke makes perfect sense in social life. Poka Yoka is used without people often noticing. Examples are often integrated into daily life: 1. Trains are automatically slowed down when they pass a red signal (due to human error). 2. Ignition keys of a car can only be inserted in such a way that it fits properly into the keyhole. 3. Acetylene cylinders have a unique clip connection to prevent dangerous confusion with other gases. 4. CEE plugs have different colours and contact arrangements depending on voltage and frequency to avoid confusion. 5. Each component to be installed must be approved by barcode or RFID scan before installation. 6. Pick-by-light equipment prevents picking errors. 7. TAE telephone plugs cannot be inserted the wrong way round.

8.15  Health and Safety

119

8. ATMs in Germany do not give out money until the card has been taken out. This prevents you from forgetting the card. 9. SIM cards can only be inserted in the correct orientation in the SIM card slot due to their shape. 10. Position sensors on a press do not allow the pressing process to start until the component has been correctly inserted. 11. Query eye color in forms for customer service representatives to ensure eye contact with the customer. 12. Different diameters of nozzles at petrol stations to prevent accidental filling with the wrong fuel For Shigeo Shingo, the starting point for developing the Poka-Yoke system with defect source inspection was statistical quality control (SQC). However, he noted, „Defects are generated in the work phase, and inspections can do nothing but find the defects. The assurance of defect prevention can be ensured in supplier management by the audits described earlier.

8.13 Implementation of an Ideal Working Environment: 3 K Principle The 3  K principle refers to the working environment and the influence of the working atmosphere on the motivation of employees. Designing an optimal work environment that suits an employee and helps him or her to be more productive and satisfied is one of the central tasks of managers in Lean Management. It requires a lot of thought and planning. In Lean Management, this principle is described as the 3C principle: Kiken (危 険, dangerous), Kitsui (き つ い, difficult), and Kitanai (汚 い, dirty).

8.14 Lean Management as a Consensus-based Basis for Rapid Project Implementations Tatakidai (叩 き 台, chopping block or springboard to discussion): seeking consensus and informing others when the project is 80% complete to improve the chances of acceptance.

8.15 Health and Safety The preservation of the safety and health (Engl.: Health, Safety – often used together with environment: HSE, Health, Safety, Environment) of people at work is the core objective of occupational safety and health. In the company, occupational health and safety is divided into structural, technical, organizational, medical and social occupational health and

120

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Fig. 8.11  Occupational health and safety

safety. The legal basis for safe and healthy work is provided by the Occupational Health and Safety Act (ArbSchG) and the ordinances that concretise the Act. It is irrelevant in which field of activity or where the persons work. For example, employment can take place in a workplace, outdoors or on a wind turbine at sea. The employer is obliged to ensure and improve the safety and health protection of employees at work through occupational health and safety measures. He is thus responsible for the physical, mental and social well-being of employees during working hours. In order to preserve health, workplaces must be set up and operated free of hazards or only with acceptable risks. To this end, the employer assesses the working conditions at the workplace and determines the resulting protective measures. Figure 8.11 shows an example of occupational health and safety for a Chinese manufacturer in the automotive industry.

8.16 Case Study: Implementation of the Lean Production System at Mercedes-Benz “The best or nothing.” – Gottlieb Daimler’s claim characterises the Mercedes-Benz brand and is anything but easy to fulfil. What originally mainly referred to the ideas and ingenuity of the company’s founder has since become more pragmatic. Daimler is now a global organization with over 260,000 employees and requires a clear vision, experienced and competent managers and employees, stable processes and a strong corporate culture. The success of the automotive company depends on the efforts of each individual. One of the most important factors for success is a far-reaching production system. Production systems have a long tradition and clear principles. As early as 1831, for example, General

References

121

Carl von Clausewitz recognized the importance of robust processes, the avoidance of waste and continuous improvement in order to achieve objectives. The best known production system currently in use is that of Toyota. The production system used by Mercedes-­ Benz Cars (MBC) also has a long tradition and has become one of the driving factors behind the success of the premium Mercedes Benz brand – with a strong focus on technology, innovation, quality, safety and sustainability. In 2000, this system was bundled for the first time as a closed system – the Mercedes-Benz Production System (MPS) – by using various developments within the company. This laid the foundation for lean management principles in production and, somewhat later, in administration. From a critical perspective, the initial success was met with the challenges of early lean initiatives. For example, improvements in each business unit could not be made at the expense of other business units (e.g., the historical conflict of assembly processes being compromised in the name of logistics and vice versa, or the assumption of active manager involvement in optimization efforts are all that is required to protect change and avoid backsliding. To meet these challenges and facilitate the implementation of the MPS, all resources were pooled at MBC in 2008. The organization was restructured and four new consulting fields were defined: strategic and tactical goal definition, methods and tools, qualification and Mercedes-Benz culture. Today, almost 4 years after the start, a first conclusion can be drawn. The centralized MPS was introduced in 2008. The framework provides all employees with a standardized basis for the decentralized lean support organization at Mercedes-Benz Cars and anchors it in the “Strategic Planning and Mercedes-Benz Production System”. This center is responsible, among other things, for supporting the divisions in implementing the MPS in Mercedes-Benz Cars. The activities started in the production area and have since been transferred to administrative areas such as HR and IT.

References Helmold, M. and Terry, B. (2016). Global Sourcing and Supply Management Excellence in China. Procurement Guide for Supply Experts. Springer Singapore. Helmold, M. and Samara, W. (2019). Progress in Performance Management. Industry Insights and Case Studies on Principles, Application Tools, and Practice. Springer Heidelberg. Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham. Imai, M. (1986). Kaizen. Der Schlüssel zum Erfolg der Japaner im Wettbewerb. Frankfurt: Ullstein. Kürble, P., Helmold, M., Bode, O.H., Scholz, U. (2016). Beschaffung-Produktion-Marketing. Marburg: Tectum. Ohno, T. (1990). Toyota Production System. Beyond large Scale Production. New  York: Productivity Press.

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Audits and Supplier Analyses

If you want to build a ship, do not gather men together to procure wood, prepare tools, assign tasks and divide the work, but teach the men to long for the vast endless sea. Antoine de Saint-Exupery (1900–1944)

9.1 Audits and Quality Management Systems 9.1.1 Concept of the Audit An audit is a systematic and structured assessment/evaluation of a system, process, product or other area with the aim of identifying deviations from the target state. Audits can be conducted internally or externally and are based on standardized audit questions and audit checklists. Audits are thus intended to lead to continuous improvement and are a fundamental component in any lean management system (Helmold and Samara 2019). As a result of an audit, action requests and corrective actions (CARs; Open Items) are identified and written down in a scheduled action plan. The type of audit used depends on the type of objectives that a company wants to have determined as “achieved”. If it wants to know – possibly in the course of preparing for certification – where it stands in terms of compliance with the respective standard requirements, it will first carry out internal audits, after which (optionally) a pre-audit can be carried out by the certification body; this would make it clear whether the management system in question is already ready for a certification audit, which would then ultimately decide on certification. For the sake of completeness, it should be mentioned that between the granting of a certificate and the recertification

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_9

123

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Table 9.1  Audit types 1 2

System audit Process audit

3 4 5

Product audit Control audit Other audits

Assessment of a quality management system Evaluation of the process: Input, transformation, output Evaluation of product features Control of corrective actions All other audits, e.g. finance, security, etc., are carried out by the auditors

Source: Own representation based on Helmold (2020)

audit 3 years later, two annual surveillance audits are still due. Table 9.1 shows the five audit types and their respective descriptions.

9.1.2 System Audits The system audit evaluates the standard requirements for quality management systems. The auditing of a management system, e.g. according to DIN EN ISO 9001:2015, is referred to as a system audit. This can also be a combination of several management systems, such as environment, quality and occupational safety, which are then referred to as an integrated management system. DIN EN ISO 9001 specifies the minimum requirements for a quality management system for the manufacture of products or services (QM system; QMS), which an organization must meet in order to be able to provide products and services that meet customer expectations and any official requirements. At the same time, the management system should be subject to a continuous improvement process. Although the process-oriented approach was already introduced with the 2000 revision, there were still considerable problems in its implementation. This is to be eased by the revision. The standard also calls for a more risk-based approach. A formal QM manual will no longer be necessary if the organization provides adequate documentation in other ways. There will also no longer need to be a “top management representative” in the formal sense. The current version of ISO 9001 was last revised in 2015. Based on EN ISO 9001, IATF 16.949 exists for series production in the automotive industry. Compared to EN ISO 9001, it places more extensive requirements on the quality management system. The basic idea of ISO 9001:2015 is that companies must take into account the requirements of their stakeholders for long-term success. That’s why the standard has emphasized interested parties even more as a separate point. In contrast to ISO 9001:2008, the focus is no longer only on the customer, but on the stakeholders (interested parties). In addition to customers, this also includes, for example, suppliers, owners, employees, authorities, business partners or even competitors. ISO 9001 continues to follow the approach of Plan, Do, Check and Act, in short the PDCA cycle, in order to effectively improve the quality management system as a whole and its processes on an ongoing basis. The ten elements of DIN

9.1  Audits and Quality Management Systems Structure

DIN EN ISO 9001

0.

Introduction

1.

Area of application

2.

Normative references

3.

Terms

4.

Context of the organization

5.

Leadership

6.

Planning

7.

Support

8.

Operation

9.

Evaluation of the performance

10.

Continuous improvement

125 PDCA/Deming cycle

PLAN Do Check Act

Fig. 9.1  The elements of DIN EN ISO 9001:2015

EN ISO 9001:2015 are listed in Fig. 9.1. In point 10, elements of lean management are anchored through the evaluation of improvement processes.

9.1.3 Process Audits Process audits evaluate process chains of companies from input through transformation to output. The process-oriented approach makes the standard easy to apply and independent of company size and purpose. The effectiveness and efficiency of the organization in achieving the set objectives is improved and customer satisfaction is also enhanced by meeting the expectations. A process is a set of interrelated or interacting activities that transforms inputs (input) into results (output). The process approach enables an organization to: better understand and more consistently meet requirements (improved, consistent, and predictable results), add value (lower costs and shorter cycle times through the effective use of resources), achieve effective process performance measures, improve processes based on the analysis of data and information, encourage employee participation, and have clear accountability. Process audits are described in Fig. 9.2.

9.1.4 Product Audits Within the scope of testing a defined number of products, the product audit confirms the quality capability of the production process based on the quality characteristics of a product. It checks whether the product complies with the given specifications, special customer and supplier agreements. A product audit is the planning, execution, evaluation and documentation of tests (Helmold 2020):

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Process audits Input-Transformaon-Output Supplier Page Offer page

Input Procurement & Purchasing

Output

Producon

Markeng & Sales

Primary funcons

Finance

Customer side DemandSync and correcons

IT Department

Staff

Secondary funcons Supporng funcons Fig. 9.2  Process audits

• • • • • •

quantitative and qualitative characteristics tangible products after completion of a production step before passing on to the next customer (internal / external) on the basis of budget specifications by an independent auditor

A product audit serves to assess conformity with the company’s own defined quality requirements. In addition, it aims to assess conformity with the expressed and unspoken customer requirements (through the “eyes of a very critical customer”): The product audit represents a measure for checking the effectiveness of quality checks and quality control measures carried out and leads directly and in the short term to process and product improvements. Finally, it creates an internal basis of trust with regard to the requirements of product liability and checks the conformity of the products, also with regard to the legal requirements. Within the automotive industry, the PPAP procedure is a common product qualification procedure. The Production Part Approval Process (PPAP) is a procedure from QS 9000, which has now been superseded by ISO/TS 16949, in which series parts are sampled. This procedure originates from the automotive industry and has been successfully implemented there for years. The main focus is on the quality of the parts supplied, which means that the parts from the series tools or series processes must correspond to the drawings. In addition to the parts supplied for inspection, the Part Submission Warrant (PSW) is a central element of the sampling process.

9.2  Case Study: 5S Audits in the Berlin-Kindl-Schultheiss Brewery

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9.1.5 Control Audits Control audits are special audits outside the regular audit schedule within the value chain to verify the progress of audits and may be for the following reasons: • • • •

Progress monitoring special process audits, e.g. for processes such as bonding, painting, welding, etc. Escalation Audit Audits based on customer requirements

9.1.6 Other Audits Other audits include all possible assessments of standard requirements in sub-areas through environmental audits, financial audits, safety audits, etc. Figure 9.3 shows Dr. Helmold and his colleague during an audit at Mitsubishi Heavy Industries in Nagasaki-Japan.

9.2 Case Study: 5S Audits in the Berlin-­Kindl-Schultheiss Brewery As the above examples of the effect of the 5S method already show, the 5S method has its greatest effect on the waste types “waiting”, “transport” and “movement”. This is primarily due to the fact that search times and distances can be significantly reduced with the 5S method through sorting out, systematization and standardization. Another effect, although usually smaller, lies in the reduction of scrap and rework. For example, damage to the product caused by dirt, such as scratches in the surface, can be reduced or even prevented by regular cleaning of the workstation. Processing machines can also lead to rejects or defects due to heavy soiling, which can be avoided with regular cleaning. The Berliner-­ Kindl-­Schultheiss brewery in Berlin regularly carries out 5S audits, as Fig. 9.4 shows. The audits are carried out in the bottling and other areas. If any need for action is identified, these are placed in an action plan with responsibilities and a target date. This action plan can be viewed by all employees.

128 Fig. 9.3  Audit at Mitsubishi heavy industries

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References

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Fig. 9.4  5S audits at the Berliner-Kindl-Schultheiss brewery

References Helmold, M. & Samara, W. (2019). Progress in Performance Management. Industry Insights and Case Studies on Principles, Application Tools, and Practice. Springer Heidelberg. Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham.

Corporate Social Responsibility (CSR) and Ethics in Supplier Management

10

To cut down a beautiful tree, it hardly takes half an hour. To grow till you admire it, it takes, think of it, a century! Eugen Roth (1895–1976)

10.1 Definition of CSR and Ethics The term Corporate Social Responsibility (CSR) was used in 1953 by Howard R. Bowen in his book “Social Responsibilities of the businessman” and stands for corporate social responsibility (Carroll 2016). Bowen preaches in his book for more consideration for society by the large corporations in the United States (Corporate America), as these corporations have considerable power and significantly affect the lives of ordinary citizens with their economic endeavors (Bowen 1953). In the following decades, the concept of Corporate Social Responsibility (CSR) continuously evolves, first by the zeitgeist of social movements in the 1960s, for example, the civil rights movement, the consumer movement, the environmental movement as well as the women’s movement (Carroll 2016). A clear understanding of the concept of CSR is necessary for a successful CSR strategy. Despite ongoing lively discussions about the social role of companies, there is no generally accepted definition of Corporate Social Responsibility (CSR). The European Commission formally describes CSR as “the responsibility of enterprises for their impact on society” in its Communication “EU Strategy 2011–2014 on Corporate Social Responsibility (CSR)” with the following elaboration (European Commission 2011):

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_10

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Only if applicable legislation and collective agreements existing between social partners are respected can this responsibility be fulfilled. In order for companies to fully meet their social responsibilities, they should have a process in place to integrate social, environmental, ethical, human rights and consumer concerns into their operations and core strategy, in close cooperation with stakeholders. In this way • is to optimize the creation of shared value for the owners and shareholders of the companies as well as the other stakeholders and society as a whole; • are intended to identify, prevent and mitigate any adverse effects …

In academic research, there are two different approaches in dealing with the similar expressions business ethics and corporate social responsibility (CSR), with both approaches envisaging corporate social contribution through effective CSR strategies that go beyond media-effective communication (Sahut et al. 2019). The first suggestion is to pragmatically equate the two terms. After all, an ethical company basically fulfils its social responsibility in any case, and when a company fulfils its social responsibility, it also behaves ethically (Fassin et al. 2011). Others envisage limiting the scope of the term business ethics to moral principles and choosing the term corporate social responsibility (CSR) when social objectives are paramount (Maxim 2014). In business practice, business ethics management is tangential to the areas of CSR: evaluation of customer or supplier relationships, environmental management, and other ethical issues. Accordingly, CSR is a dimension of ethical performance. The following sections outline some popular science models of CSR.

10.1.1 4-Step-CSR Pyramid According to Caroll The 4-level pyramid was developed by A. Carroll in 1979 and is one of the most widely used CSR models for both academic research and business applications. In this model, Carrol describes corporate social responsibility in four hierarchical levels (Fig. 10.1). In this model, economic responsibility forms the basis for corporate social responsibility. Society demands economic success from companies in order to be able to offer products or services that are useful to the general public in the long term and to be able to provide employees with secure jobs in the long term. Without a solid economic base, companies will not be able to contribute to society at the higher levels. Furthermore, the Company requires that companies do not use illegal means in their business activities and value creation. Legal provisions provide a legal framework for all members of society. The companies should not be exceptions despite their power. The fraud incidents in the past (e.g. the Enron scandal) as well as some legally questionable business practices (such as the cum-ex or dividend stripping business) make us all aware that this societal requirement is not a matter of course for all companies.

10.1  Definition of CSR and Ethics

133

Socially desirable

Ethical responsibility

Legal responsibility

Socially expected

Socially demanded

Su

sta ina bil ity in su pp lie rm an ag em en t

Philanthropic responsibility

Economic responsibility

Socially demanded

Fig. 10.1  The 4-level CSR pyramid according to Caroll

Ethical responsibility is the contribution on the part of companies that is not required by law but is expected by society. An example of this is ensuring decent working conditions for employees in foreign production facilities or the use of environmentally friendly technologies. Philanthropic responsibility is the highest level of corporate social responsibility. It is the voluntary contribution of companies to improve the quality of life for their employees, for the local neighbourhood and for the general public in the social ecosystem, for example by providing childcare facilities, promoting education and the arts, and making voluntary donations to aid projects. While this contribution is desired by society, it is not required or assumed by companies (Carroll 2016). Carroll’s 4-step pyramid model favours CSR communication through its clear structure. In practice, however, it is not always easy to distinguish the 4 levels from each other. Another criticism is that the model does not provide any information for situations with conflicts of interest, for example when production is relocated to low-wage countries, when employees in the home country lose their jobs while the company abroad is happy about the new investments or new sources of tax revenue (Crane and Matten 2016).

10.1.2 Two-Dimensional Model According to Quazi and O’Brien Based on their field research in Australia and Bangladesh, Quazi and O’Brien developed a Two-Dimensional CSR Model in which they divide the views of corporate CSR perceptions into four quadrants by two axes (Fig. 10.2).

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10  Corporate Social Responsibility (CSR) and Ethics in Supplier Management

Individual factors

Recognize moral dilemma

Passing moral judgement

Determine moral intent

Implemenng Moral Measures

Situational factors Fig. 10.2  Two-dimensional CSR model according to Quazi and O’Brien

According to their empirical research, CSR decisions in business practice are significantly influenced by two factors regardless of the cultural environment or market constellations: • the CSR view of the manager: broad vs. narrow responsibility • the benefits vs. costs of CSR activities. Consequently, corporate views on their social responsibility can be divided into the following four groups: • classical view: The manager has a narrow view of corporate social responsibility. In his opinion, costs incurred outweigh the benefits of CSR activities. • socio-economic view: The manager has a narrow view of corporate social responsibility. In his opinion, the benefits outweigh the costs of CSR activities. • philanthropic view: The manager has a broad view of corporate social responsibility. In his opinion, costs incurred outweigh the benefits from CSR activities. • modern view: The manager has a broad view of corporate social responsibility. In his opinion, the benefits outweigh the costs of CSR activities. This model enables an efficient analysis of the corporate understanding of CSR and the development of the basis for CSR strategies. However, the individual CSR activities remain untouched.

10.1.3 Core Area Model According to Carroll and Schwartz This model can be seen as a further development of Carroll’s original 4-level pyramid model, as it solves the problem of demarcation between the various levels by covering

135

10.1  Definition of CSR and Ethics

them in their entirety through CSR activities in three core areas “economic”, “legal” and “ethical” as well as their intersections in seven categories (Carroll and Schwartz 2003): 1. 2. 3. 4. 5. 6. 7.

purely economic strictly legal purely ethical economical-ethical economical-legal legal-ethical economic-legal-ethical

Figure 10.3 shows the core areas according to Carroll and Schwartz. However, some researchers criticise that the ecological aspect is presented as a subset of the core area “ethical”. Due to the socially perceived importance for dealing with nature, the presentation of this aspect as a separate core area could be useful (WELZEL 2008).

10.1.4 Sustainability and the Three-Pillar Model In discussions about corporate social responsibility in the international environment, the term “sustainability” is often mentioned. A prominent definition of this term comes from the Brundtland Report of the World Commission on Environment and Development (WCED) “Our common future”. According to this report, sustainability is a “strategy of Advantages through CSR

Modern view

Social ecological View

Close responsibility

Wide responsibility Philanthropic view

Classical view

CSR costs

Fig. 10.3  Core areas according to Carroll and Schwarz. (Source: Adapted from (Schwartz and Carroll 2003))

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social development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (United Nations 1987). The three-pillar model is the result of the further development of the concept of sustainability. While the initial focus with regard to sustainability was predominantly on the careful use of natural resources, over time scientists came to realise that environmental protection cannot be pursued without taking into account the social and economic impact on the people or societies concerned. Sustainability is represented in the three-pillar model (“triple bottom line”) as a healthy balance of ecological, economic and social goals (Fig. 10.4). Sustainability and Corporate Social Responsibility (CSR) are essential factors for achieving competitive advantages and for employee satisfaction. Employees want to work for companies with social standards and rules. For a successful sustainable development, actors from politics, companies, non-profit organizations, science and education deal with the topic of sustainable management. Examples show that CSR is not only a matter of multinational corporations (MNCs), but also of other organizations from different sectors, such as start-ups, companies in metropolitan areas, small and medium-sized enterprises (SMEs) in rural areas – from high-tech to organic agriculture. CSR is also known by a number of other definitional names. These include corporate responsibility, business ethics, corporate citizenship or stewardship, business ethics, responsible entrepreneurship, and triple bottom line, to name a few. As CSR issues are increasingly integrated into modern business practices, there is a trend to refer to them as “responsible competitiveness” or “corporate sustainability.” CSR is the way companies integrate social, environmental and economic concerns into their values, culture, decision-making, strategy and operations in a transparent and accountable manner, thereby establishing better practices within the company, creating wealth and improving society. An important point to note is that CSR is an evolving concept that currently has no universally accepted definition. In general, CSR is understood as the way in which companies integrate social, environmental and economic concerns into their values, culture, decision-making, strategy and operations in a transparent and accountable manner, thereby establishing better practices within the company, creating wealth and improving society. As sustainable development issues become Fig. 10.4  The dimensions of sustainability in the three-­ pillar model Social

Economic

Ecological

10.1  Definition of CSR and Ethics

137

more important, how the business sector addresses them also becomes an element of CSR. The World Business Council for Sustainable Development has described CSR as the business contribution to sustainable economic development. Building on compliance with laws and regulations, CSR typically includes “going beyond the law” commitments and activities related to: • • • • • • • • • • • • • • •

Corporate governance and ethics health and safety compliance with laws Environmental responsibility intellectual property rights Human rights (including core labour rights) sustainable development Working conditions (including health and safety, working time, wages) industrial relations; Community participation, development and investment Inclusion of and respect for different cultures and disadvantaged peoples Corporate philanthropy and employee volunteering Customer satisfaction and compliance with the principles of fair competition Measures to combat bribery and corruption Accountability, transparency and performance reporting Supplier relations for national and international supply chains

Many companies nowadays publish in a publicly available report  – the so-called “Sustainability Statement” – how they intend to deal with the topic of sustainability or CSR. The following excerpts from the Sustainability Statements show an understanding in accordance with the three-pillar model and demonstrate the topicality of this model in CSR communication (Table 10.1).

