Does China Sourcing have any value
Panel discussion Hannover Messe ´98
Global Sourcing = Global Buying?
Wilfried Krokowski: The world market demands that part of the production also takes place where the end products are sold. In this context, I see the purchasing department as being very important because it is a partner in sales to ensure that we can continue to produce in Germany.
Anthony Chay: We attach great importance to the bundling of needs, and if we can also help a partner, we benefit from it, they benefit from it, the suppliers anyway, and we all have better prices as a result.
Bernhard Rothmund: One can say with some justification that considering full costs and after processing and evaluating all influencing factors, many purchasing decisions are rightly made in favor of the German market.
Dr. Michael Zeuch: If the company is successful, purchasing must also have made its contribution. It is a truism that there is profit in purchasing; ... first and foremost, the procurement process must be optimized and this is documented in good supplier management.
Stefan Müller: Well-run, successful companies must have good purchasing. That also applies to us, we are successful; ... Right from the start, Purchasing sits at the table with development as a team, and when the product is ready, Purchasing can certainly push for further development on its own.
Wolfgang Blome: ... I believe that if a successful company does not have a good buyer, then it is not successful. The structure of purchasing and the early involvement of purchasing in decision-making processes are essential elements for success, of course also the training and commitment of the employees.
Perspectives of local suppliers from the experiences of global procurement
Excerpt from a panel discussion of the Konradin Fair Forum in front of 180 trade visitors and exhibitors on the occasion of the Hanover Fair ´98.
R. Lindner: I would like to extend a warm welcome to you at the Konradin Fair Forum 1998. Our topic is: “Global Sourcing = Global Buying”, and we leave it open at this point whether we want to add an exclamation mark to the title of the event or a Want to provide question marks.
Ladies and gentlemen, we want to convey opinions from different backgrounds to you. The question is: “What are the current experiences in the executive floors of German industrial companies that are exploring procurement markets around the world?” Does global exploration also mean global shopping? Or does “Global Sourcing” open up unexpected new opportunities for innovative, regional or local providers in Germany? Are local partnerships "in" again? Or is there no realistic way back in view of the globalization of our purchasing markets?
We want to show you the current trends in the discussion today. We are above all the experts at my side, we are entrepreneurs, procurement and sales managers, a journalist, a man from the apprenticeship and a consultant. They all have one thing in common: they are a “global player”, whether convinced or refined, we will find out in the next 120 minutes.
We start with short statements. Mr. Kruse, does it even make sense today to differentiate between sales and procurement markets? Or isn't the identity of both market segments an economic imperative today?
H. K. Kruse: I don't want to talk about the identity of procurement and sales markets, but about the fact that it can have a lot of charm to first enter a new market as a buyer. Because it is precisely in markets with which we have our cultural problems that one can learn very well and also very economically as a procurer, because at first one is met with a lot of constructive curiosity.
In principle, we are of the opinion that entering a new market, a future market such as India or China as a purchaser, can actually only be the first stage, followed by the third stage in a second stage via a joint venture or through on-site production to prepare, namely to win the market for your own sales. We assume that at some point we will face the strategic question if we want to expand further - and we still live in the ideology of growth - then that will only work in future markets. I see the buyer here as the pioneer in a market that will one day also be our sales market.
R. Lindner: We want to leave the statements as they are for the time being, we will then go into the discussion. Mr Blome, I would ask you, because not everyone knows how your markets work, that you first tell us something about the rules of the game in your markets.
W. Blome: With pleasure Mr. Lindner. First a few words about our company. Phoenix Contact is a typical medium-sized company. We have around 5,000 employees worldwide, mainly in Germany, at our main location 3,000 employees, plus around 700 in two branch factories in Germany that produce.
Our products are electrical engineering items of equipment for the signal transport from the motor or switch to the transmitter or actuator, right up to the control with the connecting elements; these are more or less electromechanical products. On the other hand, we have control technology, that is, PCs, automation devices plus the associated software. As a medium-sized company, we have a broad spectrum of what we want to bring to the customer on the market, and that's when we start selling components on the one hand, that's the typical business we've been doing for 75 years. It is the automation, the solution business, where we had to develop the system capability; We have been doing this for about 10 years.
When I see the traditional markets of Western Europe and North America, it's the case that we have to share these markets with four to five important competitors, most of whom come from Germany. Ultimately, this means that you can choose to strive for further growth in these established markets through cost leadership or a mix of cost leadership and innovation. We chose the latter; a mix of cost leadership and innovation in order to sell the customer a bit of added value in our products.