10.1.5 Corporate Citizenship (CC) The term “Corporate Citizenship (CC)” has been used since the mid-1990s, like Corporate Social Responsibility (SCR), to describe the social role of companies. However, the term is used differently in the literature: • CC in the narrower sense: is to be understood as the philanthropic activity of companies to share their wealth with their “fellow citizens”. • CC in the equivalent sense: is equivalent to CSR. • CC in a broader sense: includes the aspiration of companies to use their dominant position and political influence in the international environment for a set of individual rights (“citizenship”).

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Table 10.1  Extract from the sustainability statement of some companies Company Sustainability statement (excerpt) Volks-­ For Volkswagen, sustainability means pursuing economic, social and wagen ecological objectives simultaneously and with equal energy. It is our aim to create lasting values, offer good working conditions, and conserve resources and the environment (Sustainability; for Volkswagen, this means pursuing economic, social and ecological goals simultaneously and with equal energy. Our aim is to create lasting value, provide good working conditions and conserve resources and the environment) German With our strategic goals, we bring economy, social and ecology in harmony railway Louis vuittons

Samsung

Siemens

SAP

Source Dathe et al. (2022)

Dathe et al. (2022) Savoir faire and innovation are two core values of the House of Louis Dathe Vuitton. Therefore, Louis Vuitton’s highest aspiration is to respect the origin et al. of the outstanding quality of Louis Vuitton products: natural resources. (2022) “Great design, sustainability and commercial success go hand in hand,” explains Michael Burke, Chairman and Chief Executive Officer of Louis Vuitton At Samsung, our sustainability management aims to create integrated value. Dathe We not only create economic value through profit maximization and et al. shareholder value maximization, but we are committed to being a more (2022) responsible global citizen and creating social value as well. Based on our core values, we deliver innovative products and services along our value chain. In doing so, we generate value in the areas of business, society and the environment At Siemens, we define sustainable development as the means to achieve Dathe profitable, long-term growth. Externally, we are guided by the UN 2030 et al. Agenda for Sustainable Development, and internally we strive for a balance (2022) along the dimensions of people, environment and profit Our focus on sustainability and corporate social responsibility (CSR) stems Dathe from our vision to improve the operations of businesses and the lives of et al. people around the world. We know that social, environmental and (2022) economic activities and performance influence each other and have tangible interactions. Our efforts are therefore aimed at a future for our company, our customers and society that is shaped by sustainability

Source: excerpt of Sustainability Statement from some companies, retrieved 09 Dec 2019 from respective company websites

The following categorization of the above rights as CC in the broader sense by Marshall is widely accepted in the literature to date (Marshall 1965): (a) Social rights: The rights of individuals to participate in society, e.g. the right to education, health care and other social services. (b) Civil rights: freedom from abuse and interference by third parties (especially government), freedom of speech, right to own property, right to access the “free” market, etc.

10.2  Megatrends with an Impact on Supplier Management

139

Corporate cizenship (CC) in the broader sense Corporate Social Responsibility (CSR)

Economic Perspecve

Ecological Perspecve

Social Perspecve

The polical element

Social rights

Cizen's rights

Polical rights

Fig. 10.5  The concept of corporate citizenship in a broader sense. (Source: own representation)

(c) Political rights: The right to vote, the right to hold and exercise public office. In general, the right to participate in the civic political process. The concept of corporate citizenship in the broader sense is illustrated in Fig. 10.5. The political element of corporate citizenship in a broader sense opens up a new field of activity for large companies. According to the KPMG survey published in 2017, 90% of the world’s top 250 largest companies and 73% of the world’s representative large companies address human rights as part of their business approach and include this essential thematic area in their CSR report (KPMG 2017). However, the majority of critics complain that these are often only public relations measures by companies and do not achieve sustainable effects. Other market participants see such political responsibilities as being more in the hands of state institutions.

10.2 Megatrends with an Impact on Supplier Management In almost all markets, companies are more than ever exposed to a dynamic, rapidly changing environment. Constant change in supplier structures, market structures and environmental conditions poses a challenge to market participants and supplier management that should not be underestimated. Globalization, digitalization, worldwide trends and other frequently discussed topics represent more than just buzzwords. If competitiveness is to be maintained or even expanded, companies must be able to adapt quickly and flexibly to changing conditions and customer expectations. In this context, supplier management is

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becoming increasingly important: the efforts of individual companies to concentrate on their own core competencies and to manage the remaining business processes in close cooperation with partner companies or supplier networks. According to various studies and sources, megatrends are long-term and overarching transformation processes. According to the study by the Z-Punkt agency, megatrends have powerful influencing variables that shape the markets of the future. They differ from other trends in three respects: 1. Time horizon: Megatrends can be observed over a period of decades. Quantitative, empirically unambiguous indicators already exist for the present. With a high degree of probability, they can be projected into the future for at least 15 years. 2. Scope: Megatrends have a comprehensive impact, their scope extends to all regions of the world. They bring about multidimensional upheavals in all social subsystems  – political, social and economic. Their specific manifestations differ from region to region. 3. Impact strength: Megatrends have a comprehensive and profound effect on all actors – governments, individuals and their consumer behaviour, but also companies and their strategies. The term “megatrend” was coined by John Naisbitt, whose bestseller of the same name appeared 25 years ago. In it, he drew a picture of the future from the turn of the millennium based on ten sweeping developments and became a pioneer of trend research in business and society. Megatrends not only influence society, but also economic activities in particular, through changing customer wishes and customer expectations. These economic activities in turn have an impact on companies, their own processes in procurement, production, distribution and the resulting supplier relationships. The following conclusions can be drawn from the results of the Logistische Kompass study and a study by MB Tech Consulting: Almost 80% of all companies surveyed assume that megatrends have an impact on the number of customers and variant management. More than 65% of the companies surveyed expect major market fluctuations due to seasonal or sales-related reasons. As a result, the majority of the companies surveyed assume that the changing framework conditions will have an impact on their own production sites and distribution. Thus, these trends automatically influence the procurement side, the supplier chain and supplier management.

10.3 The Need for CSR in Supplier Management A company’s own CSR profile and its value chain are nowadays closely linked to the activities of suppliers and their supply chains. This is all the more true in view of globalisation in business and industry. Today, business partners must assume responsibility for sustainability in their national and international relationships and fulfil their duty of care.

10.4  Maturity Analyses of CSR in Supplier Management Fig. 10.6  CSR in supplier management

141 working condions Ancorrupon

Intellectual property

CSR elements Human rights

Environment Supplier Management

Social standards

compliance laws

In concrete terms, this means taking greater account of ecological, economic and social aspects. Minimum requirements include compliance with laws, environmental aspects, protection of intellectual property, occupational health and safety measures and anti-­ corruption, as Fig. 10.6 shows. Reliable suppliers and partners contribute significantly to customer satisfaction and the success of your company. Today, it is no longer sufficient to look only at your own quality capabilities. The quality of products and process chains can be significantly increased if both sides in the supply chain work together in partnership and trust. A balanced supplier structure prevents supply bottlenecks, a high delivery capability and adherence to delivery dates stabilize your own manufacturing process.

10.4 Maturity Analyses of CSR in Supplier Management Globalization, increasing product complexity, shorter development cycles and cross-­ border value creation networks are becoming more and more complex. Preventive supplier management is indispensable in view of this development. Table 10.2 shows the maturity levels of companies and their supplier management systems. At the lowest level are the holdouts, which do not carry out any activities with regard to a sustainable supply chain. Next are the laggards who have CSR awareness and have introduced activities (albeit small ones) and measures. In third and fourth position in the maturity table come the companies that specifically plan and manage CSR measures (industry standard and best practice). In last place are the companies that have industry excellence or world-class excellence.

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Table 10.2  Maturity levels for sustainability Maturity Denier Stragglers

Description Consequence No activities in the area of CSR No consideration for future orders Beginning CSR awareness, first measures CSR audit and analysis of weak points with recommendations for action Standard CSR plan as part of the corporate strategy Monitoring of CSR activities, random checks High degree of CSR plan as part of the corporate strategy Project-related collaboration in maturity with best practice and a high degree of cross-value-chain CSR activities maturity Industry guide CSR plan as a competitive advantage in Holistic collaboration in cross-value industry with a focus on value creation chain CSR activities World leader CSR plan to lead the world. CSR leads to Strategic partnerships in all areas competitive advantages with a focus on CSR value creation Source: Own representation

10.5 Supplier Development in the Area of CSR CSR is a new essential component of supplier management. CSR is not only necessary due to legal regulations, but also socially a must for every company. Supplier management must therefore keep an eye on the CSR reform process along the entire value chain, especially since companies are legally and socially required to perform global due diligence. The CSR reporting obligation, the binding core elements of the National Action Plan for the Implementation of the UN Guiding Principles on Business and Human Rights and the call for the implementation of risk management systems affect not only large, but also in particular medium and small enterprises (SMEs) in the supplier chains. If sustainability improvements are to be implemented in the supply chain, the following points should be considered: • Conclude contracts with your suppliers that include your relevant sustainability aspects. • Prioritize suppliers into preferred suppliers, for example through a pyramid model according to the most important criteria for your company. • Conduct audits of your suppliers. • Establish measures communicated internally and with suppliers as a result of poor audits: e.g. training of supplier staff or exclusion of the supplier in question. • Follow up all audits with training and dialogue formats so that audit results can be used and improvement can take place.

143

10.6  Global Compact Principles

• In particular, involve your preferred suppliers in developments and structural changes at an early stage, for example on new environmental standards or the use of new technologies.

10.6 Global Compact Principles Corporate sustainability starts with a company’s value system and a principles-based approach to business. This means acting in ways that, at a minimum, meet basic human rights, labor, environmental and anti-corruption responsibilities. Responsible companies apply the same values and principles wherever they are present, and know that best practices in one area do not compensate for harm in another. By incorporating the UN Global Compact’s ten principles into strategies, policies and procedures and creating a culture of integrity, companies not only uphold their fundamental responsibility to people and planet, but also set the stage for long-term success (Fig.  10.7). The UN Global Compact is a principles-based framework for business that sets out ten principles in the areas of human rights, labour, environment and anti-corruption. The Global Compact brings together The 10 Prin ciples of the Global Compact

Human Rights

Labour standards

Environmental protection

Prevention of corruption

1.

businesses should ¬support and respect the protection of international human rights.

2.

companies should ensure that they are not ¬complicit in ¬human rights abuses.

3.

companies should uphold the freedom of association and the effective recognition of the right to collective bargaining.

4.

companies should work for the elimination of all forms of forced labour.

5.

companies should work towards the abolition of child labour.

6.

Businesses should promote the elimination of discrimination in respect of employment and occupation.

7. companies should follow the precautionary principle in dealing with environmental problems. 8.

companies should take initiatives to promote greater environmental awareness.

9.

businesses should accelerate the development and diffusion of environmentally friendly technologies.

10.

companies should work against a e forms of corruption, including extortion and bribery.

Fig. 10.7  UN Global Compact Principles

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companies with UN agencies, working groups and civil society. The framework provides a universal language for corporate responsibility and a framework that guides all companies regardless of size, complexity or location. Joining the UN Global Compact means taking an important public step to change our world through principled business. Participation makes a statement about values and benefits both society and the long-term success of businesses. Corporate sustainability starts with a company’s value system and a principled approach to business. This means acting in ways that meet at least basic human rights, labor, environmental and anti-corruption responsibilities. Responsible companies apply the same values and principles wherever they are present, and know that best practices in one area do not compensate for harm in another. By incorporating the UN Global Compact principles into strategies, policies and procedures and creating a culture of integrity, companies not only uphold their fundamental responsibility to people and planet, but also set the stage for long-term success.

10.7 Case Study: Sustainability at VW Volkswagen’s plant in Wolfsburg received the “Lean & Green Management Award 2019” in the “Automotive OEM” category for its efficient and sustainable production. More than 250 plants from more than ten countries and 20 different industries took part in the competition. “We are proud that our persistent work has successfully saved resources and that we have received the prestigious ‘Lean & Green Management Award’ for it,” said Stefan Loth, Head of Volkswagen’s Wolfsburg plant. “At the Wolfsburg plant, we are proving that efficient vehicle production while at the same time conserving resources is not only possible, but also makes sense. After all, production also bears an ecological responsibility. The conscious use of raw materials and energy plays a role in our ecological commitment.” In terms of production efficiency, Volkswagen’s parent plant focuses on its “PQM” strategy – Productivity, Quality and Manning. Each year, more than 400 workshops are held to help the Wolfsburg workforce improve processes and reduce production costs per vehicle. The plant consistently uses the Volkswagen Production System, which describes the principles, standards and methods used to design, execute and continuously develop manufacturing processes. The Volkswagen parent plant is also on the road to sustainability and implementation of the “Zero Impact Facto-ry” environmental programme. One important element in protecting the environment and promoting biodiversity, for example, is the process water basins located on the plant site. Thanks to the internal water cycle, every drop of water flows through the site about four to six times, keeping water consumption per vehicle very low. The “Lean & Green Management Award” is presented annually by the consultants Growtth Consulting Europe and Quadriga Consult and the trade journal AUTOMOBIL INDUSTRIE. The award was recently ranked as one of the highest rated sustainability awards in Germany in a study by the University of Hohenheim. Figure 10.8 shows the sustainability award at VW.

References

145

Fig. 10.8  Sustainability at VW

References Bowen, H. (1953). Social responsibilities of the businessman. New York: Harper & Row. Carroll, A.  B. (2016). Carroll’s pyramid of CSR: taking another look. International Journal of Corporate Social Responsibility, 1:3. Crane, A., & Matten, D. (2016). Business Ethics. Managing Corporate Citizenship and Sustainability in the Age of Globalization, 4th edition. Oxford: Oxford University Press. Dathe, T. et al. (2022). Corporate Social Responsibility (CSR), Sustainability and Environmental Social Governance (ESG) Approaches to Ethical Management. Springer Cham. Europäische Kommission. (25. 10 2011). MITTEILUNG DER KOMMISSION AN DAS EUROPÄISCHE PARLAMENT, DEN RAT, DEN EUROPÄISCHEN WIRTSCHAFTSUND SOZIALAUSSCHUSS UND DEN AUSSCHUSS DER REGIONEN.  Von Eine neue EU-Strategie (2011–2014) für die soziale Verantwortung der Unternehmen (CSR): https:// ec.europa.eu/transparency/regdoc/rep/1/2011/DE/1-­2011-­681-­DE-­F1-­1.Pdf abgerufen Fassin, Y., Van Rossem, A., & Buelens, M. (2011). Small-business owner-managers’ perceptions of business ethics and CSR-related concepts. Journal of Business Ethics, 98(3), 425–453. KPMG. (2017). The KPMG Survey of Corporate Responsibility Reporting. Von https://assets.kpmg/ content/dam/kpmg/xx/pdf/2017/10/kpmg-­survey-­of-­corporate-­responsibility-­reporting-­2017. pdf abgerufen am 31.12.2019. Marshall, T. (1965). Class, citizenship and social development. New York: Anchor Books. Maxim, S. T. (2014). Ethics: Philosophy or science? Procedia – Social and Behavioral Sciences,149, 553–557. Sahut, J., Peris-Ortiz, M., & Teulon, F. J. (December 2019). Corporate social responsibility and governance. Journal of Management and Governance, Volume 23, Issue 4, pp. 901–912. Schwartz, M., & Carroll, A. (2003). Corporate Social Responsibility: A Three-Domain Approach. Business Ethics Quarterly, S. 13, 503–530. United Nations. (1987). Our Common Future. Retrieved from Report of the World Commission on Environment and Development: https://netzwerk-­n.org/wp-­content/uploads/2017/04/0_ Brundtland_Report-­1987-­Our_Common_Future.pdf

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WELZEL, E. (2008). Corporate Social Responsibility oder Corporate Citizenship. Interdisziplinäre theoretische Konzepte als Grundlage der Begriffasabgrenzung der CSR.  In M.  M., & S.  S., Corporate Social Responsibility – Trend oder Modeerscheinung. (S. 262). München: HRSG.

Further Reading Anhand, V., Ashforth, B., & Joshi, M. (2004). Business as usual: the acceptance and perpetuation of corruption in organizations. Academy of Management Excutive, S. 18(2): 39–53. Baumann, Z. (1993). Postmodern ethics. London: Blackwell. Buchanan, D., & Huczynski, A. (1997). Organizational behavior (3rd edition). London: Prentice-Hall. Bundesverfassungsgericht. (2006). Von https://www.bundesverfassungsgericht.de/SharedDocs/ Entscheidungen/DE/2006/02/rs20060215_1bvr035705.html abgerufen Carroll, A.  B. (1979). A three-dimensional conceptual model of corporate social performance. Academy of Management Review, S. 4, 497–505. Craft, J. (2013). A review of the empirical ethical decision-making literature: 2004–2011. Journal of business ethics, 117(2): 221–259 Duden (2019). Duden. https://www.duden.de/rechtschreibung/Ethik abgerufen 12.1.2019. Dathe, T., & Helmold, M. (2018). Erfolgreich im Chinageschäft: Strategien und Handlungsempfehlungen für kleinere und mittlere Unternehmen (KMU). Springer Gabler Wiesbaden. De George, R. (1999). Business ethics (5th edition). Upper Saddle River, NJ: Prentice Hall. Elkington, J. (1998). Cannibals with Forks: The Triple Bottom Line of twenty first Century Business. University of Michigan: New Society Publishers. Ford, R., & Richardson, W. (1994). Ethical decision making: a review of the empirical literature. Journal of business ethics, 13(3): 205–221. Friedman, M. (1977). “The Invisible Hand.”. In M. Friedman, The Business System: A Bicentennial View (S. 2–13). Hanover, New Hampshire: Amos Tuck School of Business Administration. Historisches Wörterbuch der Philosophie. (1980). Moral, moralisch, Moralphilosophie, Bd. 6. In J.  Ritter, & K.  Gründer, Historisches Wörterbuch der Philosophie (S. 149). Basel/Stuttgart: Schwabe Verlag. Jones, T. (1991). Ethical decision making by individuals in organizations: an issue-contigent model. Academy of Management Review, 16: 366–395. Kalscheuer, F. (2017). Autonomie als Grund und Grenze des Rechts: Das Verhältnis zwischen dem kategorischen Imperativ und dem allgemeinen Rechtsgesetz Kants (Kantstudien-­ Ergänzungshefte, Band 179). De Gruyter Kiel. Kant, I. (1900). Kritik der praktischen Vernunft, Grundlegung zur Metaphysik der Sitten, Erster Teil, Erstes Buch, 1. Hauptstück, § 7 Grundgesetz der reinen praktischen Vernunft. Berlin: Ausgabe der Preußischen Akademie der Wissenschaften. Kohlberg, L. (1969). Stage and Sequence: the cognitive development approach to socialization. In D.  G. (ed.), Handbook of socialization theory and research (S. 347–380). Chicago: Rand McNally. Quazi, A., & O’Brien, D. (2000). An Empirical Test of a Cross-national Model of Corporate Social Responsibility. Journal of Business Ethics, Vol. 25, Iss. 1, 33–51. Rawls, J. (1979). Eine Theorie der Gerechtigkeit. Suhrkamp Verlag. Rogers, J. (2010). In Defense of a Version of Satisficing Consequentialism. Utilitas 22 (2), 198–221. Rothschild, J., & Miethe, T. (1999). Whistle blower disclosures and management retaliation: the battle to control information about organization corruption. Work and Occupation, 26(1): 107–128. Schroeder, M. (2006). Not so Promising after All: Evaluator-Relative Teleology and Common-Sense Morality. Pacific Philosophical Quarterly 87 (3), 348–356.

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Trevino, L., & Nelson, K. (2014). Managing business ethics: straight talk about how to do it right (6th edition). Hoboken, NJ: John Wiley. Werhane, P. (1999). The role of self-interest in Adam Smith’s Wealth of Nation. Journal of philosophy, 86(11): 669–680. Volkswagen (2019). Volkswagen Werk Wolfsburg erhält den Umweltpreis “Lean and Green Management Award”. Abgerufen: 20.11.2019. https://lean-­and-­green.de/de/award-­gewinner.

Lean Management in the Service Sector

11

Having money is nice, as long as you haven’t lost the joy of things that money can’t buy. Salvador Dali (1904–1989)

11.1 Characteristics of Services In the case of services, the focus is not on the manufacture of a product or trade in products, but on the provision of a service as a service to the customer or as a service for customers. For the execution, a service provider will often have to use appropriate work equipment and products, such as hand tools, measuring instruments, cleaning agents or lubricants, but (as a rule) no new product is manufactured. A service is the process, action, or activity performed by a person or group of persons for a customer or group of customers for which customers are willing to pay. Unlike products, services cannot be touched or owned. Services are actions such as counseling, housing, insurance, haircuts, medical exams, mail delivery, car repair, or tuition. Services have various functions, which are summarized in Fig. 11.1.

11.1.1 Intangible Assets Services are non-touchable and have no physical properties. The intangibility of a service product means that it cannot be tasted, felt, seen, heard or smelled before purchase. To

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_11

149

150

11  Lean Management in the Service Sector

Intangible (not physical)

Quality measurement difficult

None Storage

Properties of services No demonstration possible before purchase

Uniqueness (heterogeneity)

No Property

human interaction

Fig. 11.1  Characteristics of services

reduce the uncertainty caused by the untouchability of the service, buyers look for concrete evidence that provides information and confidence in the service.

11.1.2 Services Are Not Storable Services have no physical character and can therefore not be stored. There are therefore no storage activities and costs. Since services are provided by people, people are to be regarded as a resource for the provision of services.

11.1.3 Uniqueness (Heterogeneity) Services are different and therefore heterogeneous. Even if a haircut looks the same, the service provided is absolutely unique. Companies strive to standardize services to make them appear more generic to customers.

11.2  Application of Lean Management to Services

151

11.1.4 Inseparability Inseparability means that a product cannot be created or delivered without the presence of the customer. The service provider and the customer must be present at the time of the transaction.

11.1.5 Variability Variability describes the fact that the quality of service delivery depends on who is providing the services. The same person or team can provide different levels of service due to fluctuations in demand. Lack of consistency is a major factor in customer dissatisfaction and service quality depends on the skills of the staff.

11.1.6 Perishability Perishability describes the fact that services cannot be saved (and the consequences thereof). Empty airline seats, hotel rooms, etc. cannot be sold the next day. If services are to maximize revenue, they must manage capacity and demand because it is not possible to carry forward unsold inventory. Since service products cannot be stocked, efforts must be made to sell all hotel room inventory, meeting space, and food & beverage outlets at the right price, at the right time, and to the right customer. Revenue management strategies should be employed to minimize the impact of perishability.

11.1.7 No Ownership Lack of ownership describes the fact that services cannot be owned like products. Lack of ownership is a fundamental difference between a service industry and a product industry, as a customer may only have access to or use of a facility (e.g., a hotel room, a credit card). Payment is made for the use of, access to, or rental of property. With the sale of a tangible good, the buyer has full use of the product unless restrictions are imposed by a lease-­ purchase program.

11.2 Application of Lean Management to Services The method can thus be generally characterized as a pragmatic, holistic, integrative management concept with a strict focus on customer satisfaction, market proximity, a strict concentration on core competencies and on the continuous improvement of products or services, processes and quality. Companies aiming at sustained business success must

152

11  Lean Management in the Service Sector

react quickly and flexibly to maintain market and competitive advantages in a time when markets have become predominantly global rather than regional. In most cases, this requires an entrepreneurial reorientation. In this context, it is not enough just to look at and optimize production processes within the company. Rather, Edward Deming’s sentence “If you don’t master the processes in the company, you don’t master the whole company” also applies to service processes. In contrast to production processes, it is more difficult to express, measure and control service processes in figures. In addition, overhead costs are significantly higher for service processes than for the production of physical products. This is because it is almost impossible to allocate to direct costs in services. Thus, in recent decades, many companies have applied various QM methods that originated in manufacturing to their service processes as well, in order to control and continuously improve all business processes with the hope of gaining market and competitive advantages and achieving sustained business success. The methods of lean management, which aims at continuous improvement of operations and standard processes, became popular through the application of large and renowned companies. The success and complementary nature of the concepts led to the development of the concept of Lean Management in recent years by combining the two, which according to its proponents such as Michael L.  Georges, achieves very good results especially in service processes. However, Lean Management in service processes is still a little researched topic in Germany. Lean management should therefore target components such as customer satisfaction, standard procedures, stable processes, quality and reproducibility, as Fig. 11.2 shows.

11.3 Increasing the Visible Added Value of Services Services are intangible and variable. The optimal pricing and revenue strategy is to make services more tangible through physical evidence. Services can be cheaper if tangible evidence of added value (value creation) is presented to the customer through: • Company website • Marketing material, such as brochures, factsheet, sales package, etc. with pictures and information. • Social media presence • Company magazine • Newsletter • Press relations, press releases, e.g. documentation of events • Letters of recommendation, thank you letters • Comments on Trip Advisor and similar review websites • printed advertising • professional sales visits to customers • personalized sales and advertising • Promotional items, such as shirts, stickers for the cars, etc.

11.4  Case Study: Lean Ordering Process in Japanese Restaurant

153

Focus on:

Intangible (not physical) Quality measurement difficult

Customer satisfaction

None Storage

Standard procedures Properties of services

No demonstration possible before purchase

Processes Uniqueness (heterogeneity)

Quality Reproducibility

No Property

human interaction

Supplier Management Determinaon of the strategy Supplier strategy

performance management Suppliers selecon

Integraon of all funcons Primary Procure Produ Markeng & Sales funcons ment con Secondary funcons

Suppliers rang

Supplier development

Supplier integraon

Supplier controlling

Quality Focus on value creaon performance Cost and financial performance Delivery performance Other performance targets

Fig. 11.2  Supplier management for services

11.4 Case Study: Lean Ordering Process in Japanese Restaurant The example in Fig.  11.3 shows how lean management has become a central part of Japanese society. In many restaurants, there is an automated ordering process, which aims to make the process efficient. In many restaurants, there are ticket machines that can be used to order food and drinks. A signal tells the kitchen staff which dish the customer has ordered. The FIFO principle (First in First out) is applied. The customer who orders first also receives his meal and products he ordered first (Helmold 2020). In this process, no waiters are necessary, the kitchen staff can concentrate on value-adding activities.

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11  Lean Management in the Service Sector Process description Audio-Visual Ordering the meal

Payment of the meal with credit card, cash card or cash

Visualization: Ticket for food order necessary Automatic signal to employees; employees concentrate on meal preparation

Fig. 11.3  Lean food ordering processes

References Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham.

Further Reading Beibst, G. (2011). Dienstleistungsmarketing (2. Aufl.). Studienbrief 2-033-0009. Brandenburg: Hochschulverbund Distance Learning. Bhattacharjee, D., Moreno, J., & Ortega, F. (2016): The secret to delighting customers: Putting employees first. McKinsey&Company Article (März 2016). Abgerufen am 4.1.2018. Online unter: https://www.mckinsey.com/business-­functions/operations/our-­insights/ the-­secret-­to-­delighting-­customers-­putting-­employees-­first Ernst & Young [EY] (2017): Global hospitality insights: Top 10 thoughts for 2017. Abgerufen am 4.1.2018. Online unter: www.ey.com/Publication/vwLUAssets/EY-­global-­ hospitalityinsights-­2017/$FILE/EY-­global-­hospitality-­insights-­top-­10-­thoughts-­for-­2017.pdf Goldsmith, R. E. (1999). The personalised marketplace: beyond the 4Ps. Marketing Intelligence & Planning, 17(4), 178–185. doi: https://doi.org/10.1108/02634509910275917 Haas, N. (2015). Lean Management. Umsetzung in Dienstleistungsunternehmen (Deutsch) Taschenbuch. Gim Verlag. Haller, S. (2015). Dienstleistungsmanagement: Grundlagen  – Konzepte  – Instrumente. Auflage. Springer Gabler Wiesbaden.

References

155

Hatz, N. (2018). Wettbewerbsvorteil durch exzellenten Service: die optimale Gestaltung von Kundenfeedback-Management in der Luxushotellerie als nachhaltiges Differenzierungsmerkmal (Master-Thesis). Donau-Universität Krems, Krems an der Donau, Österreich. Heskett, J. L., Sasser, Jr., W. E., & Schlesinger, L. A. (1997). The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction, and value. New York: The Free Press. Maechler, N., Neher, K., & Park, R. (2016): From touchpoints to journeys: Seeing the world as customers do. McKinsey&Company Article (März 2016). Online unter: https://www.mckinsey. com/business-­functions/marketing-­and-­sales/our-­insights/from-­touchpoints-­to-­journeys-­seeing-­ the-­world-­as-­customers-­do [Zugriff am 22.10.2017]. Meffert, H., Burmann, C., & Kirchgeorg, M. (2012). Marketing: Grundlagen marktorientierter Unternehmensführung. 11. Auflage. Springer Gabler Wiesbaden. Meffert, H., Bruhn, M., & Hadwich, K. (2015). Dienstleistungsmarketing: Grundlagen – Konzepte – Methoden. 8. Auflage. Springer Gabler Wiesbaden. Rafiq, M., & Ahmed, P. K. (1995). Using the 7Ps as a generic marketing mix: an exploratory survey of UK and European marketing academics. Marketing Intelligence & Planning, 13(9), 4–15. doi: https://doi.org/10.1108/02634509510097793 Reichheld, F. F., & Sasser, Jr., W. E. (1990). Zero Defections: Quality Comes to Services. Harvard Business Review, September-Oktober 1990, 105–111. Scheuer, T. (2015). Marketing für Dienstleister: Wie Sie unsichtbare Leistungen erfolgreich vermarkten (3. Aufl.). Springer Gabler Wiesbaden. Thomas, A., & Applegate, J. (2010). Pay Attention! How to Listen, Respond, and Profit from Customer Feedback. Hoboken, New Jersey: John Wiley & Sons.

Supplier Management for Suppliers with Financial Difficulties

12

You can also build beautiful things out of stones that are thrown in your path. Johann Wolfgang von Goethe (1749–1832)

12.1 Signs of Financial Difficulties 12.1.1 Phases of a Financial Crisis Companies and suppliers in financial difficulties are in a crisis situation, which can have a significant impact on other areas within the value network (Helmold and Samara 2019). The word crisis is a word with negative connotations and has something to do with danger and threat. According to the Gabler-Wirtschaftslexikon, crisis is defined as a wide variety of manifestations or phenomena of a business, ranging from a mere disruption in the course of operations, to conflicts, to the destruction of the business (Gabler-­ Wirtschaftslexikon 2018). If a company is in an economic business crisis, the functionality and stability can be impaired to such an extent that there is a risk of corporate collapse and insolvency (insolvency) is imminent. From the perspective of the affected company, these manifestations can be described as a financial crisis or catastrophe, which, substantially endanger the continuation of the company and its existence (Gabler-Wirtschaftslexikon 2018). The authors Krystek and Moldenhauer define three types of crises for companies (Krystek and Moldenhauer 2007): • non-existence-threatening crisis situation

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• existential crisis • existential crisis In this context, supplier management must preventively identify possible causes of supplier insolvencies and crises in order to take action at an early stage. Reasons for crises are manifold and can be divided into exogenous (external) and endogenous (internal) causes (Table 12.1): One model for describing corporate crises is the four-phase model by Müller, who is a renowned scientist in the field of business administration and has published numerous papers in the area of corporate and financial crises (Müller 1986). In his model, he characterizes a total of four phases of corporate crises, as Fig.  12.1 shows. In his model, he assumes that the various crisis phases also require a certain period of time to find effective countermeasures to overcome the crisis. R. Müller calls the four phases the strategic crisis, success crisis, liquidity crisis and insolvency.

12.1.2 Strategic Crisis At the beginning of a company crisis with suppliers there is always the strategic crisis. In the strategic crisis, the supplier is misaligned, e.g. due to wrong products, lack of innovations or other deficits. This means that one or more strategic mistakes lead to a higher cost structure or rapidly decreasing revenues. This could be, for example, changes in demand, increased operating costs or failure to take market changes into account. Strategic crises in the supply chain must be identified by an early system in supplier management in order to then initiate countermeasures.

Table 12.1  Reasons for corporate crises Exogenous reasons Changing customer requirements Economic changes Socio-political changes Governmental causes Crises caused by suppliers Competitor Other external influences

Endogenous reasons Management error Incompetence of staff Inefficiency of processes Deficits in the area of production Owner-induced crises Lack of capital Wrong strategy alignment

Source: Own representation based on Helmold et al. (2019)

12.1  Signs of Financial Difficulties

159

Proacve measures in supplier management

Reacve measures in supplier management Impact of the acvies Phase 1

Inial situaon

Phase 2 Medium-term

Strategic Crisis

Profitability crisis

Weak

Medium

Mueller's 4-phase model (1986)

Phase 3

Phase 4

Short-term

Liquidity crisis

Insolvency freedom to operate

need for acon

Long-term

Strong

Signs and symptoms of crisis

Fig. 12.1  Phase model of corporate crises

12.1.3 Profitability Crisis This is followed by the balance sheet crisis. In this phase, the crisis is already reflected in negative figures in the balance sheets or income statements. Important features here are the decline in sales or the deterioration of the return on investment.

12.1.4 Liquidity Crisis This is followed by the liquidity crisis. This fourth phase is characterized by the use of supplier credits, permanent use of the overdraft facility or even foreclosure. Up to this phase, the company can still recover by acting quickly and correctly, but in the next phase of the insolvency crisis no longer.

12.1.5 Insolvency The fifth and final stage is insolvency or over-indebtedness. This is the beginning of insolvency proceedings. Insolvency means inability to pay. This always occurs when the debtor is no longer able to meet his payment obligations. This is usually the case when he no longer has the funds he needs.

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12  Supplier Management for Suppliers with Financial Difficulties

12.2 Recommendations for the Elimination of Financial Difficulties 12.2.1 Restructuring Most often, latent corporate crises slip through the perception system in the company, as they are very difficult to detect and do not yet send out strong signals. In the case of a company’s profit and liquidity crisis, it is obvious that there is a crisis because the key figures, profit and loss accounts or finances are clearly affected. In the case of weak signals of a latent company crisis, a crisis cannot be diagnosed so quickly, because the consequences will only be visible in the future. The significance of these weak signals is often underestimated and therefore they then develop into major problems. This also shows that crises cannot just occur suddenly, but develop slowly and gradually. Therefore, it is important for the crisis manager not to let crises become acute, but to recognize them early in order to be able to act. It would be best to identify the crisis at the stage of potential crisis, because this would never create a crisis. Early warning systems are of great importance when it comes to the perception of crises. Early detection or early warning functions not only to identify threats and risks to the company, but also opportunities and chances that may arise for the company as a result. Some early warning concepts are ratio analysis, financial statement analysis, and forecasting and portfolio techniques. Constant checks and balances within the company are part of the process. Various methods help in making better and effective controls. The most common ones are liquidity control, profitability control, equity structure investigation, SWOT analysis and value in use analysis. These methods encompass the whole company and the environment, therefore it is easier to identify negative influences. In this paper, we will not go into detail about all the concepts in their handling of the methods, however, early warning and its methods are an important point for crisis management in business management. The most common early warning methods are ratio analysis and financial statement analysis, which reveal important facts for the company. Here, accounting provides the most important basic data and data external to the company is included. In ratio analysis, the entire ratios, such as equity or debt, are analyzed and a balance sheet is created. In this balance sheet the profits or losses become clear and thus one can see whether the company is in danger or not.

12.2.2 Measures to Increase Liquidity In the following, measures for bridging financial bottlenecks will be shown on the basis of the balance sheet and the income statement (Fig. 12.2). The measures can be divided into those that increase cash and/or short-term receivables and those that reduce short-term liabilities. In this context, it is crucial that the measures are implemented immediately, otherwise liquidity shortages will lead to insolvency. Figure  12.3 shows the simplified

12.2  Recommendations for the Elimination of Financial Difficulties

161

P&L Earnings

(Revenues)

Extraordinary Income

Loss

• Sales promoons • New markets • New products

Income

Material costs

Extraordinary income

Salaries and wages

Loss

Opmizaon of costs

• New customers

• Investment Freeze • Sale Fixed assets • Sale of rights etc. • Lease Back

• Decrease

• External producon • outsourcing • negoaons • cost reducons

Costs

• Reorganizaon

• Restructuring • External service • providers

• Travel expenses • Administraon • Rent • Service provider

Costs

Costs

Generaon of a posive result (profit)

Fig. 12.2  Effects on P&L of measures in supplier management

Measures to improve the balance sheet • asset sale • Sale of rights, patents • Sale of other intangible assets, e.g. software • Conversion of fixed costs to variable costs • Inventory Optimization • Shifting of stocks to the suppliers • Change of payment terms with suppliers • Introduction of supplier-managed warehouses (VMI) • Negotiations with equity investors • Negotiations with lenders • Debt rescheduling • Admission of new equity investors

Balance Fixed assets •- land and buildings

Equity

•- machinery and equipment •- Other fixed assets (vehicle fleet) •- furniture and fixtures

•Current assets •Prepaid expenses and deferred charges

Long-term Liabilies Current liabilies Accrued expenses and deferred income

Fig. 12.3  Effects on the balance sheet

balance sheet with the assets and liabilities side. On the asset side, financial resources can take place through different steps in fixed or current assets, where on the liability side, on the other hand, activities in equity or debt (increase of equity by equity providers or debt restructuring through supplier management with the bank) are necessary to eliminate a financial crisis (Olfert 2013, 2015).

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12.2.3 Increase in Equity Capital One step to improve liquidity immediately is the use of new funds by shareholders or equity investors (Olfert 2013, 2015). In critical situations, customers may invest in the supplier company to ensure security of supply. A capital increase through cash contributions provides the company with liquid funds that can be used to repay maturing liabilities. However, it should be noted that the shareholders only agree to a capital increase as long as the earnings prospects of the company are positive and the shareholders can expect a return on their contribution in the form of a dividend, which is usually higher than the interest rate for debt capital (Olfert 2013, 2015).

12.2.4 Increase in Long-Term Liabilities Another step is to increase debt capital (Olfert 2013, 2015). A company’s liquidity can also be improved in the short term by taking out long-term loans to repay short-term liabilities. However, it should not be overlooked here that this measure is only suitable for a short liquidity squeeze, as the payment problem is merely shifted into the future. It should also be noted here that creditors are only prepared to grant new loans to a company with liquidity difficulties if the company’s earnings prospects are positive.

12.2.5 Sale of Fixed Assets and Leaseback A popular method used by companies is the sale of fixed assets. To improve liquidity in the short term, the sale of fixed assets (usually land and buildings), which are then leased back (so-called “sale-and-lease-back”). The sale leads to a high inflow of cash, while the payments for rental expenses are shifted into the future (Olfert 2013, 2015).

12.2.6 Factoring The liquidity effect of the sale of receivables (so-called factoring) must be viewed in a differentiated manner. While the sale of receivables increases the liquidity of the first degree, it has a negative effect on the liquidity of the second degree. Although the sale of receivables increases the cash position, the receivables position is reduced at the same time. Since the factoring bank retains a discount on receivables for its financing function, the increase in the cash position is less than the decrease in the receivables position, so that the second-degree liquidity decreases.

12.2  Recommendations for the Elimination of Financial Difficulties

163

12.2.7 Inventory Optimisation Another activity is the reduction of inventories. A high level of inventory leaves particularly inventory-intensive businesses groaning under the cost burden. For example, a lot of warehouse staff is needed, which quickly adds up not only the expenses for wages and salaries, but also for ancillary wage costs. In addition, extra costs are incurred for personnel administration. But the storage facilities themselves also generate costs for rent, energy and water, maintenance, loss of value of the equipment, expansion of the storage facilities, interest on invested capital, insurance and cleaning. A high inventory level itself also creates burdens that are not yet taken into account here. Immense amounts of dead capital, the interest accruing on it and a lack of liquidity result in further high losses. And of course, insurance premiums are also incurred for the goods, be they finished or intermediate products. In addition, however, consider factors that are hardly tangible. Spoilage, overstocking, obsolescence, damage, enormous inventory costs, and theft – all of these losses can be quantified in a rough approximation at best. Worse, further expenses can result from any of these components. Video cameras because of thieving colleagues or suppliers, extra work in plant security, sickness costs due to an above-average number of employees under heavy physical strain – the list goes on and on. In such a situation, you constantly run the risk of losing track of your inventory. A high level of inventory carries serious risks that can unexpectedly put even successful companies in a precarious position.

12.2.8 Conversion of Debt Capital into Equity Capital By converting debt into equity, the company no longer has to make the repayments due. Here too, the existing creditors will only agree to this project if the earnings prospects are positive. The disadvantage for the company is that dividend payments must be made in the future and that the previous creditors now have a say in the management.

12.2.9 Debt Rescheduling Liquidity can also be improved in the short term by rescheduling short-term liabilities into long-term loans. However, here too the payment problem is merely shifted into the future (Table 12.2).

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Table 12.2  Actions in case of financial difficulties Recommendations for supplier management in a precarious financial situation: Sales programs Opening up new markets Liquidity improvement plans through advance payments from customers Increase in contributions from equity investors Negotiation with lenders Adding new investments Liquidity improvement plans by extending the payment terms of suppliers Cost-saving programs Renegotiation and cost reduction initiatives with all suppliers Supplementary claim management Process improvements Inventory minimization through the introduction of Vendor Managed Inventory (VMI) Divestment of non-vital divisions Closure of unprofitable plants and business areas Discontinuation of non-profitable lines of business Asset disposal Global sourcing activities

12.3 Reorganisation or Restructuring Measures 12.3.1 Object of Restructuring The restructuring or reorganization of a supplier involves the fundamental restructuring of a company, which goes beyond changes to the organizational structure and processes and also includes business restructuring, with targeted measures from supplier management. Restructuring or financial turnaround measures (mitigations) are a set of corporate activities taken when a company’s debt, operations, or structure are significantly altered to potentially eliminate financial damage and improve the business. These mitigations require communication and negotiation with all affected stakeholders. When a company is struggling to make payments on its debts and financial obligations, it often restructures to pay its debts and improve financial and operational performance. A company restructures its operations or structure by cutting costs, such as payroll, operations, supplier costs, or reducing its size by selling assets. Restructuring often involves outside experts to help the company restructure its operations, performance, and finances. Restructuring involves taking appropriate actions and leads to numerous discussions and negotiations with stakeholders, such as employees, suppliers, or customers, in order to fundamentally improve a company’s financial situation. Due to its crucial importance, restructuring plans must be designed, executed and controlled by top management. Restructuring involves top management and negotiations with stakeholders. The four types of restructuring can be illustrated as in Fig. 12.4:

12.3  Reorganisation or Restructuring Measures

165

Fig. 12.4 Restructuring measures

• • • •

Strategic restructuring

Structural restructuring

Financial restructuring

Restructuring of the short-term financial situation

strategic restructuring structural reorganisation Restructuring to improve profits financial reorganisation

12.3.2 Strategic Restructuring Strategic restructuring is the fundamental change in the structure, business model and basis of the company. It involves questioning and reformulating the mission, vision and long-term strategic goals. Actions of strategic restructuring often include the evaluation of existing business models and the redefinition of the strategic pyramid including mission, vision and strategic goals (Johnson and Scholes 1997). The goal is to gain and secure a sustainable position in existing or new markets. Actions in this strategic restructuring may include shifting to new business models, expanding into new business regions, or entering new markets. Restructuring measures also require the elimination of unfavorable cost structures and production lines. In addition, relocation of the existing production site to overseas countries may occur. Finally, focusing on core competencies, eliminating unimportant customer niches, and discontinuing costly product lines are effective measures in strategic restructuring. Example: Mannesmann AG, a former engineering and steel trading company, had specialized in wireless communications and fixed-line telephone services in the 1990s and reshaped its strategic portfolio and strategy. Mannesmann was able to significantly increase its value as a result and was later merged with Vodafone. Another example is supermarket chains such as REWE in Germany, which have entered the other businesses (discount, specialty and delivery services sector or tourism and travel, increasing business and wealth).