In order to get the issue of cost leadership under control, one must of course also think about purchasing, namely the electromechanical built-in components and connectors; there is not much that can be rationalized. We essentially have two big chunks that can be used for rationalization: purchased parts and production.
They need volumes and production machines, so that's only possible to a limited extent. If that is no longer enough, there is only one thing left: a new design. Innovation and cost leadership, with this mix in established markets and in development markets, especially Southeast Asia and South America, we as a private company have two tasks to solve.
That is the development of markets and the introduction of technology, often in different mindsets. The connection technology of Western Europe and North America is not a matter of course in Asia or Japan. These are the challenges that you have as a small company, that you have to make it clear to the customer what is behind this technology? What use value? Why do you need this technology?
You have to do a lot of building work in new markets. And when I see projects in the second part and the system capability you need for them, we have a completely different market. There we do package sales and the software and system capability are added to the traditional sale of hardware components. As you can imagine, it is easier to sell this new theme in Western Europe and North America than in Southeast Asia.
To do this, you have to give the customer a lot of comfort and service. Because in most cases complete systems are exported, and what we deliver is in many cases just the service. That is one line, the selling point of view.
The other point of view, which one always has to deal with, is the point of view of procurement in order to ensure the competitiveness of the products. And over the past five years, as a private company, we have built up a very good network of sources of supply for core products, for example for electronic circuit boards or for some important parts of electromechanical production.
R. Lindner: May I interrupt at this point, that will be a main topic afterwards. - Mr. Müller, maybe you will answer the question: If you want to promote the use of the comparatively young technology of robotics and automation worldwide, how do you go about it?
S. Müller: Mr. Lindner, ladies, gentlemen, first of all a few words about the company. We have 350 employees, have a turnover of approx. DM 350 million and produce approx. 5,000 robot units, have a decent market status in Germany and Europe, and in the meantime also in the world. How do we deal with new markets? If I take a pragmatic approach, we will follow the call of the automation industry.
If VW, to name a name, creates a new Beetle in Mexico and we don't have a base yet and we want to deliver, then we need a base there. The second, of course, is to find the people, the buildings, the legal stuff; For us medium-sized companies, these are entrepreneurial tasks that sometimes take one to two years.
We recently did something similar in Brazil and Argentina. We currently have branches in all European countries, but of course we will continue to pursue this step of establishing subsidiaries in our customer countries, especially in Asia and other countries. That means, first of all, bases to ensure support and service. The next thing is the training, and this automatically results for us after one or two years that we enter the project phase, the planning phase, initially with smaller cells on site, with local content, which is what is currently happening in countries how Brazil, Argentina and also Mexico play an essential role.
R. Lindner: Thank you very much. - Dr. Zeuch, I wanted to ask you first about the buyer himself. When we talk about procurement, we are also talking about the person, about the function of the respective person. If we take out the procurement management, which changed tasks and competencies can the enormously increased importance of buyers be attributed to today? That can no longer be concealed.
M. Zeuch: That can be said relatively easily. I would like to say that the requirements of a modern procurement manager have essentially not changed. But no one has recognized this as such in earlier times. The modern procurement manager basically has to optimize one process, namely the procurement process. And the procurement process, like many other processes, is fraught with many conflicting sub-goals. In other words, aspects that actually contradict each other, such as quality, procurement effort, technology, flexibility, just to name a few.
This situation inevitably results in the demand for specialist skills that lie elsewhere than in the perhaps traditional processing of orders and the fumbling of price discounts. He must now master all of these aspects, either himself, so that he can acquire this technical competence himself. (Personally, for example, as an engineer I came into purchasing, materials management, because technical expertise was required.) And if he doesn't have this expertise, then he has to, because nowadays he can no longer cover the expertise in all areas he can acquire this expertise, either in his own company or externally. And there is the additional requirement to be able to target and optimize a process in a team.
R. Lindner: I can pass it on to Mr. Chay. Mr. Chay, you're on the other side of the world. With your knowledge of global procurement options, what would you buy on the German market?
A. Chay: Thank you very much, Mr. Lindner. What can you buy here in Germany? I would like to answer the question how do we decide which products we buy and in which country we do it. We at Siemens maintain a global purchasing network and we have a purchasing organization, the International Procurement Offices, in the USA, in Europe and even in Asia. And in Asia, for which I am responsible, we have seven locations.
The aim is that we create global market transparency, and thus we not only pay attention to the correct price differential, but also to other important factors such as quality, delivery reliability and what we buyers call the total cost of ownership; the total cost that will ultimately be caused.
Earlier, one topic was “local content”, which means that if we have to produce on site, then it makes sense that we buy locally, at least where possible. With all these considerations and collections of information and the exchange of a global basis, we decide where and how to buy what.
To come back to the question now. Right off the bat I think of course that Germany is a high-tech country and think of high-tech things, production controls, special chemical plastics, the steel industry and the like.
R. Lindner: Thank you Mr. Chay. - Mr Rothmund, I wanted to ask you specifically: ABB Industrietechnik meets technology-dominated interlocutors. How do the ABB salespeople manage to convince the buyer, that is, your economically trained colleague on the other hand, of ABB's products?
B. Rothmund: I could save a lot of time by saying briefly and concisely, with the best possible arguments, but I would like to go a little further. In your question you focused on the business-minded buyer, and I believe that this picture cannot be left unreservedly. When I see my purchasing colleagues at our partners, I have to concede that they have a great deal of technical understanding, at least for their own area of responsibility the technology assess what product quality, service friendliness, reliability, what the right price / performance ratio means for a purchasing decision that is calculated and made at full cost.
So this businessman, who only does the price comparison and otherwise does not participate in the decision-making process, I see less and less with our partners, at least in Germany. Our sales people naturally deal with buyers and engineers at our customers, and they have the same problem - as do all sales people in all companies: if you make a lot, you have to keep a lot. And that's not always easy. And so that we can do well with our customers, ABB has been running a program for two to three years under the heading “Customer Focus”, so that employees can better put themselves in the customer's shoes. And with this attitude and with the right and good technical arguments, we try to find an open ear for what we have to offer with our engineers as well as with the procurement people.
R. Lindner: Thank you very much! - Mr. Krokowski, you advise companies that have already or would like to organize their procurement management worldwide. What's going on there, is your business booming? What does that look like, especially from a German point of view?
W. Krokowski: You can certainly answer the question by saying that there is a great deal of dynamism at the moment. A third wave swept in via purchasing and Germany, especially in the area of global sourcing. After the first wave of plant construction reached its peak in the early to mid-1970s, then came electronics, and now the big drivers in the automotive, mechanical engineering and supplier industries can be found that are oriented around the world.
On the subject of consultants, I would like to say that over the past four years I have been responsible for coordinating the BME in the Far East and accompanying around 50 companies to Asia. The interesting thing is that during these shopping trips it became clear that today it is visible that purchasing and sales are moving closer together and that the buyer is the pioneer here, who through his supplier contacts gives help in the company to prepare paths and also practically supports the sales department in fulfilling the local content.
This means that today we can no longer assume that products that are one hundred percent made in Germany will be accepted by the world market. The world market demands that part of the production also takes place where the parts are sold.And in this context I see the purchasing department as being very important because it is a partner in sales to ensure that we can continue to produce in Germany.
R. Lindner: Mr. Krokowski, thank you very much. Let us now move on to the core of our discussion; does global sourcing also mean global buying? The Financial Times fell into my hands; it is four drivers of global competition:
- 1. Changed customer expectations,
- 2. technological change,
- 3. Deregulation worldwide - listen and be amazed,
- 4. regional peculiarities and market forces.
Another source - the BME - associates three important recommendations with global sourcing:
- 1. Professional information gathering about the worldwide offers,
- 2. Continuous evaluations according to the classification of this information,
- 3. Use of the world's best offers from the point of view of the total cost of ownership.
We have heard it several times. Obviously, those who are not “globally sourced” are not “in”. - Gentlemen, the question to you: What are the specific and current experiences of German entrepreneurs with global buying? Mr. Krokowski, where do you see the opportunities, but also the risks, when a medium-sized company in the procurement area goes to far-away countries? Do you have any tips for the management?
W. Krokowski: Yes, definitely, because the majority of the 50 or so companies I look after came from the medium-sized sector; and one can only say that one has to be very well prepared. You cannot do global sourcing by getting the item “Global Sourcing” on the agenda from the management, getting on a plane a few weeks later, traveling the world, looking at 5, 10 or 15 suppliers, then comes back, starts inquiries and after two months I can say so now I've done my chores. It is not that easy. A clear orientation is required in the company, so that not only the purchasing department has to deal with it, but it starts with the development.