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12.3.3 Structural Restructuring Structural reengineering targets the structure of a company and affects the organization and the existing structure. The alignment of the organization and the realignment of processes lead to more efficient and effective processes (often centralized, decentralized or hybrid) with smoother roles and responsibilities. Structural restructuring is often followed by a polycentric management towards a matrix organization and requires systematic and appropriate information systems and control structures. Example: Volvo Truck has aligned its organization to a brand-centric organization, improving efficiency and effectiveness.

12.3.4 Restructuring to Improve Profits Restructuring to improve profits targets revenues and expenses. Measures include anything that increases revenue, such as a special sales program, an increased focus on cash cows in sales, or the deletion of unprofitable products or services. In addition, the company will take drastic measures to minimize costs and expenses. Companies often address cost drivers such as material, labor, or operating costs through global sourcing, outsourcing to shared service centers, or implementing lean principles. A trend shows that MNCs and SMEs focus on core competencies and outsourcing products, services and activities to foreign companies. Example: Deutsche Bahn (DB) announced a cost-cutting program, reducing operating costs by €300 million, from €800 million to €500 million, to dramatically improve financial performance.

12.3.5 Financial Restructuring Financial restructuring involves fundamental improvements in financial performance and financial ratios. Activities include improvements in assets seen on the balance sheet, review of items on the income statement, and cash initiatives. Cash improvements can be achieved by deducting customer payments, increased revenue, and as late as possible outflows of payments to employees, suppliers, banks, or other stakeholders (Olfert 2013, 2015). Late payments to suppliers and other stakeholders can be negotiated by agreeing extended payment terms (usually from 30 days to 60 or 90 days). Example: The company Zalando has started an initiative to extend payment terms to at least 90 days in order to improve the cash situation.

12.4  Tools to Identify Financial Difficulties in Supplier Management

167

12.4 Tools to Identify Financial Difficulties in Supplier Management 12.4.1 Identifying Financial Difficulties A company must file for insolvency if it is overindebted or no longer able to repay the due payment claims of its creditors. This state is called insolvency or illiquidity (Handelsblatt 2017). Until insolvency occurs, the company goes through three phases of a business crisis. The management is often not aware that the company is already in a corporate crisis, because emerging signs of crisis can be masked by a good or improving economy. They usually only become apparent in a later phase of the company crisis.

12.4.2 Creditreform Creditreform is a large credit agency that collects data on creditworthiness from companies of all legal forms as well as from private individuals. In total, the credit agency has more than 158,000 members. The basic structure of Creditreform has hardly changed since 1879. A company is not a client of Creditreform, but a member of one of the local Vereine Creditreform. The business of these registered Vereine is conducted by Betriebskommanditgesellschaften. All Vereine Creditreform are united under the umbrella of the Verband der Vereine Creditreform e. V., based in Neuss. In 2018, 129 regional Vereine Creditreform existed in Germany, with 127,000 member companies as members. Today, Creditreform is one of the largest credit agencies with 167 offices and 158,000 members in Europe (Creditreform 2020).

12.4.3 Creditsafe The credit agency Creditsafe enables you to check in a few minutes whether your business partners can keep their credit commitments. You receive information about the creditworthiness of the business partner at a glance and can thus identify risks at an early stage. For example, in the case of low creditworthiness, and therefore risky business, it is recommended to reduce the payment method of customers to advance payment or to replace suppliers with a high risk of default. The underlying scoring system looks at company ratios, which are proven indicators of corporate financial stability. By using the most advanced statistical methods, the scoring model is able to predict 70% of all insolvencies already 12 months before the insolvency occurs.

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12  Supplier Management for Suppliers with Financial Difficulties

12.4.4 VDA Rating In 2004, the German Association of the Automotive Industry (VDA), together with Prof. Dr. Schneck Rating GmbH, developed a rating standard that not only bears the name Standard, but is now generally accepted in the evaluation of suppliers. This standard is a rating software which was developed especially for the VDA on the basis of the market-­ leading rating tool R-CockpitTM and allows both a pure financial rating on the basis of balance sheet data and a full rating with qualitative criteria. In March 2006, the second edition of this standard tool, in which technical updates were made to the rating software, was already delivered to all VDA members.

12.4.5 Dun & Bradstreet D & B Supplier Risk Manager provides the information and tools you need to monitor supplier relationships and avoid costly disruptions. Based on data and analytics from Dun & Bradstreet, this is the only SaaS solution that provides critical risk indicators for more than 365 million global companies.

12.4.6 Rapid Ratings: Financial Risk Management Rapid Ratings International Inc. is a company that provides information on the financial health of public and private companies around the world. The company’s analytics system reportedly provides insights on partners, vendors, suppliers, and third-party customers. The company’s platform provides financial health ratings and detailed reports to help companies mitigate financial risks. In addition, RapidRatings offers a service to retrieve third-­ party financial statements of private companies to increase transparency and improve visibility (RapidRatings 2020).

12.5 Case Study: Insolvency of the Solarworld Company SolarWorld AG is an international solar power technology group that previously posted high profits, but made significant losses in 2011 in the wake of the crisis in the solar industry. In fiscal year 2012, SolarWorld AG’s sales slumped from € 1.05 billion to € 606 million, which corresponds to a decline in sales of 40%. Operating loss was €492.4 million in 2012 and cash and cash equivalents on hand fell from €553.5 million to €224, million. From 2011 to 2012, the situation of SolarWorld AG deteriorated sharply. The previously high profits and high sales increases were interrupted by the crisis in the solar industry in 2011. Due to the sharp drop in sales revenues and the high operating loss, SolarWorld AG

References

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was already in the midst of a crisis of success at this point in time. The decreased liquid funds indicate a possible liquidity crisis. In January 2013, the company announced that it was facing severe financial problems due to an increasing price war and purchase obligations for silicon. The company is facing a liquidity crisis at this time, as its financial situation is severely strained. On April 17, 2013, SolarWorld AG announces that in the individual financial statements according to the German Commercial Code (HGB) the equity capital has been used up and has fallen to a negative value. As already explained in the previous part, an insolvency application must be filed in this case. This example shows how a corporate crisis and insolvency can be divided into different phases.

References Creditreform (2020). Gabler-Wirtschaftslexikon (2018). Unternehmenskrise. Abgerufen am 26.5.2018. https://wirtschaftslexikon.gabler.de/definition/unternehmungskrise-­49331 Handelsblatt (2017). In: Handelsblatt. 13.01.2017. Finanzielle Zukunft Gläubiger verschaffen Jack Wolfskin Luft für Lieferantenmanagement. Das Lieferantenmanagement über die Zukunft Jack Wolfskin haben begonnen. Um die zu vereinfachen, verzichten die Banken vorerst auf die Rückzahlung von Krediten. Finanzinvestor Blackstone bangt um die Kontrolle des Unternehmens. Abgerufen am 26.5.2018. https://www.handelsblatt.com/unternehmen/ handel-­konsumgueter/finanzielle-­zukunft-­glaeubiger-­verschaffen-­jack-­wolfskin-­luft-­fuer-­ Lieferantenmanagement/19247752.html?ticket=ST-­874329-­5m5EZ42jWMfXaeA6SVbH-­ap2 Helmold, M. & Samara, W. (2019). Progress in Performance Management. Springer Cham. Helmold, M., Dathe, T. & Hummel, F. (2019). Erfolgreiche Verhandlungen  – Best-in-Class Empfehlungen für den Verhandlungsdurchbruch. Springer Wiesbaden. Johnson, G. & Scholes, K. (1997). Exploring Corporate Strategy. Text and Cases. 4th Edition. Prentice Hall London. Krystek, U. & Moldenhauer, R. (2007). Handbuch Krisen  – und Restrukturierungsmanagement. Kohlhammer Stuttgart. Müller, R. (1986). Krisenmanagement in der Unternehmung: Vorgehen, Maßnahmen und Organisation. Peter Lang Verlag Bern. Olfert, K. (2013). Investition. 13. Auflage. NWB Verlag Herne. Olfert, K. (2015). Finanzierung. 15. Auflage. NWB Verlag Herne. RapidRatings (2020). www.rapidratings.com

Lean Management in Projects

13

Our greatest weakness lies in giving up. The sure way to success is always to try again. Thomas Alva Edison (1847–1931)

13.1 Lean Project Management A project is a purposeful, one-time undertaking that can consist of a set of coordinated, controlled activities and be carried out to achieve a goal, taking into account constraints such as time, resources and quality. Table 13.1 shows the project criteria. Projects have certain characteristics, such as objectives, time constraints, limited resources, project-­ specific organisational form, novelty and uniqueness, and complexity. Projects Consist of Several Phases (Fig. 13.1) • Initiation: The basics of the project (problem definition, customer requirements, ideas, problems, goals, etc.) are collected, analyzed, planned and documented in the form of a project assignment. This forms the basis for decision-making by the project owner (PAG). • Planning: Once the project has officially started, the project team concretizes the project contents (goals, tasks, risks, etc.) in the planning phase. • Implementation and controlling: As soon as the planning has reached a sufficient level of detail, implementation is started. In parallel, the project manager controls and monitors the course of the project.

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Table 13.1  Project criteria Time limit Uniqueness Resource scarcity Targets Organization Risk Interdisciplinarity Novelty Project phases Project negotiations

Projects are limited in time, which means that both the beginning and the end are defined in terms of deadlines Projects are unique, they are not suitable for reproducing things that already exist (process management is much better suited for this) Projects have limited resources (people, funding, etc.) Projects pursue a clearly specified and positively formulated objective Projects require their own project management organization with a project manager Projects imply the risk of deviations and failure Projects work interdisciplinarily and interdepartmentally Projects break new ground. They realise solutions that do not yet exist in the form envisaged Projects are handled in specific phases Projects include internal and external negotiations

Source: Own representation

Strategic project planning

Project pre-planning

Project implementation

Project feasibility

Project application

Project order

Selection of suitable suppliers

supplier involvement

Project planning of the suppliers

Resource Targets

Project acceptance

Project confirmation

Project acceptance by suppliers

Confirmation of success of the suppliers

Quality targets

Budget targets

Milestone targets

Project start

Project validation

Technical target

Project processing

Project completion

Fig. 13.1  Project phases

• Closure: A project should be finished as systematically as it is started. Lessons learned should be critically reflected. The project results must be evaluated accordingly (on scope, on budget, on time?). The results of the project closure should be documented in a short final report. • Post-project phase: In the post-project phase, the project results are used. It is often important and advisable to also clearly define the responsibilities for the post-­ project phase. Projects are executed in interdisciplinary functional groups, as shown in Fig. 13.2. The figure shows projects A, B and C, which consist of different functions, such as

13.2  Critical Success Factors in Projects Function

173

Project A

Project B

Project C

Purchasing

O

O

O

Production

O

O

O

Marketing & Sales

O

O

O

Quality assurance

O

O

O

Finance

O

O

O

Human Resources

O

O

O

Supplier management

Fig. 13.2  Interdisciplinary project groups with supplier management

procurement, production, marketing, quality management, finance or human resources (Helmold 2018). Advantages of a Project Organization • • • •

Short decision-making paths through co-allocation Representation of all functions in one place Operational orientation leads to quick decisions on the implementation of measures project-specific material budgets create transparency about the real purchasing costs for all products • Group dynamic advantages through cooperation of all areas (no “silo thinking” or autonomous thinking of departments or functions, but joint project thinking)

13.2 Critical Success Factors in Projects 13.2.1 Key Criteria in Projects The project management manual defines key criteria and success factors for controlling and steering projects (PM 2018). These criteria include a total of nine categories that must be considered for successful project completion.

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13.2.2 Integration Management Integration management in project management describes the procedures and processes required for good coordination and integration of the various activities of a project. It includes project plan development, project plan execution and change management (PM 2018).

13.2.3 Scope and Performance Management Project scope management deals with the ongoing planning and control of the progress of performance in the project. Scope management involves checking at regular intervals whether the project is within the targets defined in the project order or whether there are any deviations. Project scope management includes project initiation, content and scope planning, performance definition, performance verification, and performance control (PM 2018).

13.2.4 Time and Schedule Management Time and schedule management is to ensure that a project is completed on time. Time and schedule management includes task definition, task sequence definition, task duration estimation, schedule development, and schedule monitoring (PM 2018).

13.2.5 Cost Management Cost management describes all the processes required to ensure that the project is completed within the planned and approved budget. Cost management includes resource planning, cost estimation, budgeting and cost monitoring (PM 2018).

13.2.6 Quality Management Quality management in projects should ensure that the quality requirements defined by the client are met or even exceeded. This includes quality planning, quality assurance and quality control (PM 2018).

13.3  Recommendations for Projects

175

13.2.7 Human Resources Management The main task of personnel management is to ensure that the employees involved in the project are deployed as efficiently as possible. The following functions and tasks can be assigned to human resource management: Project organization, personnel acquisition and team development (PM 2018).

13.2.8 Communication Management Project communication management aims to create, collect, disseminate, file, and define all project information in a timely and appropriate manner. This includes the development of an information and reporting system, the distribution of information, the determination of progress and the administrative closure (PM 2018).

13.2.9 Risk Management Risk management describes all iterative processes necessary to identify, analyze, and respond to project risks. This includes risk identification, risk assessment, the development of measures to address risks, and risk tracking (PM 2018).

13.2.10 Procurement Management The knowledge field of procurement management includes the procurement of goods and services outside the organization and the associated contract design. This area includes procurement preparation, bid preparation, solicitation of bids, supplier selection, contract design and contract performance (PM 2018).

13.3 Recommendations for Projects Projects with complex objectives require a competent project leader or manager. This person needs both hard skills (e.g. project management skills) and soft skills (e.g. emotional intelligence) in order to be convincing both internally and externally. In addition to a good and sustainable relationship with the management level, one of the key components of project managers is to successfully lead a team. Project managers need to select their people so that there is a healthy mix of expertise and people skills. Projects should be projected through a robust project brief where performance parameters are clearly defined and scheduled (PM 2018). Targets must have specific attributes and be specific, measurable, acceptable, realistic and timely (SMART Methodology  – English: specific,

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Table 13.2  Recommendations for supplier management in projects 1 2 3 4 5 6 7 8 9 10

Leadership and management through competent project management Social skills and expertise through specialist departments Project planning through clear project assignment Targets according to SMART aspects Sustainability of project activities Regular success control and validation Incentive system and career planning for all project members Return to the line department after completion of the project Internationality and diversity in international projects Use of digital media to monitor progress in the projects

Source: Own representation

measurable, achievable, realistic, timely). Sustainability as well as a permanent and regular success control round off the SMART goals. An incentive system is recommended here, so that employees are sufficiently motivated by material or immaterial benefits for project success. Internationality and diversity strengthen project teams and help to successfully implement projects in an international context. The use of digital media supports networking, especially across national borders and time zones. Finally, organizations should enable project members to return to line functions. Table 13.2 summarises the most important recommendations (PM 2018).

13.4 Case Study: Collaboration Between Knorr-Bremse and Continental for the Development of an Automated Driving System Knorr-Bremse and Continental have agreed a partnership to develop a complete system for highly automated driving in commercial vehicles. The system includes environment recognition, driving planning and decision-making, control of the actuator systems involved, such as the steering and braking systems in the vehicle-, and human-machine interaction. Continental supplies the sensors, environment models, central processing unit, connectivity and human-machine interaction. Knorr-Bremse is contributing redundant actuator systems for brakes and steering and is taking responsibility for overall system integration. The collaboration will initially cover automated platooning. Further development will include automated driving on the highway (Highway Pilot).

References Helmold, M. (2018). Erfolgreiche Verhandlungen und Best-in-Class Empfehlungen für den Verhandlungsdurchbruch. Manuskript und Workshopunterlagen im Master- und MBA-Studium. PM (2018). Abgerufen am 7.7.2018. https://www.pm-­handbuch.com/begriffe/.

Innovation Management as a Key Task in Supplier Management

14

We all live under the same sky, but we don’t all have the same horizon. Konrad Adenauer (1876–1967)

14.1 Innovation Management as a Sub-task of Supplier Management “Innovation” comes from the Latin word “innovare” and stands for to renew. From an economic point of view, innovation is something complex and new that brings an economic benefit to an organization or and to the company. Innovation management includes elements such as ideas, inventions and diffusions (Müller-Prothmann and Dörr 2019). Innovations include the generation of ideas and the constant validation and review of these ideas within a structured innovation process (Nelke 2016). Innovation management comprises three levels. In addition to the operational level, the working level, there is the strategic and normative level (Stibbe 2019). Innovations are decided on the normative and strategic level and put into practice on the operational level (Helmold and Samara 2019). Terms that often come up in the context of innovation are ideas, idea collections and inventions. An invention or invention is to be distinguished in that it is a creative achievement of a new solution to a problem that has not yet been exploited and used compared to innovation. It is the same with an idea, which is a creative thought of something new. In all cases, “new” is always relative. It can be new to this situation, the company or the world. In particular, new developments, such as Industry 4.0 or increasing globalization, have an important impact on innovation and innovation management (Granig et  al. 2018). Of

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_14

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central importance is the collection of ideas, the selection and the decision which ideas are implemented. This process needs to be managed by management (Helmold and Samara 2019). Management is a term that is constantly used in organizations. It stands for the management of a task and the coordination of activities to achieve a defined purpose and goals. Accordingly, innovation management is the structured promotion of innovations in companies and includes tasks of planning, organizing, leading and controlling these innovations. Innovation management deals with all measures to favor innovations in organizations and to generate benefits, for example: • new products and services to conquer new markets • improved products and services to stand out from the competition • Improvement of internal processes to strengthen the company from within or to save costs • Development of new business models to exploit new sources of revenue • technical evaluation and review of the use of resources Innovations are usually complex undertakings with a high technological effort and resource input, and therefore usually cause very high costs and investments. It is therefore imperative that management sustainably evaluates every innovation for its prospects of success, and does so with regard to strategic relevance, technology expenditure, benefits and resource intensity. Ideas and possible innovations always require a strategic and resource review (Pfeiffer et al. 1991).

14.2 Strategic Relevance and Attractiveness Strategic relevance and attractiveness is, in simple terms, the sum of all technical and economic advantages that can be gained by exploiting the strategic development opportunities inherent in a technology area. Technology attractiveness depends on the one hand on the technology properties (potential side) and on the other hand on the requirements of (future) users (demand side). The two measures of technology portfolio, technology attractiveness and resource strength, each represent a (highly) aggregated assessment result in relation to deeper individual factors. Experts envisage the following things for reviewing and determining technology attractiveness (Helmold and Samara 2019): • Further development potential: To what extent is further technical development and thus performance increases and/or cost reductions possible? • Range of application: How should the number of possible areas of application of the technology and the quantities per area of application be estimated? • Compatibility: What negative or positive effects can be expected in user and peripheral systems (barriers to innovation, drivers)?

14.4  Future Potential Analysis

179

14.3 Resource Intensity The resource strength expresses the extent to which the evaluated company, compared to potential competitors, has the prerequisites to successfully apply the technological alternative under consideration, i.e. in a timely manner and in the form of marketable products. In other words, it is a measure of the technical and economic strength or weakness of a company with respect to a technology relative to its competitors. Experts in tourism suggest the following three indicators to determine resource strength (Helmold and Samara 2019): • Technical-qualitative degree of mastery: How is our technology-specific know-how to be assessed in relation to the competition, is there a development lead or lag? • Potentials: To what extent are financial, human and material resources available to exploit the existing further development potential of the technology? • (Re-)action speed: How fast can the evaluating company exploit the further development potential of the technology compared to the competition?

14.4 Future Potential Analysis In addition to the previously described investigations with regard to strategy relevance and use of resources, innovations must be subjected to a future forecast in which the future prospects of success are evaluated. Scenario analyses can be used for forecasts about the development of the user side (Pfeiffer et al. 1991). In addition, Pfeiffer and his co-authors emphasize the great importance of an overarching system and environment perspective that extends beyond individual technologies. On the one hand, this means that technical surrounding systems are included in the analysis (e.g. the development of a methanol or hydrogen supply infrastructure required for the implementation of fuel cell drives for passenger cars). On the other hand, non-technical framework conditions are also relevant for the technology assessment (e.g. the possible tightening of exhaust gas legislation). In the context of the identification of innovations, the necessary resources and strategic relevance are still relatively low. In this phase, ideas are collected, evaluated and selected. In the next step, the strategically relevant ideas must be tested (Fig. 14.1). This testing usually takes place through experimentation. However, observations, workshops, panels or analysis groups can also be used. With the selection of strategically important innovations, the use of resources in companies automatically increases. Pre-materials have to be purchased, products have to be mass-produced and marketing towards customers requires proactive marketing. This phase of investment is associated with a very high expenditure of resources and thus financial resources (own or borrowed capital). After the investment phase, optimization begins so that fewer resources are required. The optimization happens through standardizations, unifications, volume effects or technical innovations. In the last step, if it

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14  Innovation Management as a Key Task in Supplier Management Phases

high

Strategic relevance and attractiveness

Fig. 14.1  Levels in innovation management

Investment

Experiment

Optimization

Identification Elimination

low low

Fig. 14.2  Supplier management in innovation management

Resource intensity

Idea generation & evaluation Innovation strategy

high

Implementation of innovation initiatives

Innovations in supplier management, e.g. CSR

turns out that the innovation no longer has strategic relevance, all activities are eliminated and shut down (Helmold and Samara 2019). CSR and sustainability play a significant role according to the prevailing opinion of numerous authors, as Fig. 14.2 shows. CSR in context is based on the three fundamental elements, the innovation strategy, the generation and evaluation of ideas and the final implementation of initiatives in CSR innovation management (Distrelec 2020) [147]. Examples of Innovative Implementations of Sustainable Ideas and Innovations • Development of a solar aircraft by engineers Bertrand Piccard and André Borschberg: The solar aircraft Solar Impulse is made of ultra-light materials. Its wings integrate 17,000 solar cells, which supply the four electric motors with renewable energy. Its high-energy-density lithium batteries are charged during the day so that the plane can also fly at night. • Recycling robot Max-AI AQC by Eugenio Garnica, Sadako/BHS (NRT): Max is designed to speed up the sorting and recycling of materials, making it more cost-effective. The big goal is to increase the proportion of recycled and reused materials so that we leave a cleaner and more sustainable environment for the next generation.

14.5  Tasks and Fields of Action in Innovation Management

181

• Seawater desalination analysis by Rahul Nair: Seawater is flushed through a membrane made of graphene oxide, filtering the salt out of the liquid. Epoxy resin sidewalls prevent the membrane from swelling and ensure that the pores are stable enough to filter out all particles. The graphene screen allows drinking water to be extracted from seawater and could therefore provide an efficient, accessible and cost-effective solution to the world’s water shortages. • Solar-powered Wattway road by Jean-Luc Gautie, Colas: Each module comprises 15 cm wide cells that form a very thin layer of polycrystalline silicon and convert solar energy into electricity. The modules are coated with transparent silicon resin to withstand the stress of traffic and can be laid on existing roads. Combining road construction with photovoltaic technology, solar-powered Wattway roads can provide clean, renewable energy without having to give up valuable farmland or natural areas. 20 m2 of Wattway can power one household. • Seawater greenhouse by Charlie Paton and Chris Rothera: The seawater greenhouse takes advantage of the cooling and humidifying properties of the water vapor produced when salt water evaporates. In the process, modeling software simulates the greenhouse environment and optimizes settings. The technology uses two abundant resources: sunlight and seawater. It offers a green solution to increase plant growth, helps counteract climate change and minimizes the associated problems and costs. • Robobee by Eijiro Miyako: Robobee is an autonomous pollination drone equipped with GPS, high-resolution cameras and artificial intelligence. Its underside is covered with horse hair and coated with a sticky gel. When it flies to a flower, pollen grains stick to it and are stripped off the next flower. With rising food demand and the threat of declining bee populations, Robobees will be used by farmers to help pollinate crops and increase crop yields. They can also help increase genetic diversity and improve crop quality.

14.5 Tasks and Fields of Action in Innovation Management Innovation management is based on two main pillars. On the one hand, innovation management involves the design of suitable and structured framework conditions so that ideas can be generated everywhere in the company and turned into successful innovations. This is very much a matter of organizational development activities. And secondly, the actual innovating, the active search for, development and implementation of ideas. This requires, for example, creativity and appropriate project management. Innovation management is very versatile and multi-faceted. The fields of action of innovation management include the following elements: • Future management: identification of trends and future opportunities and risks • Development of the innovation strategy and planning of innovation activities, such as with an innovation roadmap

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Ideas

Transformation

Culture

Controlling

Organisation

Trends

Strategies

Fields of action Innovations

Processes

Fig. 14.3  Fields of action in innovation management

• Organization and role allocation in innovation management, such as decision-making structures and process ownership • Idea management for finding, developing and evaluating ideas • Innovation process to transform an idea into a successful innovation: concept development, business plan, solution development, prototypes, implementation and marketing • Shaping a culture of innovation that promotes innovation • Portfolio management and innovation controlling (e.g. innovation key figures) for controlling innovation activities • Dealing with patents and property rights • Open innovation and innovation networks to leverage external innovation sources and resources • Change management in the course of innovation projects (Fig. 14.3)

14.6 Improvements and Innovations Innovation means renewal based on ideas and initiatives. Improvement is also the implementation of something new, but with a lower degree of novelty, and it is usually the optimization or expansion of what already exists. The line between innovation and improvement is blurred. What is innovation and what is improvement cannot be clearly delineated and also varies depending on the observer. Improvement management has a long tradition in companies. It encompasses a variety of management methods and approaches that are used to improve existing products, processes and organizations. Many of these have their origins in quality management. Here are some examples:

14.6  Improvements and Innovations

183

• Continuous improvement process (CIP): All employees are motivated and enabled to constantly question and improve processes in teamwork. The basis is, among other things, the PDCA cycle (Plan-Do-Check-Act). • Kaizen: “Not a day should go by without some improvement in the company” is the message of Kaizen, which originated in Japan and is similar to CIP. • Total Quality Management (TQM): The focus is on increasing the quality of processes and products with the involvement of employees in order to increase customer satisfaction. • Company suggestion scheme (BVW): The aim is to encourage employees to think for themselves. They are given the opportunity to submit ideas spontaneously, which are then dealt with, implemented and awarded prizes in a clearly regulated process. • Improvement and innovation go hand in hand. A company must embrace both continuous improvement and innovation. Innovations are complex innovations compared to the kaizen philosophy, as Fig.  14.4 shows. Kaizen, on the other hand, involves small and steady changes (Helmold and Terry 2016). Moreover, innovations are usually very complex projects that involve high costs

Features Innovations

Improvements (Kaizen)

(complex) innovations associated with technical, sustainable, social and economic change

Significant changes and innovations

Difficult to reverse (due to high investment and complexity) Frequent support by external consultants or innovation managers

Fig. 14.4  Innovation versus improvement

Bottom-up approach (Autonomous team decides)

Small changes in small steps

Quick corrections and changes of direction (trial & error) Often accompanied by consultants and Kaizen

Supplier Management

Top-down approach (Management decides)

Relatively low effort

Supplier Management

Relatively high investments

Philosophy of constant change in small steps (taking sustainability aspects into account)

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Phases in the innovation process

Start

Idea phase

Concept phase

Development up phase

Test/startphase

End

Market introduction

Fig. 14.5  Phases of innovation management

and investments. Projects usually integrate multiple stakeholders that include engineers, buyers, vendors, government organizations, customers, and suppliers (Helmold et  al. 2019). Due to resource intensity and complexity, innovations are often difficult to turn around, so reasonable planning is necessary (Helmold et al. 2017). Therefore, innovations are often accompanied by consultants and experts. Figure 14.5 shows the phases in innovation management. The depiction of an innovation process usually begins with the generation of ideas and ends with the market launch. In practice, however, it has proven useful to understand innovation goals as higher-level components of an innovation process and to align the process with the goals. Thus, the innovation process does not only start with the generation of ideas, but already with the definition of innovation goals as part of the idea phase. In coordination with the corporate strategy, the individual goals should be clearly defined, i.e.: Which types of innovation are targeted? Where is the focus? How high should the degree of innovation be? How many innovations are targeted in which areas? The decision for certain innovation goals marks the starting point of the innovation process and defines the strategies and process steps derived from it (idea generation, concept, development, etc.). An important phase is the concept phase. From the idea phase, concretized and approved ideas with goals and expectations develop. Now follows an intensive analysis phase in order to gather as much information as possible about the idea and for its further processing: • Market and customer requirements • Market potential, e.g. market size, market attractiveness • Opportunities, e.g. possibilities of differentiation from the competition

14.7  Social Responsibility as Part of Innovation Management

• • • • • •

185

Risks and feasibility, e.g. technical feasibility, barriers to market entry Framework conditions, e.g. laws, standards, patents What are the needs of the customers? Are there unmet or unconscious customer needs? Which customer problems exist and should be solved? What is the importance of the needs?

Here, a systematic approach with professional methods such as customer interviews, focus groups, workshops or customer observations is recommended in order to gain the deepest possible insight. Based on the analyses, initial concepts are developed with regard to the solution, implementation and marketing. In the development phase in innovation management, all activities and activities for solving technical tasks that lead to a marketable product are understood. The two classical terms and activities developing (research & development: pre-development) and constructing have been combined in the product development. Product development begins with the initial idea and continues until the product (technical solution) is launched on the market. Start-up is the phase in the process of implementing innovations in which the transition from development activities to production activities takes place (Pfohl and Gareis 2000). In this process, changes are made to the production system and the value chain in order to coordinate the interaction between product, equipment, tools and personnel in such a way that regular series production can begin. The final phase of market introduction involves getting the product to potential customers. On the one hand, this requires the physical availability of the product. This includes procurement, production and logistics based on the defined concepts. On the other hand, a need is awakened in the customer and then fulfilled. To do this, all possible marketing and sales channels are activated. As a basis, internal sales must be convinced and trained in order to bring the products to the customers in the main step. All these activities can be summarized as innovation marketing. At the end of the innovation phases, the new product is transferred to the product life cycle management in the responsibility of the product management. On the basis of the continuous evaluation and analysis of the product on the market through, for example, customer feedback or quantitative market analyses, measures are derived to increase sales, margins and customer satisfaction. Among other things, the seven elements of the marketing mix (7Ps) (Sect. 6.2) are used.

14.7 Social Responsibility as Part of Innovation Management In innovation management in particular, the realization is currently spreading that the most far-reaching innovations often arise in the area of tension between business and society. This so-called “sweet spot” in which corporate and societal interests are aligned not only leads to new product, process and management innovations, but also opens up new markets, customer groups and leads to sustainable business models. It is therefore logical that corporate social responsibility is a central component of corporate

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innovation management. Only when social and environmental issues are successfully integrated into the company’s innovation process will solutions to current problems emerge. Entrepreneurs are born innovators, so to speak. They are always on the lookout for better solutions and competitive advantages. This makes the discussion about corporate responsibility (CSR) an innovation driver from which business and society benefit equally (Schmidtpeter 2014). Companies will only meet with lasting acceptance and operate successfully if they actively participate in social, economic and ecological solutions with all their entrepreneurial strength. This is not only ethically imperative, but also economically necessary and lucrative. Thus, it is logical that topics such as “responsible corporate governance” (CSR) and sustainability are becoming proactive management issues (Stibbe 2019). It is no longer about purely fulfilling one’s duties, but about developing innovations through creativity and entrepreneurship in order to generate a win-win situation for all parties involved. In order to show leadership also in environmental and social issues, leading companies are transforming their responsibility strategy from a purely defensive compliance strategy to a progressive CSR strategy. In this context, the area of innovation management plays a central role. The aim is to identify current and future customer needs in order to then responsibly drive forward new approaches to solutions together with stakeholders. CSR is not an additional task (add-on), but an integral part of the company’s innovation process. Innovation per se is neither positive nor negative; neutrally, it means the “creation” of new solutions. CSR in a proactive sense means driving the innovation process in the company in a direction that creates both social and corporate added value. The corporate contribution to the social innovation process should be measured and managed like any other product innovation or corporate investment. Innovation thus becomes a measurable factor of a sound CSR strategy and the mutual synergies between CSR and innovation management become visible. The main advantage of integrating CSR directly into the company’s innovation processes is the viability of the resulting solutions. The more social innovations are transformed from a mere add-on business, to a core operational business, the more they gain business significance for the company. CSR embedded in the innovation efforts of the entire corporate portfolio is thus the guarantee that the CSR strategy will be implemented sustainably even in economically difficult times.

14.8 Innovation Management and Green Marketing Green marketing involves activities to generate and facilitate human needs so that the satisfaction of those needs has minimal negative impact on the natural environment Chap. 6. With the growing awareness of global warming, pollution and other environmental issues, businesses and consumers are increasingly switching to environmentally friendly products and services, creating a platform for sustainable development. Resources are limited and human needs are unlimited. Therefore, it is very important for the marketer to use the resources efficiently while achieving the business goal. Green

14.9  Case Study: Innovations Through Design Thinking at Continental

187

marketing is the most appropriate solution to this problem. Today’s consumers are more aware of environmental protection. They are educated consumers and known as green consumers. According to the American Marketing Association (AMA), green or environmental marketing includes all activities aimed at generating and facilitating exchanges that are intended to satisfy human needs or wants so that the satisfaction of those needs and wants occurs with minimal adverse impact on nature environment. According to the recent statistics, consumers shift their brands from one product to another based on the environmental friendly mechanism of the product. Here, an attempt has been made to unfold the challenges and their mitigating strategies for sustainable development and has done so with green marketing as an ideal tool within innovation management (Scholz et al. 2015).

14.9 Case Study: Innovations Through Design Thinking at Continental For the new construction of an engineering center of Continental, a design thinking pool was developed as a teamwork of a group. As an automotive supplier, Continental deals with new and innovative technologies in the automotive sector. A spatial concept was developed that promotes new communication structures and creativity within the teams. The flexible room offers a novel framework for groups as well as for individual work. The room is playable on all levels, all surfaces are writable, magnetic etc. to visualize new ideas, material and research impressions. The complex technical planning of the room allows variable, technologically based room atmospheres. For the realization concept, the students created design, work planning and tender documents and then built special room furniture. Design thinking is a systematic approach to complex problems from all areas of life. The approach goes far beyond the classic design disciplines such as shaping and design. In contrast to many approaches in science and practice, which approach the task from the technical solvability, user wishes and needs as well as user-oriented invention are at the center of the process. Design thinkers look at the problem through the glasses of the user and thus put themselves in the role of the user. Design Thinking requires a constant feedback between the developer of a solution and his target group. Design thinkers ask the end user questions, take a close look at their processes and behaviors. Solutions and ideas are made visible and communicable as early as possible in the form of prototypes so that potential users can test them – long before completion or market launch  – and provide feedback. In this way, Design Thinking produces practical results. Innovation and answers to complex questions are best created in a heterogeneous team of five to six people. Different professional backgrounds and functions as well as curiosity and openness for other perspectives are the foundation of the creative work culture Design Thinking. In Design Thinking workshops, each team is accompanied by a methodologically trained coach during the process. This allows the participants to focus on constructive collaboration on content and

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to achieve the set goals. The success of Design Thinking is largely determined by a collaborative working and thinking culture. To achieve the greatest possible learning effect, the teams always work towards concrete results. These are also regularly exchanged with the other teams. The division into small groups ensures that every perspective can be taken into account. Within the teams, a strong cohesion is created, which has a lasting effect due to the high level of acceptance for the resulting concepts. The Design Thinking process is based on the work process that designers intuitively follow. It leads teams through six different phases in iterative loops: • Understanding: The team stakes out the problem space. • Observe: Participants look outwards and build empathy for users and those affected. • Define viewpoint: Participants define the point of view. The insights gained are compiled and condensed. • Finding ideas: The team first develops a variety of possible solutions and then focuses. • Develop prototypes: This phase serves to develop concrete solutions that can be tested on the appropriate target groups.

References Distrelic (2020). Nachhaltige Innovationen. Abgerufen am 18.2.2020. https://www.distrelec.de/ current/de/technologien/10-­technische-­innovationen-­fur-­eine-­nachhaltigere-­zukunft/ Granig, P., Hartlieb, E. & Heiden, B. (2018). Mit Innovationsmanagement zu Industrie 4.0: Grundlagen, Strategien, Erfolgsfaktoren und Praxisbeispiele. Springer Gabler Wiesbaden. Helmold, M. & Terry, B. (2016). Global Sourcing and Supply Management Excellence in China. Springer Singapore. Helmold, M. & Dathe, T. & Büsch, M. (2017). Praxisbericht aus der Bahnindustrie  – Bombardier Transportation. Veränderte Anforderungen durch Global Sourcing. In: Beschaffung aktuell. Retrieved 4.5.2017. https://beschaffung-­aktuell.industrie.de/einkauf/ veraenderte-­anforderungen-­durch-­global-­sourcing/ Helmold, M., Dathe, T. & Hummel, F. (2019). Erfolgreiche Lieferantenmanagement. Best-in-Class Empfehlungen für den Verhandlungsdurchbruch. Springer Gabler Wiesbaden. Helmold, M. & Samara, W. (2019). Progress in Performance Management. Industry Insights and Case Studies on Principles, Application Tools, and Practice. Springer Heidelberg. Müller-Prothmann, T. & Dörr, N. (2019). Innovationsmanagement: Strategien, Methoden und Werkzeuge für systematische Innovationsprozesse. Hanser Verlag München. Nelke, A. (2016). Kommunikation und Nachhaltigkeit im Innovationsmanagement von Unternehmen: Grundlagen für die Praxis (Wirtschaftsförderung in Lehre und Praxis). Springer Wiesbaden. Pfeiffer, W., Metze, G., W. Schneider & Amler, R. (1991). Technologie-Portfolio zum Management strategischer Zukunftsgeschäftsfelder. 6. Auflage. Göttingen 1991. Pfohl, H.-C. & Gareis, K.: Die Rolle der Logistik in der Anlaufphase. In: Zeitschrift für Betriebswirtschaft, 11 (70) 2000, S. 1189–1214.

References

189

Schmidtpeter, R. (2014). CSR treibt Innovationen. Online-Interview. 16.09.2014. Abgerufen am 12.2.2020. https://www.springerprofessional.de/unternehmensstrategie/corporate-­socialresponsibility/csr-­treibt-­innovationen/6597648 Scholz, U., Pastoors, S. & Becker, J.H. (2015). Einführung in nachhaltiges Innovationsmanagement und die Grundlagen des Green Marketing. Tectum Marburg. Stibbe, R. (2019). CSR-Erfolgssteuerung. Den Reformprozess verstehen, Reporting und Risikomanagement effizient gestalten. Springer Gabler Wiesbaden.

15

Claim Management and Subsequent Claims in the Event of Default

If you’ve never made a mistake, you’ve never tried anything new. Albert Einstein (1879–1955).

15.1 Claim Management and Subsequent Claim Management A claim is a legally substantiated demand or assertion of commercial and monetary compensation, payment or reimbursement by a claimant for a malfunction, poor performance, defect or failure of an agreed condition of a product, process, function in the performance of a contract or agreement. Claim management or post-claim management is the systematic monitoring and evaluation of deviations or changes and their economic consequences for the purpose of determining and enforcing claims by a claim or supplier manager. Fundamentally, post-claim management is antithetical to collaborative partnership because it focuses on blame for deviations rather than joint problem solving (Helmold and Terry 2016). Moreover, project partners’ disputes over the amount and justification of subsequent claims tie up considerable resources on both sides. Even though customer and supplier relationships should be based on partnership, companies should establish structured and preventive claim management. Claim management is the monitoring and assessment of deviations or changes and their economic consequences for the purpose of determining and enforcing claims. In supplier management, claim management is part of both the client’s and the contractor’s toolkit, but should only serve as a deterrent. The aim is to clarify by mutual agreement the commercial consequences of events in the course of the project that could not be foreseen when the contract was concluded. After an order has been placed by the customer/client with the supplier/contractor, changes, supplements or © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_15

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extensions usually occur, especially in the case of purchase transactions and transactions. Possible reasons are usually defects in products or services, delivery failures, delays or quality non-conformities. Delivery failures due to force majeure, such as floods or earthquakes, are also regressed. Changes or extensions covered by the order do not lead to subsequent claims. If this is not the case, the contractor can make a subsequent claim for the additional costs incurred by him to the party causing the change or extension (change management). The originator can be the client or another contractor in the same project. Organizations avoid a safe start-up and disturbances in series production from the direction of the supply chain by means of preventive start-up management, initial sampling, series capability certificates, product audits or other tools, e.g. process audits or expert opinions. Unfortunately, not always with success, as empirical studies in the automotive and rail industries show (Helmold and Terry 2016). Although the tools are used as described above, in practice, disruptions usually continue to occur in product ramp-up and series production, negatively impacting cost and delivery performance and thus damaging the image with the customer. The amount of additional effort depends on the timing of the implemented corrective actions. If corrective action is taken immediately, the damage can still be limited. If the damage is only repaired after a delay, the costs can quickly accumulate to a six-figure sum. Two case studies show that a “broken screw” on a safety-relevant system can entail costs of EUR 50 thousand to EUR 100 thousand in follow-up costs, even if immediate corrective measures are initiated; in particular through reworking, recall actions or quality assurance measures. In the case of shutdown measures that run over several days and weeks, the additional expenses go into the millions of EUR range.

15.2 Contractual Recommendations So what to do when performance problems occur due to supplier parts? The recipe can be a phase model, combined with the use of so-called “Claim or Contract Managers”. A claim manager (CM) should be trained as a lawyer or business lawyer and serves as a support for contract preparation and negotiations of buyers and project buyers. His tasks include the preparation of claims from a technical and commercial point of view with the determination of contractual and legal bases for claims as well as the securing of claims against suppliers and insurance companies. He also carries out claim management from the settlement to the warranty phase, in particular in the area of delivery disruptions and checks the contractual and legal bases for claims. The Claim Manager prepares the claim-relevant correspondence and conducts the claim negotiations in accordance with the six-phase model in Fig. 15.1. In the first phase, a specialist department (e.g. Purchasing, Quality, Marketing or Production) identifies and is made aware of a poor performance, a defect or a failure to perform by another party (suppliers, customers, consultants or service providers). The Claim Manager is called in. In phase two, the Claim Manager is brought into the case to assess the legal position and the economic loss. Here, an initial assessment is made as to whether claims for damages can be asserted. Phase three is an important step, as it is

15.3  Defensive and Offensive Claim Strategies

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Phase 3 Phase 1

Phase 2

Involvement of the Claim

Definition of the claim

Identification of claim height, prospects and strategy. Documentation of the claim.

Phase 4

Phase 5

Assertion of the claim

Claim Negotiations

Phase 6

Receipt of the claim amount

Fig. 15.1  Processes and phases in claim management

here that the definition of a claim strategy based on the legal, contractual and economic basis takes place. An important part of phase three is the complete documentation. Phase four is the notification of the claim and the demand for compensation from the parties responsible for the poor performance, the defect or the failure to perform. Phase five is the implementation of the claim strategy in negotiations (financial compensation, damages, additional deliveries, price reductions or other solutions, e.g. goodwill). Phase six is the conclusion and contract ratification of the outcome of the negotiations and receipt of the compensation payment. Minimum claim documentation includes date of occurrence, description/justification of the claim, valuation/calculation, and proof and evidence. Here, invoices, witnesses, photographs, correspondence, or appraisals can serve as evidence. Modern companies have centralized and electronic recording of additional expenses on a separate cost carrier, whereas conventional organizations choose to go the paper route. Claim managers should also have a keen interest and understanding of legal issues and be able to analyse complex technical issues. From a commercial point of view, claims due to non-performance have an immediate effect on the result, as Fig. 15.2 shows, and improve the project result.