That means that the technicians must have done their homework, that the drawings and specifications are in English, that they are multilingual, that the standardization is not only based on German standards, but that you also have to deal with American and Japanese standards if you are to want to inquire there. There is the area of quality assurance; you cannot make the same quality specifications and use the same quality routines that you previously had for a "local source".
That you have to realize that you are in other currency regions, you have currency risks, and you have to reckon with them; one has different terms of payment. Here are a wealth of elements that play a role and that must be worked through in advance in order to operate it successfully. In this form, global sourcing is not a day-to-day business that you can take part in on the side, but there must be a company strategy behind it.
R. Lindner: So if global sourcing is of strategic importance to the company, then let's ask an entrepreneur. Mr. Blome, if you hear that as a checklist, what do you think you were doing ideally when you went out into the world? Or do you say we have different rules of the game?
W. Blome: I don't think we were an ideal candidate. I just think that the whole topic of “shopping around the world” has overwhelmed medium-sized businesses and companies. Nobody was prepared for it and had to deal with this topic first, and we must have paid a lot of money here, as many other companies still do today. After 10 years of experience and a lot of hard work in the early years, we have a basis where we can deal with this topic and where we can use it.
It is really hard work in the selection, it is a constant learning what kind of suppliers you come across and what the performance is that you were used to in the past from German suppliers, and what it sometimes means to buy cheaper. And when you're there, it may be a different technology, a different service that is being sold, and I think every company has to go through this learning curve. Regardless of what you buy in North America or the Far East, the constant task is to sit down with purchasing and development: What makes any sense to buy externally? Where is it worth it? And where do you prefer to stay at home?
R. Lindner: Mr. Müller, you would like to answer that directly?
S. Müller: Thank you very much. Perhaps in addition, we have companies here with high series production, we produce around 5,000 units ourselves, that is not a high level of production. We are medium-sized companies, we have five to seven buyers, and of course we asked ourselves how do you do that? We have found a way to separate the purchasing volume into two areas. Wherever technology and innovation takes place - wholesale parts - we are very strongly development-oriented, development-determined.
Let me give you examples such as geared motors, amplifiers and other parts, where we simply do not have the strength or the possibility with our purchasing capacity to find the many powerful companies in Germany and also in Europe. It's a search for a needle in a haystack; We have outsourced them.
And there you can report that within two years considerable savings potentials of between 10% and 20% were possible. That means, on the one hand, we pragmatically concentrate on wholesale parts that include technological developments, and on the other hand, such as cast parts and cables, which are definitely essential, value-determined parts, we approach these things through the external service provider.
R. Lindner: Thank you very much for describing how you carried it out successfully. 20% is already a word. - Dr. Zeuch has spoken up.
M. Zeuch: Why did most of the industrial companies go abroad with their purchasing efforts? In my internship, the primary reason was the cost side. They wanted to save costs, and today we know for sure that there are countries in which wage costs are many times lower.
Then, over time, strategic aspects were added. It has been discovered that there are technologies in other countries where you are perhaps a little further than here. Or there are advantages that have to be seen in connection with additional sales markets. What is important today is that all these aspects are put together into a meaningful strategic package; and that's the point we have to work towards today.
R. Lindner: Nice that you got it to the point. - Mr Chay, you have an opinion on this.
A. Chay: Yes, I wanted to say something about global sourcing. When we think of global sourcing and purchasing abroad, it really has to be a matter for the boss. The right attitude has to be there, and then the work only begins, although the first step is difficult enough. You first have to know what you would like to have, that is
- 1. Pick out A parts that are worthwhile,
- 2. the specifications must be in English,
and you have to focus on the procedure and have a lot of patience and don't expect everything to work overnight.
Then we have to build an internationality among employees and colleagues so that we don't just think we'll go there and come back with 20%. That means identifying the right commodities, the right partners - how do you do that? One can perhaps think of the partners to date with. And that, too, is another line of thought of ours, where we thought about the topic of bundling needs. How can we help each other by pooling needs? We are already doing this today; we help medium-sized companies and help them to buy in Asia. That means the whole partnership has to be there, and you have to have the necessary perseverance.