15.3 Defensive and Offensive Claim Strategies Claims and supplementary claims are usually differentiated according to their claim strategy. A defensive claim strategy involves a partnership-based and passive treatment of defaults, whereas the aggressive (offensive) claim strategy focuses on final compensation and damages. Table 15.1 compares the respective strategies.

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claim management from a commercial point of view

Improved EBIT

Assertion of compensation arising from defaults on the part of suppliers Successful claim management has a direct impact on results

With With out claim management

Fig. 15.2  Claims are recognised in profit or loss Table 15.1  Defensive and offensive claim strategies. (Source: own representation) When the contract is concluded Dealing with your own claims Dealing with foreign claims Claim height

Defensive claim strategy Accepting deliberately partner-­ friendly contracts

Aggressive claim strategy Self-serving insistence

Claiming only in the case of a clear factual situation, generally accommodating behaviour Unconditional acceptance of legitimate claims

Claiming on all suspicious occasions

Maximum compensation of own disadvantages

Claim creation/ Exhaustion of all (preventive) claim measures for claim prevention avoidance Defensive claim strategy

Fundamental rejection of all demands, development of a quick-witted counter-argumentation Maximum possible amount for own advantage (sometimes deliberately excessive), deliberate acceptance of disadvantages of the partner Promotion of own claims by omission, deliberate provocation of own claims Aggressive claim strategy

15.4 Types of Arbitration International commercial arbitration is a method of settling disputes and disagreements arising out of international commercial contracts. It is used as an alternative to litigation and is governed primarily by the terms previously agreed to by the parties to the contract, rather than by national laws or rules of procedure. International arbitration is a settlement of disputes between companies or individuals in different countries, usually by including a provision for future disputes in a contract.

15.5  International Arbitration Tribunals

195

Types of Arbitration • Commercial arbitration is the most common dispute, meaning it is a dispute between two commercial entities. • Consumer arbitration covers disputes between a consumer and a supplier of goods or services. • Labor arbitration involves the resolution of labor disputes. This form or arbitration can be divided into two main categories: Legal Arbitration and Interest Arbitration.

15.5 International Arbitration Tribunals There are several major international institutions and legal entities that may appoint arbitrators for international trade disputes (Helmold et  al. 2020). The most important are shown in Table 15.2. Arbitration is a form of dispute resolution. Arbitration is the private, judicial resolution of a dispute by an independent third party. An arbitration hearing may involve the use of a single arbitrator or a tribunal. A tribunal can consist of any number of arbitrators, although some jurisdictions insist on an odd number for obvious reasons and to avoid a tie. One and three are the most common number of arbitrators. The parties to the dispute relinquish their decision-making authority to the arbitrator(s). Arbitration is an Table 15.2  International arbitration tribunals. (Source: Helmold et al. 2020) Institution International court of Arbitration Korean commercial Arbitration law London court of international arbitration

Abbreviation Location ICC Paris, France

Year 1923

KCAB

Seoul, South Korea

1966

LCIA

1892

American arbitration association (International Center for Dispute Resolution) Swiss Chamber’s arbitration institution Vienna international Arbitral center Ljublijana arbitration Centre Arbitration Institute of the Stockholm Chamber of commerce Singapore international arbitration Centre International domestic arbitration Centre India Hong Kong international arbitration Centre Mumbai Centre for international arbitration Chinese international economic and trade arbitration center

AAA (ICDR) SCAI VIAC

London, United Kingdom New York, U.S.A

1926

Geneva, Switzerland 2004 Vienna, Austria 1975

LAC

Ljublijana, Slovenia 1928

SCC

Stockholm, Sweden 1917

SIAC IDAC India HKIAC MCIA CIETAC

Singapore Vadodara, India Hong Kong, China Mumbai, India Hong Kong, China

1991 2016 1985 2016 1956

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alternative to court proceedings (litigation) and is generally just as final and binding (as opposed to non-binding mediation, negotiation and arbitration). General Principles of Arbitration • The purpose of arbitration is to achieve a fair settlement of disputes by an impartial third party without unnecessary expense or delay. • The parties should be free to agree on how their disputes will be resolved, subject to any safeguards required in the public interest. • Courts should not interfere. • Arbitrators or tribunal members are usually appointed in three ways: 1. directly by the parties to the dispute (by mutual agreement or by either party appointing an arbitrator) 2. from existing tribunal members (for example, each side appoints one arbitrator and then the arbitrators appoint a third) 3. by an external party (e.g. the court or a person or institution designated by the parties) Arbitration, while referred to as a “method of resolving disputes by business persons,” is governed by state and federal law. Most states have provisions in their civil practice rules for arbitration. These provide a basic template for arbitration as well as procedures for confirming an award (the document that contains and explains an arbitrator’s decision), a process that gives an award the force and effect of a judgment after a trial in a court. Many states have adopted the Uniform Arbitration Act, although some states have specific and individual rules governing arbitration.

15.6 Case Study: Demand Management at Deutsche Bahn and Bombardier How can claims for damages be enforced where contracts often remain strangely vague? How to react without alienating important business partners – and without going to court? According to Löwer, this is the hour of the claim manager. According to Ulrich Hagel from Bombardier Transportation, the position and job description of a claim manager is a rare but promising job description. He ensures in advance that contracts do not allow any unpleasant surprises and that projects run optimally. However, should additional claims arise, for example for services and fees, it is Hagel’s job to negotiate them away – or to enforce his own claims (Löwer 2005). This still somewhat exotic-sounding topic is gaining in importance: “Claim management is becoming increasingly important because projects are becoming more and more complex in terms of technology and personnel,” explains

References

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Hagel. “We are therefore training not only our employees, but also external parties.” Deteriorating payment practices and increasing dependencies on monopoly suppliers reinforce the need for claim management. Added to this are deadline and cost pressures. “It would be wrong to see this instrument as a cash cow with which the big money can be made after the contract is signed,” clarifies lawyer Hagen. “We are concerned with preventing or defending against claims from the customer or supplier.” One of Bombardier Transportation’s most important customers is Deutsche Bahn. Deutsche Bahn does not want to accept 25 new intercity trains from the manufacturer Bombardier Transportation because of technical defects. Apparently there are problems with the software of the train operating system. Bombardier admitted that the IC2 double-decker trains “are currently not operating with the reliability expected by DB and Bombardier itself”. Bombardier regrets the inconvenience caused to Deutsche Bahn and its passengers, the company said in a statement (Manager Magazin 2020). The railway had said it was “counting on the manufacturer to quickly rectify the defects” and was also examining all legal means. Bombardier stated that it was working with Deutsche Bahn on a package of measures and an action plan “to significantly improve the reliability of the IC2 trains in the near future”.

References Helmold, M. & Terry, B. (2016). Lieferantenmanagement 2030. Springer Gabler Wiesbaden. Helmold et  al. (2020). Successful international Negotiations. A Practical Guide for Managing Transactions and Deals. Springer Cham. Löwer, C. (2005). Die Stunde der Claim Manager. Sie handeln, wo Chef und Syndikus versagen. Handelsblatt. Abgerufen 24.10.2020. https://www.handelsblatt.com/unternehmen/management/ die-­stunde-­der-­claim-­manager-­sie-­handeln-­wo-­chef-­und-­syndikus-­versagen/2490292.html Manager Magazin (2020). Hersteller Bombardier räumt Software-Probleme ein. Bahn nimmt neue Intercity-Züge wegen Mängeln nicht ab. Manager Magazin. Abgerufen 24.10.202. https://www. manager-­magazin.de/unternehmen/artikel/bombardier-­transportation-­deutsche-­bahn-­nimmt-­ ic-­2-­zuege-­nicht-­ab-­a-­1304390.html

Change Management to Supplier Management

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Nothing spurs me on more than the three words: It can’t be done. When I hear that, I do everything to make the impossible possible. Harald Zindler (1971–today).

16.1 Definition of Change Management Change management (Jap.: 変更管理, Henkō Kanri) can be defined as the sum of all tasks, measures and activities that are intended to bring about a comprehensive, cross-­ departmental and far-reaching change for the implementation of new strategies, structures, systems, processes or behaviours in an organisation. Change management can be defined as the sum of tasks, actions, and activities intended to bring about comprehensive, cross-­ departmental, and far-reaching change in a company or organization. Change management towards holistic supplier management involves the implementation of a new mission/ vision, strategies, structures, systems, processes and behaviors in an organization. The ultimate goal of change is to become a lean organization to achieve a long-term favorable position in the market and to achieve a sustainable competitive advantage (Helmold 2020). Synonyms for the term change management found in the literature are business process reengineering, turnaround management, transformation management, change management, innovation management or total quality management (Vahs 2019). Change increasingly defines the day-to-day business and activities of organizations. In order to manage change optimally, special change management techniques are required, which can be summarized under the term change management (Lauer 2019, 2020). The human factor is at the forefront of all considerations, as the implementation of change depends on the active

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200

16  Change Management to Supplier Management Corporate strategy, mission, Vision, Corporate and Departmental goals

Culture, Values, Behavior, communication, collaboration

Change Management lean management

Organization, leadership,

Technology, systems, methods, routines, instruments

Fig. 16.1  Elements in change management

support of employees. Since everyone has their own needs, ideas and experiences, some of which do not correspond to the official company organization, there can be no simple recipe for successfully managing change. Rather, it is a complex process that must start at three points: the organization and the people involved, the corporate structures, and the corporate culture (Lauer 2019). Another important element in the context is the technological factor, including systems, routines, methods, and tools. Figure 16.1 summarizes the elements of change management. Change management is a holistic approach and starts with corporate strategy, mission, vision, and corporate and departmental goals. Furthermore, fundamental changes affect culture, values, behaviour, communication and collaboration. Leadership and organization play a key role in the transformation. Technologies, systems, methods, routines and instruments must be adapted.

16.2 Change Management According to Lewin 16.2.1 Change in Phases Kurt Lewin was a psychologist and social scientist. Lewin analyzed change processes in society or smaller social groupings. Ultimately, he identified characteristic phases of successful change management, but also typical, emotional reactions and efficiency changes. Anyone who is involved in change management and has to apply it should know these characteristic phases. The reason is obvious: Those who are not familiar with this part of the theory wonder why efficiency drops in the phase of a change process or why the staff is shocked when the changes are announced. But these are absolutely typical characteristics of the change process, and while they require proper handling, they are not necessarily cause for concern. Kurt Lewin assumes that in every organization there are “driving forces” and “restraining forces,” i.e., forces that drive change and forces that work against

16.2  Change Management According to Lewin

201

change. In order for change to occur, the Driving forces must be strengthened – and this is the task of change management. Since these forces come from the employees, it is important to involve the employees in the change from the beginning. They have to be convinced of the change in order to become the driving force themselves. This is a lot of work, but it pays off. Kurt Lewin lists the individual stages of a change process in the three-phase model. To illustrate the sequence of psychological phases, we should first look at what happens at the issue level during change management. The problem must be identified, a change manager and a change management team must be established. If the change is to be accompanied by a consultant or an external manager, the latter must also be on board right from the start. Then comes the situation analysis, for which the usual tools are available: Benchmarks, surveys, SWOT analysis, stakeholder analysis, etc. The next step is the elaboration of the concept, including the selection of the strategy (bottom-up, top-down, both-directions). TCP matrix, communication matrix and balanced scorecard are possible instruments. Then comes the decisive step of implementation. Clear timelines are just as important as regular communication about progress and any problems. All changes must be communicated in detail, and there should also be a person responsible for questions of any kind. The last step involves control, checking whether readjustments are necessary.

16.2.2 Phase: Unfreezing – Changing, Modification – Freezing The first phase is called “unfreezing” or “thawing”. In this phase, the balance of power must be shifted in favor of the driving forces. The point is to create a fundamental readiness for change. This is done through open communication, which in particular clarifies the question of why change is necessary in the first place. In the second phase, the changes are implemented. The performance curve of the company drops in this phase for the time being. Entrepreneurs and managers must be aware that this drop in performance is part of the change process. Employees must first adapt to the new circumstances, which requires a certain “training period”. In this phase, even the last resisters have to be convinced. However, the drop in performance can definitely be influenced: In this phase, it clearly pays off to what extent the previous communication was a success. The better informed the employees are about the change process, the fewer questions remain unanswered – consequently, the faster the acceptance of the new circumstances and the recognition as an advantage. In the third phase, the continuous performance level must be restored. Of course, this level of performance should be higher than it was before the change. Depending on what has been changed, employees and also managers tend to fall back into old patterns and ways of working. To prevent this from happening, a continuing analysis of the current situation is indispensable. Ultimately, changes are only stable when they are also accepted in the subconscious. When they are part of everyday life and no longer require special attention.

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Lean management 3-Phase Model Kurt Lewin Defrosng (Unfreezing) • Define mission and vision of change • build up a sense of urgency • create a coalition of leaders

Change (Moving) • Communicate mission and vision • Involve employees • implement and celebrate short-term successes

Freezing • Consolidate successes • Integrate the mission statement into the corporate culture • Living change and lean management

Fig. 16.2  Change management in 3 phases according to Lewin

16.2.3 The Human Factor Is Decisive Lewin deliberately focuses on the human factor in his change management concept. Of course, change management must also be technically sound. Planning and implementation should not contain any inconsistencies. But if you give the human factor top priority right from the start, solicit opinions, conduct surveys, are open to employees’ questions, and are transparent, you also reduce the risk of making mistakes. The reason is obvious: transparency functions as a control organ. If there are discrepancies, they come to light through open communication. In addition, communication leads to going through processes again and again, which in turn can uncover errors. These phases described above correlate with the emotional process that takes place in each individual during change (Fig. 16.2).

16.3 Change Management Curve According to Kübler-Ross The change curve describes the emotional experience of people in change processes. This seven-stage process was published as early as 1969 and is based on numerous candidates. Figure 16.3 gives an overview of the seven phases. Time is plotted on the X-axis, and the readiness for change of the people involved is plotted on the Y-axis. Which phases does a person go through on the emotional level when confronted with a change (Kübler-Ross and Kessler 2005). Phase 1: Shock In the beginning there is usually a negative premonition that suddenly becomes real. The consequence is first of all a shock. Change is always a shock emotionally. The severity of the shock depends on the effects a change has on the person affected. Man is and remains a creature of habit.

16.3  Change Management Curve According to Kübler-Ross

203

1.Create a sense of urgency to lean management 2.Build a leadership coalition on lean management

4. Communicate the mission and vision of change 5. Removing obstacles and barriers 6. Set short-term goals and generate successes

Lean company (Lean Management)

3. Define a mission and vision of lean change

7. Consolidate short-, medium- and long-term goals 8. Anchoring changes towards a lean company in the corporate culture Fig. 16.3  Change management curve according to Kübler-Ross

Phase 2: Denial The shock is followed by a strong defensive reaction. The affected employees want to show that everything is fine as it is. This is always associated with a bit of repression: “I’m certainly not affected by this, it’s only the others’ business.” This denial is a completely normal reaction. Phase 3: Anger and Rage Initial shock and typical denial are followed by anger and rage. In this phase, the changes are usually associated with rejection and resistance. In bad cases, the anger can even lead to depression. Phase 4: Frustration and Confusion After anger and rage, frustration and confusion follow. In this phase, performance drops sharply and leads to the inevitable crisis. Phase 5: Frustration and Confusion In this phase it is not possible to want to move something. The willingness to change has reached rock bottom. As a manager, it is important to be sensitive so as not to overburden the employees.

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Phase 6: Acceptance Mourning is followed by an inner parting of the old, which is connected with the acceptance of change: “Yes, I am letting go of the old – it is over and done with – I have to deal with the new circumstances”. On a rational, not emotional level, the decision to change is accepted. Again, there is no point in the manager trying to motivate from the outside. The willingness to change is still in the basement. Phase 7: Reorientation I slowly adjust to the new situation. Acceptance of the new situation on an emotional level occurs. The willingness to change slowly increases. As a manager, it is now time to point out perspectives. The energy is now invested wisely. Before that it is not feasible to look into the future. I try to make friends with the new circumstances. Maybe the change has its good side. Just try it and see how I feel. Why not? Setbacks but also successes are part of it. The settling into the new role or position begins. I have familiarized myself with the new situation. Maybe with the new role or organizational structure. The changed situation has become normal. Now it is time to settle in so that everything runs smoothly in the future and stability can return until the next change (Kübler-Ross and Kessler 2005).

16.4 Change Management According to Kotter Kotter’s eight-stage model (Fig. 16.4) represents a holistic approach to implementing deep and sustainable change. Kotter points out that all eight steps must be completed in their entirety and in the specified order. Skipping individual steps merely creates the illusion of rapid progress and never leads to a satisfactory outcome. The eight steps can be divided into three phases: creating a climate for change (steps 1–3), engaging and empowering the entire organization (steps 4–6), and sustainably implementing change (steps 7–8; Kotter 2012). Step 1: Create a Sense of Urgency The basic prerequisite for the successful implementation of transformation projects is that the majority of employees are behind the desired changes and actively support them. Therefore, the first step of change management should always be to convince employees of the necessity and urgency of the changes. This is anything but an easy task. This is even more true for companies that have been very successful in the past. After all, complacency is one of the biggest inhibitors to change. But Kotter also warns against misconceived urgency stemming from fear or anger, which manifests itself in uncoordinated actionism. Rather, what matters is to focus on what is essential, and to do so continuously, every day. Urgency is thus not only the igniter but also the driver of transformation processes. To create a sense of urgency among employees, Kotter recommends showing them the potential opportunities and risks that arise from the business environment. This should not only appeal to the employees’ intellect, but above all to their emotions. “See-Feel-Change,” is

Performance and motivation

16.4  Change Management According to Kotter

205

Slim Company Open and hidden resistance Integration 2. denial

Rejection 3. anger / rage Frustration

1. shock

4. confusion

Vale of Tears

7. re-orientation 6. acceptance

5. crisis

time of change

Fig. 16.4  Stages of change according to Kotter

Kotter’s motto. To this end, it can be helpful to bring in outsiders, such as management consultants, investors or customers, to help employees see things from a different perspective. Step 2: Build a Leadership Coalition The next important step for the successful implementation of change initiatives is to assemble a strong leadership coalition that represents the entire organization. To operate effectively, this team should have sufficient power, credibility, expertise, and leadership, and should share common goals within the change process. Mutual trust among team members is also a critical success factor. This can be strengthened, for example, through regular off-site activities. Step 3: Develop a Vision of Change The task of the management team is now to develop a vision for the future. According to Kotter, a clearly formulated vision fulfills three important functions. It serves as a basis for decision-making and motivates people to take action in the right direction, even if the first steps there are arduous. Step 4: Communicate the Vision of Change The next step is to spread the vision developed in the previous step throughout the organization, with the goal of gaining employee acceptance and commitment. The effort required to do this is completely underestimated by most companies, says Kotter. He advises to continuously propagate the message on all available communication channels and to show

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a certain willingness to experiment with regard to the choice of methods. Storytelling, for example, is an excellent way to breathe life into a vision and make it comprehensible to everyone. However, words must be followed by action. The leadership coalition should therefore always lead by example and adapt their behaviors according to the new vision and strategy. This reduces potential mistrust and promotes the motivation and willingness of employees to cooperate. Step 5: Remove Obstacles from the Way However, acceptance and the will to change within the workforce alone are not enough to successfully drive change forward. Internal structures and systems must also be adapted to the requirements of the new vision and strategy in order to enable employees to act. In addition to personnel systems, information systems in particular play an important role here, as Kotter emphasizes. Access to current competitive and market information and the smooth exchange of information across departments are prerequisites for ensuring that employees can do their jobs as efficiently as possible. Step 6: Set Short-Term Goals Large, long-term change projects often lose momentum in the early stages. To keep everyone motivated and aware of the urgency, short-term goals should therefore be planned and appropriately acknowledged when they are achieved. Quick successes also have the positive effect of taking the wind out of the sails of critics and cynics. Studies show that companies that achieve significant short-term successes are significantly more likely to bring the transformation process to a successful conclusion. Step 7: Consolidate Successes and Derive Further Changes However, short-term successes should in no way tempt you to rest on your laurels or even to chalk up the entire project as a success at an early stage. Rather, the credibility created by the short-term successes must now be used in a targeted manner to tackle further and larger change projects. To this end, additional groups of people should be involved in the change process. At the same time, the leadership coalition should ensure that urgency, transparency and focus are maintained. Step 8: Anchor Change in the Corporate Culture Last but not least, the new behavioral norms and shared values must be deeply anchored in the corporate culture. Otherwise, there is a risk that they will be lost again as soon as the pressure for change subsides. To bring about sustainability, Kotter recommends regularly communicating how the new approaches, behaviors, and attitudes have affected the company’s overall performance. In addition, ensure that new employees and emerging leaders believe in the new direction and embody it externally. Deep transformation processes demand a lot from companies. Kotter’s eight-step model provides a solid checklist for most things to consider during such a process. Key requirements for each step include direction from top-notch leaders, a sense of urgency, open information sharing, and ongoing communication at all levels.

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16.5 Change Management According to McKinsey 16.5.1 Description of the McKinsey 7S Model The 7-S-Model offers a frame of reference for the holistic consideration of an organization, especially for the identification of weak points. Due to the holistic approach by including hard and soft success factors, the 7-S model can furthermore be applied in connection with the initiation of change processes and the implementation of strategies. At the end of the 1970s, Peters and Waterman led an internal research group at the management consultancy McKinsey & Company, in which they studied excellent companies in order to identify the factors for their corporate success. They believed that no good structure existed without taking into account the human factor. With their research, they worked out other interacting hard and soft factors besides strategy that describe the organization and on which the company’s success depends (McKinsey 2020).

16.5.2 Hard and Soft Factors in Changes While the hard factors (strategy, structure and systems) determine the effectiveness and efficiency of a company, the soft factors (self-image, special knowledge, style and core personnel) represent the human factor and the internal management concept (Fig. 16.5.) There are interdependencies between the factors and a change in one factor can have an impact on the other factors. According to Peters/Waterman, successful companies consistently align the individual elements in order to exploit the potential benefits of the seven success factors (McKinsey 2020).