R. Lindner: Mr. Chay, if you offer others to “buy through us”, is it a success story, or is it a little more critical to see?
A. Chay: I am very grateful for this question. I would describe the Siemens AG purchasing organization as a success story and concentrate on the organization for which I am responsible. We are based in seven locations in five countries in Southeast Asia and we have to ask ourselves what is the added value that we bring for the end user. When we are there, we represent a presence. We have 60 local experts who know their way around. Most of them are engineers and they also care about the quality, taking care of the cultural and language differences.
And this organization will not only conduct market research, because we know that if you just ask and don't produce anything, you will quickly no longer be very welcome. We actually buy for 1 billion DM over there, including market research, quality assurance, source inspection, handling of logistics and commercial processes. We have our own, selected freight forwarders who bring all of our things safely to their destination, and thus it is an entire company, a purchasing team. We attach great importance to the bundling of needs, and if we can also help a partner, we benefit from it, they benefit from it, the suppliers anyway, and we all have better prices as a result.
R. Lindner: Do you offer medium-sized companies here to use your organization, your infrastructure, and above all your experience, in order to gain a foothold in foreign markets?
R. Lindner: Thank you very much. - Mr. Rothmund, ABB Industrietechnik plans, modernizes and equips industrial plants worldwide. Is global presence a competitive advantage for ABB as a service provider?
B. Rothmund: It is certainly an outstanding competitive advantage for ABB that ABB is represented with its international structure in every country where industry plays a role. From the point of view of local content, but also when building customer proximity and a basis of trust, it is a very important factor to be present in the country and in the vicinity of the customer.
But now I wanted to take up one point again. When you think about global sourcing, you have to be prepared for the fact that you cannot deal with it in three, eight or twelve weeks, but that you have a very long and difficult, sometimes frustrating and sometimes disappointing process ahead of you. And I would just like to interpret that from our experience, which was not only gathered in the Far East, but also in Eastern Europe.
When the Iron Curtain fell, we quickly gained a foothold with subsidiaries in Poland, the Czech Republic, Hungary and Russia, and a certain euphoria broke out when we said that there must be huge potential in sourcing and purchasing be. In some countries we have set up sourcing offices with full-time supply managers on site.
If we sum up today, then one has to say that the expectations were far too high. It was dreamed of 1 billion procurement volume in these countries; Around 100 million have become reality. As part of these on-site sourcing activities, we examined around 500 companies in terms of quality and know-how; as long-term partners, 30 to 40 of the 500 remained.
Such numerical relationships make it clear what effort one has to make in order to really find something, and also how systematically one has to work. Some of the problems we encountered were surprising. Whenever, for example, a partner in Eastern Europe has to import something, the question of the lack of foreign exchange immediately arises.
When you come to an agreement with an important manager there in a company, everything often breaks down when that man is no longer there. The structures in these companies are often still inflexible because timebase management and process optimization are not yet an issue there. But of course this has the consequence that any disturbance in the process can very quickly lead to a catastrophe, both in terms of deadlines and in terms of the project result.
Global sourcing is an issue that has to be pursued with good people, with sufficient resources, with sufficient time and with sufficient investment of money. You have to invest a lot before you can really get to the much-vaunted 30 or 40% savings.
There is a rule of thumb which means that whenever I achieve a 30% lower price for a system component or for a product somewhere, then I get 10%. Because I need 20% for auditing, for monitoring deadlines and for this and that, but I have to have this 20% resource and ability in my company.
If I don't have these people who want to do this, who can do it and who are willing to do so, then a sourcing initiative is not worth a shot of powder. I have to be prepared for such a task in terms of business. We made a huge effort and the result: We haven't regretted it.
You have to know what is going on in the world. You have to seize every opportunity, but I simply mean that the topic of global sourcing is still fraught with too much euphoria and leap of faith in many companies, and you have to realistically consider the requirements and limits of purchasing in distant countries.
R. Lindner: Thank you, Mr. Rothmund. You described the risks and difficulties very vividly. - Mr Blome introduced the term service earlier, and I would like to put the question to Mr Blome. With a negative balance of DM 5 billion, Germany is a service importer, and now one gets the impression that a wave of globalization is sweeping through service companies in particular, and thus the service provider is evidently following the increasing globalization of its customers.