16.6 Change Management and Personalities 16.6.1 Readiness for the Change to Modern Supplier Management Change management is a systematic approach to dealing with the one goal of changing a company’s culture, processes, structure, or technologies. The goal of change management is to implement strategies to manage and control change and to help partners, customers, and employees adapt to it. Such strategies include a structured process for requesting changes from management and mechanisms for responding to and following up on requests. To be effective, the process for change management must take into account how changing or replacing specific operations in the organization will affect other processes, systems, and people within the organization. Change processes need to be led and supported by people, the managers, employees and stakeholders. Therefore, with change and a transformation, there are always different personalities who are positive or negative about change.

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Fig. 16.5 McKinsey 7S model

Strategy Strategy

Skills Skills

Value

shared values Style

Structure Structure

System Systems

Staff

16.6.2 Visionaries and Missionaries Visionaries and missionaries are ahead of their future, they carry a vision with them. Lean management and the transformation to a lean, future-oriented and innovative company are the drivers of visionaries and missionaries. The lean enterprise thus describes a performance-­oriented, excellent, efficient and constantly self-optimizing organization in which all processes are aligned with the customer, thus eliminating non-value-added activities. Visionaries and missionaries can inspire others with their ideas, values and mission statements.

16.6.3 Pioneers Pioneers are trailblazers and represent an important group for the transformation to lean management. Pioneers are usually specialists in Lean Management who can lead Lean Management projects through their experience. Pioneers are also used for training. Pioneers have a very high readiness for change and drive it.

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209

16.6.4 Active Supporters Active supporters are employees who believe in the transformation to a lean company. Supporters are helpful in the transformation and help to promote motivation. Supporters are positively open to change and actively collaborate on projects.

16.6.5 Opportunists Opportunists are employees and individuals who act expediently in order to adapt to and gain an advantage from the situation at hand. Opportunism is often described with political and social reference as being out of principle or out of character. Although these individuals are not convinced of the change, they support the change process and collaborate on projects.

16.6.6 Underground Fighters Underground warriors are questioners who do not approve of change and therefore do not support it. Underground fighters act in secret and sabotage the change. Underground fighters hinder the transformation to lean management with covert or latent resistance. In this context, the resisting employee usually has no interest in being recognized. For personal or tactical reasons, they act from hiding. Their interests are usually destructive in nature, i.e., they want to prevent something from happening without being recognized as the perpetrators. In many cases, paradoxically, the resisters are not even aware that they are resisting. This makes dealing with this form of resistance even more difficult. If the hidden resistance is not recognized in time, ticking time bombs are easily created, which in their destructive power become more and more charged over time and can cause change processes as well as projects to fail. Symptoms and manifestations of hidden resistance can be observed frequently and in many different forms in practical project work: • listlessness at work • increasing absenteeism, which is not concretely comprehensible or for pretextual reasons, up to and including an increasing sickness rate • pretend to be more ignorant than one is • trivial issues • repeated questioning of decisions already taken • evasion of specific requests to do or refrain from doing something • increasing re-delegation of tasks already accepted • sitting on one’s hands • hectic actionism in non-essential areas • Demanding maximum involvement of non-essential stakeholders

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• Silence in places where communication would be appropriate • Absence from important meetings or the sending of representatives who are not authorised to make decisions • Demand for perfect solutions • Demand that others move first • extensive consideration and discussion of special cases • agreement in principle with simultaneous registration of reservations to be clarified later Hidden or latent resistance can only be clearly diagnosed in particularly pronounced cases, as individual symptoms may well have other causes.

16.6.7 Open Resisters Open resistance is characterised by the fact that it is consciously exercised by the persons exercising resistance and that they also associate a goal with it. In addition, people who exercise resistance make a conscious effort to ensure that their resistance is perceived as such and can also be attributed to them. They usually do this from a position to which they themselves attribute a relative abundance of power. This open resistance therefore has the advantage that it can be the subject of supplier management and processing; the cards are on the table, so to speak. Characteristics of open resistance can be: • open contradiction • open criticism and/or complaints • open interventions or activities directed against the planned project Usually, this open resistance is based on rational causes that can be discussed with those affected and that all parties have an interest in overcoming. This form of resistance is usually constructive, so that it is possible to deal with open resistance. In this way, the energy that the people have invested in their resistance can be channeled in the sense of achieving the project goal, or to put it simply: the headwind becomes tailwind.

16.6.8 Emigrants Emigrants are individuals who are critical of change and move away from the group (Fig. 16.6).

16.7  Dealing with Resistance

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Visionaries and missionaries Pioneers Active Supporters Opportunists Wait and see Underground Fighter

Supplier Management Time

Open resisters Emigrants

Change (transformation) Willingness to Change

Lack of willingness to Change 6

Fig. 16.6  Changes and personalities

16.7 Dealing with Resistance 16.7.1 First Strategy: Analyse Internal Stakeholder Groups Almost every project brings stakeholders onto the scene. “Internal stakeholders in particular are often forgotten or underestimated; the focus is usually on the customer or the public,” warns Thomas Waldorf. Experienced project managers therefore always analyze which groups in the company will be affected by their project – and then try to gain clarity about the individual groups. Where do the interests of the individual groups lie? What behavior can be expected from the individual groups? What pattern of action are they likely to follow?

16.7.2 Second Strategy: Explain the Background of the Project Projects bring change and change offers opportunities. But these opportunities alone cannot convince all stakeholders of a project’s merits. Real orientation is provided by answers to the question of why a change project is being carried out. Only then will it be explained how the project should proceed and what concrete changes will take place. “Project managers should especially explain the answers to the question of ‘why’ as concretely and comprehensibly as possible,” recommends Thomas Waldorf.

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16.7.3 Third Strategy: Dealing with Opponents Properly Almost every project has opponents and opponents who resist change. The only question is how the project manager behaves optimally towards these opponents  – and how he approaches them. “Opponents are neither ‘intransigent’ nor ‘bad’ colleagues,” explains Thomas Waldorf. Fear often speaks from the defense, perceived insecurity: fear, for example, for cherished habits and for the familiar environment. Or the fear of being “ripped off” in the project. The biggest mistake when dealing with opponents is to hold back bad news and keep quiet about it. Because many people have a good gut feeling for the truth. They anticipate the consequences of projects. And the feeling that something is being kept quiet increases distrust and resistance. That’s why project professionals also inform people early and openly about the downsides of their project.

16.7.4 Fourth Strategy: Preserving and Developing What Is Good Many stakeholders are not fundamentally opposed to innovations in a project. However, they want the tried and true to be preserved. Project managers should not dismiss this interest of the “keepers” out of hand. On the one hand, project managers tend to make “tabula rasa” and unnecessarily eradicate the tried and tested. On the other hand, it helps stakeholders if they continue to find what they know and appreciate despite all the innovation. For example, good things that can be found can be incorporated into the change concept – and even further improved by cleverly combining them with the new. “In this way, the project manager gains the sympathy of many ‘keepers,’” says Thomas Waldorf. Experienced project managers also inform clearly and emphatically about what is not changed by the project and remains as valuable.

16.7.5 Fifth Strategy: Raising Awareness of the “Valley of Tears” This is a problem, especially in the case of organizational change projects: It takes time until the innovations  – such as reorganized work processes or a new layout of departments – really function smoothly. “Changes upset a system that has often been swinging well up to now,” explains Thomas Waldorf. Time passes until the changed system has stabilized again – but then at a higher level than before. Project managers call this period the “valley of tears”: the weeks and months in which the promised benefits do not (yet) materialize. Recommendation of the experts: Point out the “valley of tears” to the stakeholders early on and familiarize them with the insight that worthwhile change also requires patience. Otherwise, the project manager will lose acceptance.

16.8  Case Study: Corporate Culture at Toyota

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16.7.6 Sixth Strategy: Inform Individually As important as backgrounds and procedures are in a project: Above all, stakeholders want to know how the project will affect their daily work, in a very concrete and individual way. Project managers therefore develop an individual information strategy for each stakeholder group. Thomas Waldorf recommends a four-step approach: First, explain to each group what is valuable from their area in each case and will be retained. Then, secondly, what will each group lose? What will change for them as a result of the project, what will they have to do without in the future? Thirdly: What will the individual gain from the change? And fourth, what are the opportunities and benefits for the whole, for example, for the company or the client? “Some project managers constantly present the general benefits for the company,” explains the expert, “but strategically it is more clever to talk about this at the very end and ‘pick up’ the individual in his or her needs first.”

16.8 Case Study: Corporate Culture at Toyota Toyota Motor Corporation’s organizational culture defines how employees respond to challenges the company faces in the marketplace. As a global leader in the automotive industry, Toyota uses its organizational culture to maximize human resources in innovation (Helmold 2020). The company also benefits from its organizational culture in terms of problem solving support. The different characteristics or features of Toyota’s organizational culture indicate a careful approach to facilitating organizational learning. The company undergoes significant changes from time to time and this is reflected in the change in its organizational structure in 2013. Toyota’s organizational culture emphasizes the importance of developing an appropriate culture to support global business success. Toyota’s organizational culture effectively supports the company’s efforts to innovate and continuously improve. Understanding this organizational culture is helpful in identifying beliefs and principles that contribute to the strength of the company’s business and brands. Following the 2013 restructuring, Toyota’s organizational culture has changed accordingly. Prior to 2013, the organizational culture emphasized a sense of hierarchy and secrecy, which was reflected in employees’ perception that all decisions must be made from the headquarters in Japan. However, after 2013, Toyota’s organizational culture characteristics are sorted by importance: • • • • •

Cooperation continuous improvement through learning Quality Secrecy Cooperation

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Toyota uses teams in most of its business areas. One of the company’s principles is that the synergy of teamwork leads to greater capability and success. This part of the organizational culture emphasizes the involvement of employees in their respective teams. To ensure that teamwork is properly integrated into the organizational culture, every Toyota employee undergoes a team building training program. Toyota’s organizational culture facilitates the company’s development as a learning organization. A learning organization uses information gained through the activities of individual workers to develop strategies and programs for better results. Toyota’s organizational culture emphasizes learning as a way to develop solutions to problems. In this way, the company can continuously improve processes and outputs with the support of its organizational culture. Quality is at the heart of Toyota’s organizational culture. The company’s success is usually attributed to its ability to provide high quality automobiles. To effectively integrate quality into its culture, the company uses Principle No. 5 of the Toyota Way, which states, “Build a culture of stopping to fix problems and doing quality right the first time.” The Toyota Way is a set of principles that define the business approaches used in Toyota’s organizational culture and have a significant level of secrecy. However, in recent years, secrecy has decreased following the company’s restructuring in 2013. Prior to 2013, information about workplace problems must be obtained through the company’s headquarters in Toyota City, Japan. However, after the restructuring, the company’s organizational culture de-emphasizes secrecy. For example, problems that occur in U.S. plants are now disseminated, analyzed, and resolved in Toyota’s North American business unit. The characteristics of Toyota’s organizational culture enable the company to continue to grow. Innovation is based on continuous improvement through learning. Quality improvement and problem solving are achieved through the activities of work teams. However, the secrecy feature of Toyota’s organizational culture has potential drawbacks as it reduces organizational flexibility in rapid problem solving.

References Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham. Kotter, J.P. (2012). Leading Change. Harvard Business Press Harvard. Kübler-Ross, E. & Kessler, D. (2005). On Grief and Grieving: Finding the Meaning of Grief Through the Five Stages of Loss. Scribner New York. Lauer, T. (2019). Change Management. Der Weg zum Ziel. Springer Gabler Wiesbaden. Lauer, T. (2020). Change Management. Fundamentals and Success Factors. Springer Cham. McKinsey (2020).7-S-Framework. Retrieved 21.8.2020. https://www.mckinsey.com/businessfunctions/strategy-­and-­corporate-­finance/our-­insights/enduring-­ideas-­the-­7-­s-framework Vahs, D. (2019). Organisation: Ein Lehr- und Managementbuch. Schäffer-Poeschel Stuttgart.

Tools in Supplier Management to Identify Waste

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If the path is beautiful, let us not ask where it leads! Anatole France (1844–1924).

17.1 Ishikawa Diagram Ishikawa diagrams (also called fishbone diagrams, herringbone diagrams, cause-effect diagrams, or fishikawa) are causal diagrams created by Kaoru Ishikawa (Japanese: 石川 馨 Ishi-kawa Kaoru, 1915–1989) that show the cause-effect situation of a particular event. Common uses of the Ishikawa diagram are in areas such as design, delivery, production, and prevention of quality defects to identify potential factors that cause an overall effect. Each cause or reason for imperfection is a source of variation. Causes are usually classified into major categories to identify and classify these sources of variation. The goal of value and quality is represented as a fish head pointing to the right, with causes extending to the left as fish bones. The ribs branch from the backbone for main causes, and the sub-­ branches branch from main causes to as many levels as required. Figures. 17.1 and 17.2 show two examples of the Ishikawa diagram. The categories in the Ishikawa diagram vary, but mostly the following elements are examined for value added and waste (6 M): • Man

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_17

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216 Man

Material

Machine

Hidden waste (Reducon)

Added value (quality)

Obvious waste (eliminaon)

Environment (surroundings)

Method (process)

Monetary

Fig. 17.1  Ishikawa diagram as a tool for waste identification Man

Material X Lack of qualificaon X Insufficient training

Machine

X Defects from suppliers

X Inefficient maintenance Capacity of machinery and equipment

Movaon of the workers

Hidden waste (Reducon)

Added value (quality)

Obvious

X Lack of coordinaon waste (eliminaon) X Logiscs processes X Flow not opmized X Cost of materials Process descripons X Long transport routes X Buffer stocks and capital commitment X Process not transparent X Environmental inefficiencies X Losses due to rework

Method (process)

Environment (surroundings)

Monetary

Fig. 17.2  Ishikawa diagram with examples

17.2 Material • • • •

Machine Method, Process Environment Monetary values

All categories are examined for waste on the basis of a detailed examination. In practice, (√) tick for value-adding processes and activities and a cross (X) for waste have proved successful, as Fig. 17.2 shows. Colors are also usually used: The color green for value creation, the color red for waste.

17.4 Brainstorming

217

17.3 Supplier Audits and Workshops Audits and supplier workshops are systematic and structured analyses and assessments of a system, process, product or other sub-area with the aim of evaluating and improving this area by auditors or supplier managers using standardised criteria. Supplier audits and supplier workshops are described in detail in Chaps. 7, 8 and 9.

17.4 Brainstorming Brainstorming is an idea generation method developed by Alex F.  Osborn in 1939 and modified by Charles Hutchison Clark to encourage the generation of new, unusual ideas in a group of people. Brainstorming is short for “using the brain to storm a problem.” So it is a method of gathering ideas from several people. Steps to Follow When Brainstorming • • • • • • • • • • •

Formulation of the topic Selection of participants (recommended maximum six participants) Designation of a moderator visible representation of the subject as a sentence Collecting the ideas, first each participant for themselves Expression of ideas by the participants Collection of ideas by the moderator, e.g. on flipchart, foil, wall Addition of further ideas (inspired by the ideas presented) Structuring of the collected ideas in groups Formulation of headings or key statements for the groups Determination of the further procedure

Rules When Conducting Brainstorming • find as many ideas as possible! (Quantity before quality!) • Questions of understanding are allowed, criticism is forbidden! • Free and spontaneous “spinning” is allowed! Ideas of others can be taken up and continued. • When using cards, one card should be used for each idea, this makes structuring easier. The collection and presentation of ideas/work results can be done in the form of an affinity diagram.

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17.5 Pareto Analysis The Pareto analysis structures the errors of a problem (sub-problems of an overall problem) according to their frequency. It is based on the knowledge that 70% of the effects are caused by only 30% of the errors. The Pareto analysis provides a statement about which errors or sub-problems should be dealt with first. Procedure in Six Steps 1 . Listing and collection of the errors of a problem. 2. Order of errors (e.g. according to frequency or costs incurred). 3. Plot the errors in descending order from left to right in a bar chart. 4. Plot of the cumulative curve (cumulative proportions of errors). 5. Analysis of the diagram according to significant and insignificant errors and formation of classes (A, B, C)  – Class A includes the few significant errors, which together account for about 70% of the problem – Class B includes the less significant errors, which account for about 20% of the problem – Class C includes the many errors, insignificant in their effect, which account for the remaining 10% of the problem (6). 6. Processing of class A errors.

17.6 Correlation Diagram Correlation analysis is used to prove or reject suspected (statistical) correlations between any two measurable characteristics. With the aid of graphical evaluations, it is examined whether and to what extent a linear relationship exists, e.g. between a presumed cause of error and a specific error. Procedure 1 . Determine the two characteristics between which a relationship is suspected. 2. Pairwise recording of the values of the two characteristics, i.e. recording of the values at the same time (for time-dependent variable characteristics) or on one object each (for object-dependent variable characteristics). 3. Representation of the value pairs in an x/y diagram. 4. Interpretation of the correlation based on the diagram (typical cases: strong positive or negative linear correlation).

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17.7 Network Diagram With the help of networks, the time sequence and the dependency of subprojects/activities of a project/work flow can be represented. On the one hand, this makes it possible to optimize the overall duration of the project/work process and to determine the time requirements for the individual subprojects/activities and their earliest possible or latest possible start and end times. On the other hand, time-critical links between sub-projects/activities that require special deadline monitoring can be identified. To create a network, all the activities required to process the project/work flow are collected, the necessary times determined and noted on cards. The cards are pinned to a board in columns, with the sub-­ projects/activities that can take place at the start of the project (i.e. without a preceding activity) pinned to the left. The next column contains the subprojects/activities that can take place after the first column has been completed, and so on. Once all the cards have been sorted, the time relationships between the subprojects/activities are made clear by arrows connecting the cards.

17.8 Problem Decision Plan The problem decision plan is used for the preventive identification of possible problems in projects and the development and assignment of possible countermeasures. This ensures that the project goal can be achieved even if unfavourable circumstances occur. In a group, the activities necessary to achieve a project goal are collected, written down on cards and attached to a board, e.g. in the form of a tree diagram. For each of these activities, all possible difficulties are identified (e.g. with the help of brainstorming) and suitable countermeasures are worked out with the aim of selecting effective measures. Where possible, the countermeasures should be discussed before the problem occurs in the project.

17.9 W-Questions The questioning technique is used to narrow down a problem. Possible causes of the problem can be found and narrowed down. The principles of the questioning technique are: to think in advance about what information is needed and to formulate appropriate questions as well as a structured and comprehensive collection of information: • Why? – Information/data is often needed to analyse problems more precisely. • Which? – Research into the causes of problems requires the “right” data. General indications as to which data are needed cannot be given here. It should be borne in mind that data can be worthless if the assignment to time, cause, material batch, etc. is missing.

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• How much? – It must be determined which scope of data is absolutely necessary. The decisive factor in determining the scope of the data is its unambiguous interpretability. • Where – The location at which the data is collected (for example, at which machine) must be specified. • Who? – Employees who collect data must be sufficiently qualified and informed. • When? – The date for the completion of an investigation must be set taking into account the urgency and other framework conditions.

17.10 Flow Chart The flow chart is used for the visual representation of procedures (processes). You can see, for example: • • • • • •

how different process steps relate to each other and where possible problem areas exist superfluous steps and loops where simplification or standardisation is possible Activities that can affect process performance Points where further data can be collected and examined; Possibilities for improvement when comparing a real process with an ideal process flow Responsibilities for specific process steps.

17.11 Pro and Contra Lists A pro and con list is a table with two columns. One column is titled “Pro” and the other is titled “Con”. The pro column lists all the advantages, opportunities, and arguments for the decision. In the con column, the disadvantages and risks are listed. The purpose of a pro and con discussion is for a group to look more closely at a problem and to make the respective arguments for or against it transparent. Here, the team weighs up arguments that speak for or against the issue. In the end, it leads to forming an opinion and making a decision.

17.12 Failure Mode and Effect Analysis (FMEA) FMEA (Failure Mode and Effects Analysis) and FMECA (Failure Mode and Effects and Criticality Analysis) are analytical methods of reliability engineering. Possible product defects are evaluated according to their significance for the customer, their probability of occurrence and their probability of detection, each with a key figure. In the context of quality management or safety management, FMEA is used preventively to avoid defects and increase technical reliability. The FMEA is used in particular in the design or development phase of new products or processes. This method is widely used in the automotive

17.12  Failure Mode and Effect Analysis (FMEA)

221

and aerospace industries, but a properly performed FMEA is also frequently required in other industries. FMEA aims at avoiding errors from the outset instead of discovering and correcting them afterwards. Potential causes of errors are to be identified and evaluated as early as the design phase. This avoids control and error follow-up costs in production or even at the customer. The knowledge gained in the process also helps to avoid the repetition of design defects in new products and processes. The FMEA methodology should be applied in the early phase of product development (planning and development) within the product life cycle, since cost/benefit optimization is most economical in the development phase (preventive error avoidance). The later a defect is discovered, the more difficult and cost-­ intensive its correction will be. The FMEA can be divided into several types: • Design FMEA (D-FMEA) or Construction FMEA (also K-FMEA): is used in development and construction to assess the manufacturing and assembly suitability of a product as early as possible. The consideration includes systematic errors during the design phase. • System FMEA (S-FMEA): examines the interaction of subsystems in a superordinate system network or the interaction of several components in a complex system and thereby aims at identifying potential weak points, in particular also at the interfaces, which could result from the interaction of the individual components or the interaction of the own system with the environment. The consideration includes random and systematic errors during operation. • Hardware FMEA: has the goal of analyzing and evaluating risks from the area of hardware and electronics and eliminating them with measures. • Software FMEA: It performs the same task for generated programming code. • Process FMEA (also P-FMEA): can be based on the results of the design FMEA, but can also be carried out in isolation. It deals with possible weak points in the process with the aim of increasing quality. The procedure of an FMEA consists of the following steps: (a) System analysis and recording and visualization of the considered (defective) product (e.g. components) or manufacturing process (sub-processes). Supporting documents: design drawings (product), exploded views (product), manufacturing flow chart (process). (b) Define functions and functional structures. Define the functions of the individual system elements (cf. step 1) and determine the functions of the system elements – components or sub-processes – in relation to each other. (c) Error analysis (error cause-error-error sequence). Definition of possible error causes/ errors and error consequences related to the system elements/components or sub-­ processes under consideration. Note: Consideration of the entire fault sequence chain up to the “overall system” level (overall product or manufacturing process).

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Example  – Failure cause: Corrosion of motor plug connection (window regulator), failure: Incorrect motor control, failure sequence: “Window does not close”, further failure sequences: “Leakage”; “Customer annoyed”. (d) Perform risk assessment. The objective is to convert subjective error assessments into objective, structured error assessments. The assessment is carried out according to the following scheme: (e) B = Measure of the importance of the fault sequence; score [1–10] (e.g.: score “10” for “safety risk”) (f) A = Measure of the probability of occurrence of the cause of the error; score [1–10]; (e.g.: score “10” is assigned if the probability is high) (g) E = Measure for the probability of detection of the occurring cause of the defect (reference: location of the defect origin); score [1–10] (e.g.: assignment of the score “10” for low probability of detection) The risk priority number supports the assessment of whether there is a risk and thus a need for action. It is calculated by multiplying the individual scores. (h) Risk Priority Number: RPN = B x A x E. (i) Determine measures and perform optimizations. High risk priority numbers (RPN) and/or high individual evaluations (B/A/E) require defect avoidance or detection measures and thus an optimization of the product or process under consideration. Three basic options exist: Increase of concept reliability (defect cause minimization), exclusion of the defect cause by concept modification (assembly/component/process modification), measures for effective detection of the defect cause.

17.13 Statistical Process Control Statistical Process Control (SPC) is usually understood as an approach to optimize production and service processes based on statistical methods. In the context of SPC, quality control charts (QC charts) are a tool for analyzing, evaluating and controlling manufacturing processes on a statistical basis. By using the quality control chart, appropriate signals are shown in the event that a process can no longer be assessed as being under control or capable of quality. SPC was developed by Walter A. Shewhart. The scientific principles were comprehensively derived and described by him in 1931 in the book “Economic Control of Quality of Manufactured Product”. This work was triggered by the intention of the management of the Hawthorne Plant of the Western Electric Company in Chicago to manufacture products that were as uniform and thus as reliable as possible. The attempt to accomplish this by common sense means failed. As a result, Shewhart was approached by Bell Telephone Laboratories of New York for assistance. Shewhart started from the assumption that the quality of the final product depended essentially on the combination of the scattering of the parameters of the individual parts. He found two fundamentally different mechanisms as the cause of this scatter:

17.15  Quality Control Chart (QRC)

223

1. Scatter due to general causes (random deviations from the mean resulting from a stochastic process Noise (physics)) 2. Scattering due to special causes (material defects, machine defects, design defects, etc.) The second important insight of Shewhart was that two mistakes can now be made in trying to minimize this dispersion: • Error 1: Assigning a deviation to a special cause, although it was caused by a general cause. • Error 2: Assigning a deviation to a general cause, although it was caused by a specific cause. Either one or the other error can be completely avoided, but never both at the same time. So a way had to be found to minimize the cost of error prevention. Extensive statistical research and theory building eventually led Shewhart to develop control charts as the optimal tool to put the knowledge gained into daily practice. SPC found its first industrial application during the Second World War, where it was used in the production of armaments. Later, William Edwards Deming realised that these insights and tools could be applied to all types of processes (business processes, administrative processes, etc.) with the same positive results. This teaching fell on fertile ground, especially in Japan, where it was further developed within the Toyota Production System, among others. Today, statistical process control is seen as a component of a quality management system and accompanies the core process of production or service as a service process. All statistical methods that are used to monitor and optimize the core process are summarized under the term statistical process control. These methods go beyond the various control chart techniques and also include, for example, the methods of statistical design of experiments, FMEA or the Six Sigma collection of methods. SPC variables flow into customer-supplier relationships as process capability indices.

17.14 Mind Mapping A mind map describes a cognitive technique coined by Tony Buzan, which can be used, for example, for the development and visual representation of a subject area, for planning or for notes.

17.15 Quality Control Chart (QRC) The quality control chart, also called control chart, is used to monitor manufacturing processes on a statistical basis. For this purpose, data determined during the inspection of samples from a production process are entered in a form with a coordinate system. The

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data are measured values or key figures calculated from them, which are used in conjunction with previously plotted mean values as well as warning, intervention and tolerance limits to examine and control the process under consideration.

17.16 Portfolio A portfolio is used to group different objects (e.g. products, defects, proposed solutions) according to two independent characteristics and to represent the groups pictorially. The characteristics can be measurable or classified (e.g. large, medium, small). To create a portfolio, the two independent characteristics by which the objects are to be grouped must be determined and established/calculated for the objects. Based on the determined/calculated characteristics, the objects are arranged in a two-axis diagram (X-Y diagram) and grouped together.

17.17 Tree Diagram A tree diagram can be used to represent the hierarchical breakdown of a system or a problem into its components and to ensure a complete coverage of components. Tree diagrams can be used, for example, to break down a product into its assemblies and components or to break down a project into its individual subtasks.

17.18 Case Study: Ishikawa Diagram at Porsche Figure 17.3 shows an example of an Ishikawa diagram of the Porsche company at a well-­ known brake manufacturer in Italy with a total of five categories (Helmold 2020). The categories include processes, environment, employees, machines and materials. In total, the workshop lasted more than six weeks and was led by the supplier development department with specialists. The workshop and other activities significantly improved the supplier’s performance.

Reference

225 Man

Processes Production process (safeguarding) Production process (work distribution) Change of variant Provision of materials (incl. empties) Manual control processes Shift handover/break procedures Documentation of Data/Parnets Audits/Q control loops Work instructions Deficits identified No deficits identified

(Q)

Material

Machine Organisational structure Proportion of core workforce Employee flexibility Workstation rotation Sick leave/ absenteeism Motivation/workload Information/Communication Employee availability

(number)

Devices

Tools (trays) Shelves for modules Machine utilization

Shift staffing

Subcontractor management Material storage Material labeling

System availability Maintenance status (Maintenance) Accessibility

Order and cleanliness Transparency Lighting conditions Air conditioning Ergonomics Visualization/Standardization

Module quality

Surrounding

Fig. 17.3  Ishikawa diagram in supplier management at Porsche

Reference Helmold, M. (2020). Lean Management and Kaizen. Fundamentals from Cases and Examples in Operations and Supply Chain Management. Springer Cham.

Outlook and Future Vision for Supplier Management

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The best way to predict the future is to create it. Abraham Lincoln (1809–1865).

18.1 Supplier Management as a Central Interface in the Company Supplier management sits at the interface between suppliers and the company itself. It plans, designs and controls the value creation networks and partnerships with suppliers. The close cooperation with internal and external partners has changed the role of supplier management from that of cost depressor and cost optimizer to that of value creator and value optimizer. At the same time, supplier management must standardize, digitize and automate its own processes. Therefore, standardized, innovative and digital processes, methods and concepts are needed at the interface to manage value networks globally (Heß and Laschinger 2019). In the future, supplier management will continue to maintain the procurement function in the company in conjunction with traditional purchasing. It will continue to manage and bundle requirements, negotiate prices, select suppliers, evaluate suppliers, qualify suppliers and ensure that materials are reliably available in the required quality. However, additional strategic tasks and processes are added. Supplier management is becoming a central core function in the company, a business partner of all departments such as technology and development, production or marketing at eye level. Especially by shifting services to supplier networks (outsourcing), which are in competition with each other, within the value chain, new guiding principles, strategies, responsibilities and processes arise, which have to be mastered by modern supplier management. Thus, the focus in the future has long ceased to be only on leveraging internal company © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_18

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cost advantages, but much more on the exchange of information and the exploitation of global cross-company potentials (Büsch 2019). The strategic planning and management of global supply chains will be the crucial tasks of the future. This requires supplier management to transform into an innovative and agile organization that can deal with technological, economic, environmental, political and cultural change and the associated demands on procurement (sustainability, supply risks, innovations). Supplier management will therefore take on the central key role in the future (Helmold and Terry 2017).

18.2 Automation and Digitalization Trends in Supplier Management The digitized vision for purchasing means that orders triggered by the customer can be managed independently and automatically through the entire value chain, from ordering the raw material, selecting the optimal supplier to delivery to the customer. Processes and performance criteria can also be tracked transparently. Automated value creation is a central factor in the management of global supply chains. Even if fully automated procurement is still a pipe dream, the days of classic Excel spreadsheets and opaque supplier lists have become obsolete. Instead, supplier management must be made fit for the future internally or with the help of digital tools. Digitalization does not stop at the purchasing department of companies in the B2B environment. This is indicated, for example, by the results of a survey conducted by the software manufacturer SAP and the University of Applied Sciences Würzburg-Schweinfurt on digital trends in purchasing. The 650 managers surveyed see Big Data (73%) and the Internet of Things and Industry 4.0 (43%) as the most relevant future topics for their area. In everyday work, both are often already a reality today. (Thelen 2017) Many processes that were carried out by employees just a few years ago are now fully automated. However, it is unfounded to conclude that artificial intelligence and smart robots will completely replace humans in purchasing. Particularly for non-standardized products with high investment volumes, purchasing employees with experience and a flair for communication are still irreplaceable. However, it is also a fact that the strategic dimension will be more important than the operative one in the future. This means that purchasing will take on a new role within the organization: Through extensive knowledge of current developments and forward-looking investments, it can become the innovation driver of the entire company.

18.3 Changing Competence Requirements in Supplier Management The supplier manager of the future designs and manages a complex network of relationships on an international level. This includes suppliers and other stakeholders as well as the other specialist departments in the company. Through their knowledge of their own

18.4  Internationalisation of Value Chains

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organization and processes, the global markets and supplier companies, the employees in the supplier manager know which products and services they can obtain in which quality, at what cost, under which conditions, when, where and how quickly. Materials that, on the other hand, cannot be purchased or do not represent marginal competencies must be developed and produced by the company with its own resources because they are not available on the market. Here, too, supplier management provides support. Furthermore, supplier managers must use digital tools, platforms and risk management to strategically and preemptively assess situations in which there may be supply failures. Supplier managers no longer just look at individual suppliers, but have a transparent overview of the entire value chain. In this way, supplier managers say goodbye to order management and rise to become strategy consultants and progress catalysts who make their companies more flexible and innovative. The following competence requirements are therefore imperative: • • • • • • • • •

Communication skills Project Management Skills Methodological knowledge in the area of supplier management Entrepreneurial-strategic thinking Risk awareness IT competence Organizational talent Cultural experience Internationality

18.4 Internationalisation of Value Chains The strategic goals of supplier management deal with the medium to long-term optimization of the company’s supplier base. Based on the six phases in supplier management (1) supplier strategy, (2) supplier selection, (3) supplier evaluation, (4) supplier development, (5) supplier integration, (6) supplier controlling, it is necessary to define precise development measures that enable a continuous increase in supply quality or a reduction in procurement costs and improve them on an international basis. The supply risk can be sustainably reduced, for example, through the collaborative optimization of cross-company processes. The early establishment of possible alternative suppliers and the targeted management of procurement volumes prevent the company from becoming dependent. In addition, the relationship with strategically important suppliers and suppliers that are difficult to substitute should be strengthened through cooperative and integrative measures. In this way, the competitiveness of one’s own company is secured. Due to the long-term orientation, all measures to achieve the strategic goals should be regularly reviewed as part of a continuous process and adjusted if necessary. In this context, the increasing internationalization plays a more important role for companies. Internationalization is the expansion of business and supply activities of companies beyond

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the borders of their own country. There are various reasons for internationalisation. Changes in the environment of one’s own company, technological innovations and, above all, globally operating competitors play a major role. As a founder, entrepreneur or self-­ employed person you have to be aware that the internationalization process is not limited to your product or service. All company activities must be taken into account and considered in the strategy orientation.

18.5 Case Study: AirSupply and SupplyOn as Integrated Value Creation Systems Airbus SE, formerly Airbus Group SE, is a Dutch company active in the aerospace and defence industry. The company operates in three segments: Airbus Commercial Aircraft, Airbus Helicopters and Airbus Defence and Space. The Airbus Commercial Air-craft segment focuses on the development, manufacturing, marketing and sale of commercial aircraft and aircraft components, as well as aircraft conversion and related services. The Airbus Helicopters segment specialises in the development, manufacturing, marketing and sale of civil and military helicopters, as well as the provision of helicopter-related services. The Airbus Defence and Space segment produces military combat aircraft and training aircraft, provides unlock electronics and global security market solutions, as well as missile manufacturers and markets. For the commercial side, more than 75% of value creation is done by suppliers. Suppliers provide components and systems that are assembled into subsystems by Air-Bus operating locations. These assemblies are manufactured in four different countries and then delivered downstream to final assembly as shown in Fig. 18.1.

More than 75 percent external value added Suppliers deliver components and systems Assemblies are manufactured in four different countries Sub-assemblies are delivered from various national locations to the final assembly lines OEMs and suppliers use one ERP system platform Integrated systems enable lean processes across the value chain

Fig. 18.1  AirSupply as a unified platform for supply chain integration

18.5  Case Study: AirSupply and SupplyOn as Integrated Value Creation Systems

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Individual solutions...

Portal

Portal

Portal

Suppliers

Portal

Suppliers

Portal

Suppliers

Portal

Suppliers

Standardized total solution ...

AirSupply

Suppliers

Fig. 18.2  AirSupply as standard solution

The assemblies are delivered from different national locations to the final assembly lines. Airbus uses the AirSupply system, which integrates ERP systems downstream. AirSupply is a single supply chain for direct deliveries from downstream suppliers to Airbus. The integration of ERP systems makes the supply or value chain very transparent so that improvements can be quickly distributed to defects. Moreover, the model is made to synchronize the manufacturing and logistics systems of companies digitally and physically by using lean management tools. The portal is shared by major European aerospace companies within the BoostAeroSpace hub. The AirSupply collaborative hub helps manufacturers and suppliers gain visibility and ensure control and integration for critical business processes. This common secured platform for European space and defence industry players results from the BoostAeroSpace collaboration led by Airbus, Dassault Aviation, Safran and Thales (Fig.  18.2). It offers: a single solution for the aerospace community linking original equipment manufacturers (OEMs) and suppliers, standardized supply chain collaboration processes and common formats for data exchange, and a platform for a single supply chain process collaboration over the Internet (software-as-a-ser-vice from SupplyOn with worldwide service).

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References Büsch, M. (2019). Fahrplan zur Transformation des Einkaufs. Springer Gabler Wiesbaden. Helmold, M. & Terry, B. (2017). Global Sourcing and Supply Management Excellence in China. Springer Singapur. Heß, G. & Laschinger, M. (2019). Strategische Transformation im Einkauf. Springer Gabler Wiesbaden. Thelen, S. (2017). Studie der SAP Ariba und Hochschule Würzburg über die Zukunft des Procurements. Kloepfel Consulting. Befragung von mehr als 650 Einkaufs-, Finanz- und SupplyChain-Managern aus Europa und den USA.  Abgerufen 3.11.2020. https://www.kloepfel-­ consulting.com/supply-­c hain-­n ews/supply-­c hain/studie-­d er-­s ap-­a riba-­u nd-­h ochschulewuerzburg-­ueber-­die-­zukunft-­des-­procurements-­22459/

Glossary

19

ABC-XYZ analysis

Procedure in vendor management for classifying material groups according to consumption, value and the forecast reliability of the consumption of procurement scopes in a company. Agile organization Agile companies are able to quickly adapt their organization and business model to new market requirements. Furthermore, agile organizations are proactive and proactive in seizing opportunities as they arise. This applies to all areas of the business. Agility in a company is the right mix of “doing agile” (methods) and “being agile” (mindset). Airsupply Integrated platform for the synchronization of ERP systems. Audit An audit is a systematic and structured assessment/evaluation of a system, process, product or other area with the aim of identifying deviations from the target state. Procurement Supply of goods and services to the users in the production facilities. Procurement in the Supply of goods and services to the consumers at the production sites. broader sense This also includes the procurement of labor, information, capital, rights, material goods and services. Procurement Physical supply of the demand carriers. Control of the flow of materials logistics and information. Corporate social The term was used in 1953 by Howard R. Bowen in his book “social responsibility (CSR) responsibilities of the businessman” and stands for corporate social responsibility. Services In the case of services, the focus is not on the manufacture of a product or trade in products, but on the provision of a service as a service to the customer or as a service for customers. For the execution, a service provider will often have to use appropriate work equipment and products, such as hand tools, measuring instruments, cleaning agents or lubricants, but (as a rule) no new product is manufactured. A service is the process, action, or activity performed by a person or group of persons for a customer or group of customers for which the customers are willing to pay. Unlike products, services cannot be touched or owned. Purchasing Sum of all operational and strategic activities of a company that are to be carried out within the framework of the procurement of materials, goods, operating resources and services.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 M. Helmold, Innovative Supplier Management, https://doi.org/10.1007/978-3-658-39245-1_19

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234 Failure mode and effects analysis (FMEA)

Overall equipment effectiveness or overall asset effectiveness (OEE)

Heijunka

Innovation management Ishikawa diagrams (also called fishbone diagrams, cause-­ effect diagrams or fishikawa) Jidoka Cultural web

Kotter

Supplier file

19 Glossary And failure mode and effects and criticality analysis (FMECA) are analytical methods of reliability engineering. In this process, possible product failures are evaluated according to their significance for the customer, their probability of occurrence and their probability of detection, each with a key figure. The term refers to a key figure created by the Japan Institute of Plant Maintenance. It is one of the results of decades of development of the TPM concept. It can be used to show at a glance both the productivity of a plant and its losses. The GAE of a plant is defined as the product of the following three factors: Availability factor, performance factor and quality factor. The term, which originates from Japanese, means something like “smoothing” or “levelling”. In lean management, it stands for “production smoothing” or “leveled production” and refers to a work planning method developed at Toyota in the 1950s (Toyota production system). The aim is to harmonize the production flow as far as possible by balancing the incoming and outgoing elements in the production line in order to avoid queues and thus waste (muda) due to idle and transport times. Innovation management deals with all measures to promote innovation in organizations and to generate benefits. Are cause and effect causal diagrams created by Kaoru Ishikawa (Jap.: 石 川 馨 Ishi-kawa Kaoru, 1915–1989).

The term (jap.: 自働化, autonomation for autonomous automation) refers to “intelligent automation” or “automation with a human touch”. The cultural web or web (cultural web) is a representation of the underlying assumptions and paradigms that define a corporate culture as well as the physical impact of the culture. The cultural web, developed by Gerry Johnson and Kevan Scholes in 1992, provides an approach to looking at and changing the culture of the organization. In this way, companies can identify recommended cultural actions and align organizational and cultural elements with corporate strategy. Kotter’s 8-stage model represents a holistic approach to implementing deep and sustainable change. Kotter points out that all eight steps must be completed in their entirety and in the specified order. Skipping individual steps merely creates the illusion of rapid progress and never leads to a satisfactory outcome. The eight steps can be divided into three phases: Creating a climate for change (steps 1–3), involving and empowering the entire organization (steps 4–6), and sustainably implementing change (steps 7–8). A supplier file contains all relevant information of a supplier. Supplier files are used by supplier management for the targeted control of performance.

19 Glossary

Supplier evaluation

235

The instrument offers a comparable and systematic evaluation of the performance of suppliers or service providers on the basis of previously defined characteristics and is primarily used for continuous and preventive supplier monitoring. Vendor steering Interdepartmental committee at management level in which all the group (LLK) specialist departments concerned, such as quality, purchasing, development, production or logistics, meet regularly. Supplier management is responsible for the management and moderation of the LLK. Supplier Holistic and preventive planning, management and control of supplier management networks. Use of standardized tools. Integration of all supply activities into the value chain. Alignment aims at suppliers. Supplier Optimal supplier management includes the following steps in particular: management phases Supplier strategy (supplier classification), supplier selection (selection of suppliers), supplier evaluation (recording of performance on the basis of uniform evaluation criteria), supplier development (definition of targets for the supplier by means of joint optimisation programmes), supplier integration (extension of the range of tasks for suppliers with the aim of bringing activities forward), supplier controlling (continuous comparison of target fulfilment levels, early identification and elimination of weaknesses). Material group A material or product group or category (commodity or category) groups together different individual parts or categories in a material group, which are usually made from the same basic material or raw material or can be classified in the same category. Mindmapping A mind map describes a cognitive technique coined by Tony Buzan, which can be used, for example, for the development and visual representation of a subject area, for planning or for notes. Operational Basically, a distinction is made between strategic and operational purchasing purchasing. The operational area includes functions such as ordering and deadline tracking as well as the processing of returns and complaints. These are therefore the classic executive tasks within the scope of physical procurement. Pareto analysis Structures the errors of a problem (sub-problems of an overall problem) according to their frequency. This is based on the knowledge that 70% of the effects are caused by only 30% of the errors. The Pareto analysis provides a statement about which errors or sub-problems should be dealt with first. The procedure is carried out in six steps. Quality control Used to monitor manufacturing processes on a statistical basis. chart (control chart) QCD The primary task of classic supplier management is to create value-­ adding supply chains based on suitable criteria and strategies. This happens on the basis of the criteria of quality, costs, delivery performance and other significant aspects (QCD plus alpha). Arbitration Arbitration, while referred to as a method of resolving disputes by business persons, is governed by state and federal law.

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Single point of contact Strategic supplier management Supply chain management TIMWOOD

19 Glossary

Central point of contact in supplier management for one or more suppliers. Strategic management and strategic supplier management are understood as conscious, logically structured decisions and activities that influence the fundamental direction of a company. Control of the value chain from the supplier (if applicable, upstream supplier) to the end customer. The focus is on the end customer. Seven types of waste – Transportation, inventory, movement, waiting, overproduction, rework, defects. Stands for the care and maintenance of machines and work equipment.

Total productive maintenance (TPM) UN global compact Is a principles-based framework for business that sets out ten principles in the areas of human rights, labour, environment and anti-corruption. Change management This includes all tasks, measures and activities that are intended to bring (jap.: 変更管理, about a comprehensive, interdisciplinary and far-reaching change in order Henkō Kanri) to implement new strategies, structures, systems, processes or behaviours in an organisation. Waste Obvious (open) waste includes all activities that are obviously not necessary to add value to the product. The customer is not willing to pay for these activities. Hidden waste includes activities that do not add value but must be done under the circumstances. The customer sees no reason to pay for these activities either. Virtual organization A form of organization in which legally independent companies and/or (VO) individuals join together virtually (usually via the internet) for a certain period of time to form a joint business association. Value chain Value chains represent the stages of production as an ordered sequence of activities. These activities create value, consume resources and are interconnected in processes. The concept was first published by Michael E. porter in 1985. According to porter, there are five primary activities that describe the actual value creation process: Internal logistics, production, external logistics, marketing/sales and service. There are also four support activities that complement the value creation process: Business infrastructure, human resources, technology development, and procurement.