The globally defined goal seems to be to establish a uniformly high standard of service regardless of location, and I think that costs money. This global relationship is expensive, especially because it requires significant investments in a global network. Now the specific question for you: Is a global presence only worthwhile for a few service providers, Mr. Blome, for example transporters, financial service providers, providers of information technology or telecommunications, is it only worthwhile for them?
W. Blome: I have to answer that with no. Because these specialists, they occupy a very small field where they can offer similar services to many companies. They have a completely different prerequisite than when I, as a company, have to develop services for my products. Because the services that are sold with intelligent products are part of the product, and unfortunately it is the case that you usually have to sell them to a world where you meet the usual standard neither in terms of language nor education, and that will very expensive.
And now to your question: You could search - and we have done that very intensively - is there any association that you could join with other medium-sized companies in order to sell services together? After three years I have to say that I am still at zero point, and we have to learn it ourselves, with a high level of subsidies. We cannot join this group with a group or large company that builds plants, but we can only join with suppliers who are involved in the system business in the entire process chain. So a very difficult business. But it is indispensable for smaller German companies that want to be successful in the world!
R. Lindner: Mr. Blome, thank you very much. I can still accommodate a request. I read in an interview with you that, in your opinion, the prerequisites for a globally applicable automation solution are in place today. What specific advantages do you want to market in the future in order to win new customers worldwide?
W. Blome: There are two. That is the product itself. - If a product does not speak for itself but for a technological achievement, then no service will help either. But an intelligent product without a service is worthless. Any company that not only sells components but system solutions, that is, has achieved system capability, and that means that it could cope with it in Western Europe or North America, I have to say that the music is played in construction markets.
And you are forced to build up excellent service for your intelligent product, either alone or in a group, otherwise you will fail in Germany as well, in Europe too. That was an outstanding task for our company, carried out by the management - because it costs a lot of money - carried out in the last five years: to build up the service for markets in which there is no basic industrial business.
R. Lindner: Thank you very much; Marketing is the keyword that I would like to pass on to you right away, Mr. Müller. The companies that are organized with you in the R + A specialist group of the VDMA operate worldwide.What questions are you basically asked to supply your customers locally, regionally and globally with your product solutions and services?
S. Müller: First of all, some initial data on this. Robotics and automation in the Federal Republic comprises 200 companies with a turnover of approx. 7 billion; if you share that, a company makes about 35 million on average. So globalization is absolutely a problem for them. They certainly operate more locally, i.e. the Federal Republic, possibly Europe, hardly in Asia and usually not in the USA either. There are of course exceptions; this is where most companies find it difficult.
On the other hand, the environment, especially if you look at robot technology, is an essential prerequisite for success. The robot needs the periphery, the feed technology, the transport technology and the like, that is, the environment is then mostly exported with the units that represent larger quantities. Today it is problematic for smaller companies to take the plunge into branch offices. We see that again and again. What can you do about it? You can enter into forms of cooperation, some of which are funded by the VDMA, as in Southeast Asia. In summary: For the branch, which is characterized by medium-sized companies, the leap into globalization is already a problem.
R. Lindner: We heard what causes global engagement to fail. I would like to quote the Financial Times again, which writes that global players have to bring the business architecture into balance, and by that they mean to find the balance between flexibility and standardization. That means, on the one hand, achieving advantages in terms of costs and, on the other hand, a high degree of flexibility when new lucrative markets open up. Mr. Kruse, are there specific company examples for this?
H. K. Kruse: First of all, I would like to contribute something to the disenchantment of the term globalization. Worldwide purchasing, we call it global sourcing today, it has been around for decades. I remember I was able to buy natural rubber in Malaysia 20 years ago, and that's why I say the charm of being a pioneer in foreign markets. I was later allowed to sell auto safety accessories in neighboring Asian markets. At first, shopping helped me enormously in terms of culture and experience.
The practice of worldwide purchasing already existed when the empty phrase global sourcing wasn't even there. And I think that for the electronics industry, for example, purchasing has been a long-standing practice in China.
Now to your question. Anthony Chay has already said it, and not only Anthony Chay delivers added value to his customers throughout the group, but wherever you go at the Hanover Fair, people have components on their shelves or drives or whatever, and they all sell added value. That’s the buzzword right now: added value. And if you want to sell added value, you first have to have cost leadership in your own company, otherwise you cannot sell added value.
R. Lindner: Is flexibility an added value or a basic benefit for you?
H. K. Kruse: That is certainly an added value in terms of market strategy. But you asked for examples, and just one striking and two simple examples. The chip manufacturer Intel is definitely a striking one, and the manufacturers of car seats or car windows are very simple examples.
A car seat manufacturer produces the essential modules such as the console, the seat, on a larger scale and does the assembly on site, according to just-in-time criteria, and the car window manufacturer no longer only supplies car windows, because the car straps do not assemble today more just limousines, but limousines and station wagons in one route.
In other words, the windshield manufacturer does not deliver windows, but delivers sets, exactly according to the cycle, namely the complete sets of windows at 11:05 a.m. for a station wagon, minutes later the set of windows for a sedan has to be on the assembly line, and a few minutes later a hatchback model arrives .
And the keyword is “modularization”. You first have to develop a scale advantage in prefabrication and later pass it on to the customer as added value. In addition, there is the flexibility to be able to adjust to clock fluctuations almost up-to-date. That is certainly one of the main challenges.
R. Lindner: Are there any other requests to speak on the complex that we have now discussed? Please Mr. Krokowski.
W. Krokowski: I would like to come back to two points. Once, to find cooperation partners for services, it has already been mentioned that it is hard work to find such cooperation partnerships, service partnerships in Germany.
From the experience of the BME in four shopping trips, we managed to come to a cooperation association on the purchasing side, namely that eleven medium-sized companies have now come together that do purchasing together, have come together internationally and say that we are alone small that we can afford an office like Siemens in Singapore, in Hong Kong, in Taiwan, in China.
This is not possible with our purchasing volume. But we have to be present in this market because our customers are there too and we are forced to be present there by marketing and sales. So we picked up on this idea and it took over two years of hard work; To move the buyers rather than the management of the company to take capacity and money into their own hands in order to get an investment through.
Today we are talking about the costs of being active in Asia, for these companies in the order of 60 - 70,000 DM per year; have three offices in these regions; but it was rock-hard work convincing management that this was the way to go.
It is not easy to sell services in Germany; one expects these services to come, but if possible to invest relatively little. Such forms of cooperation already exist on the procurement side, but support is scarce, it's a very tough business.
The other, perhaps, as a comment on Mr. Kruse; I agree that global sourcing is not a business today. Only today is it interesting to look at Germany in particular, also because this is where the buyers are located; one actually expects Germany to be internationally oriented. But when you look at the numbers, it's terrifying. The large Asian market today only accounts for 3-4% of the procurement side. Because we have on average around 35-40% of what the industry in Germany purchases worldwide, the medium-sized sector is just under 10%.
If you differentiate that and take the 35-40%, then you know that 75% come from Europe alone, and of that the largest share in absolute terms from France. In other words, we are very single market oriented and we have to see Europe as a single market. And when you see the public discussions, when you talk about global sourcing - Asia, job killer, everything that goes with it - that that makes up just 3-4% of the purchasing volume. I want to express that there is still a lot of potential there.
R. Lindner: Thank you for the addition. Mr Rothmund, you had one more contribution, please.
B. Rothmund: Back to the development of the last five years. In preparation for this panel discussion, the question arose: Are we still discussing the question of global sourcing and global buying under the same, unchanged premises as, for example, five years ago? And then we realized: not at all! I read in a press article - and now I would like to break a lance for Germany as a business location - that in 1997 Germany made the largest leap in productivity in 21 years and in 1997 alone unit labor costs in Germany fell by 5.6% are.
This process - we see the tragic downside of the high unemployment and steadily increasing business volume - has been going on for years. During market surveys, we find that we are finding what we are looking for competitively in more and more projects in Germany and in the European neighborhood, taking full cost considerations into account. Now the word Europe has been used. In the future we will have a single European market. I assume that we in the western European industrialized countries will have tougher competition in terms of efficiency, productivity and wage costs. And I assume that this process, which I have now established for 1997 and the last five years, will continue in the European market.
This means that the opinion that those who do not buy in the Far East or in Eastern Europe are doing something fundamentally wrong and cannot stand as they are. One can say with some justification that considering full costs and evaluating all influencing factors, many purchasing decisions are made in favor of the German market with great justification, and in the future probably in favor of the Western European market.
R. Lindner: Thank you very much, Mr. Rothmund, I heard your agreement, maybe you would like to add something to that, Mr. Müller?
S. Müller: Perhaps it didn't come out so clearly to me before, with the strategic approach of transferring 50% of the procurement to a company that is an expert; it is looking for the right resources for us in Germany and Western Europe. We are not active in Asia because we are too small and have our hardship with these things, which were described very vividly before - distance, language, specifications; We're not kidding ourselves, most of the time, if you go into detail, English is not enough anyway. You have to master the language of the country. That hampers the middle class enormously.
And the offer from Siemens, that is certainly excellent for one or the other medium-sized company, because with the usual conditions as one has previously purchased, with few personnel resources, that one, two or three offers have been made, all of that was not very good systematically.
We just said to ourselves that there are professionals in the sector who have mastered exactly this process and, if necessary, send out 200 or 500 inquiries, preselect it, and I can only say that in the end they get an award from predominantly German or exclusively European companies . So far, we have not dared to make the leap to Asia, with the exception of very specific know-how components, which is the other 50%. There are only a few suppliers of gears in the robot market, and most of them are based in Japan, so of course you have to face them.
R. Lindner: Mr. Krokowski, did you also get the impression that companies are currently more likely to be infected by the collective fever of global activism, instead of going straight to the internationalization of their own markets with a cool head and based on an individual analysis?
W. Krokowski: It cannot be denied that there is a lot of activism involved, and I said right at the beginning that these activities are also taken somewhat unprepared. Although you may have to hear, and I would like to convey this as the quintessence from the experience of international purchasing, that it is not so surprising that we keep coming back. So, for me, I would like to say heretically that global sourcing doesn't necessarily mean global buying; It can very well be that global sourcing leads to the fact that you can prove and confirm your own competitiveness here in Germany.
That is also an element of global sourcing, but it is also important for me to convey from the cost side that we have world-class shoppers in Germany: Because in the discussions when we are on site in Asia and in Taiwan, in Hong Kong, When we talked to companies in Singapore, we talked about cost structures, then we kept coming to the conclusion that we had done a very good job here in Germany; that is, when we are talking about target costs or price specifications, it is difficult that there is still air for an Asian or an Eastern European to first have to meet these price specifications.
R. Lindner: Mr. Rothmund spoke up.
B. Rothmund: Maybe a short comment. You just said that sourcing activities often prove that you can buy in Germany or Western Europe with a clear conscience. I would even like to formulate a thesis from this, which perhaps also has a certain justification. Perhaps this international sourcing process, instigated and supported by supply managers in companies, has made a decisive contribution to this productivity growth in Germany. Perhaps that was a decisive driving force so that even though we buy here, we benefit indirectly from these global effects.
R. Lindner: I hear the buyers do a good job. I would like to ask the entrepreneurs. Is that how you see it, do your buyers do good jobs?
W. Blome: I just have to answer yes to whether they are doing a good job. I think we have good employees, and I also believe that if a successful company doesn't have a good buyer, then it's just not successful. The structure of purchasing and the early involvement of purchasing in decision-making processes are essential elements for success, as is, of course, the training and commitment of the employees. But purchasing is an integral part, which sees itself as an interface unit between development and production and has to be constantly involved. If he holds back and waits for requests, then it is not a successful purchase and in the end it is not a successful company either.
Regardless of where you manufacture in the world, we also have different locations, purchasing is a central element that has to be constantly involved, and that also challenges the buyer to keep training, to get information in the company: Where are you going? What is the current status? And then, in sync with the advance of the department, helping to shape development or product marketing. We have set this up as an institution as far as possible - it is difficult to put a buyer and a technician together, they have a very difficult time with each other, they speak different languages - but it is an indispensable must for a good job at To make purchases.
R. Lindner: Is that the self-image of purchasing Mr. Rothmund?
B. Rothmund: Mr. Blome is not fundamentally wrong. There is still a certain animosity and fear of contact between engineers and buyers. But he also said in the same way that if we do not successfully operate supply management in the company, the company cannot be successful because our own added value simply does not offer enough momentum to, on balance, with what it is wants to sell to be competitive. So you have to rely on engineers and supply managers working together to make the potential on the procurement market really usable for the company, to transform supplier know-how into the company and the like.
And that is also practiced in many companies in cross-functional teams, where engineers and supply managers think about: What are the correct request specifications? What is the right partner and supplier in the market for us, etc.? That is happening to an increasing extent. This fear of contact must be overcome because it would thwart most of the supply management or purchasing success from the outset.
R. Lindner: What rating, Mr. Müller, do you give your purchasing department?
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