Sustainable supply chain: employees are part of it

Difficulties and inconsistencies within the supply chain can come to light in a wide variety of places. They are not always obvious and can manifest themselves, for example, in the fact that no shipping containers are available for the crossing to Europe – a situation that many companies have experienced during the Covid-19 pandemic.

Established supply chain management, which is responsible for setting up and managing logistics chains, i.e. the flow of materials and information across the entire value creation process, can also reveal weaknesses.

A medium-sized family business that manufactures production equipment and packaging machines was confronted with difficulties in its own supply chain management last year. The German management realized that despite the systems and procedures established for the procurement department, the Indian subsidiary’s stock levels threatened to reach 50% of sales. This was 100% above the strategically planned inventory level of 25% of sales. Even more alarming, however, was the fact that monthly stock levels fluctuated between 45% and 60% in the months of May 2019 – May 2020 – also well above the strategic operational target.

The first step: Get an overview

The WB team was called in to review this situation and develop suitable measures to optimize the supply chain. In a joint kick-off meeting, the company’s management informed us about the current bottlenecks.

There were two fundamental problems at the time: firstly, there were too many outstanding orders, and secondly, all internal and external communication took place by email, even though the Trello Board software was already available and should be used by all employees involved. These two points meant that the procurement department was not regularly contacting suppliers to follow up on the delivery of materials. This in turn led to time-critical, desperate calls to suppliers. In other cases, alternative suppliers had to be contacted to source the required amount of stock to meet production requirements.

Findings lead to far-reaching consequences

During the preparation phase and in the first few days at the Indian subsidiary’s plant, we realized that the knowledge we had previously gained entailed a high level of risk. The inefficiency of the purchasing team and the arbitrary approach of the procurement department lead to high storage costs in the long term and thus to an enormous blockage of working capital.

Weaknesses identified:

• The documentation of the work processes was confusing and difficult to understand.
• Team members had limited access to key departmental SoP documents.
• Some documents, such as the written processing procedures, were only available in German.
• The purchasing and delivery documentation showed numerous deficiencies.
• When working with the individual team members, it was established that even known procurement processes are generally bypassed.
• The competence and expertise of individual employees was called into question.
• The team members had poor interpersonal and communication skills.
• The data visualization software used at the German headquarters was not synchronized with the software used in India.
• The team members had only limited knowledge of how to use the software.
• It was found that the team members only make incomplete data entries in the software and systems.
• The purchasing team only had limited authority to make changes to this software.
• The internal performance evaluation system was not aligned with the strategic orientation of the parent company.
• It was found that parts were being stored inefficiently and that there was no order in the storage area.

We divided the identified weaknesses into 15 categories that required immediate attention. We also defined the impact of each category on stock levels. We proposed a systematic approach to eliminate all bottlenecks with a respective action plan. The German management, together with the Indian subsidiary team, decided that we, as the WB team, would develop and implement the measures for three categories.

The focus is on employees

In order to achieve the project goal and make the three categories more efficient in the long term, we were entrusted with the following tasks:

• Development of a methodology for classifying stocks.
• Definition of processes for determining reorder points and minimum order quantities using a simple flow chart.
• Supervision and performance review of the purchasing department team within a defined period of time.

This involved reviewing the process documents of the procurement, warehouse, quality control and production departments related to inventory management. The purpose was to identify the gaps in the workflows compared to the standards to be complied with.

Review of the tools used by the team in the inventory planning process.

Evaluation of the quality of procurement planning and data accuracy in the internal system.

Evaluation of efficiency:

• Organizational structure and management of the procurement team.
• Supplier selection process and associated documents, supplier audits, etc.
• Procurement team in the processing of quality complaints through the use of communication tools and supplier support.
• Problem-solving skills of the procurement team in terms of delivery delays, costs, tracking, etc.
• Development of new supplier relationships.

Evaluation of effectiveness:

• Communicating the importance of milk runs and regular purchases from suppliers.
• Assessment of suppliers by the procurement team and the ability to recognize deficiencies in advance.
• Coaching of the procurement team so that potential shortcomings are recognized and reduced in the future.

Building strong customer relationships

As in all projects, we didn’t suddenly appear as external consultants, cause chaos in the company, give some smart advice and then disappear from the scene again. We always see ourselves as part of the team and immerse ourselves in the company.

The collaboration began with an on-site visit to the state of Tamil Nadu and an inspection of the individual departments involved in procurement activities. This included the warehouse, quality control and production of the Indian subsidiary. We conducted one-on-one interviews with each member of the procurement team to determine their skill level, knowledge of processes, understanding of their roles and responsibilities, as well as the bottlenecks they faced.

At the same time, we reviewed all process and workflow documents of the relevant departments. We collected data from the internal systems required for material classification based on objective and subjective parameters. We then analyzed the collected data and provided a classification model and methodology for the practical implementation of the model in the daily procurement process.

Tangible solution instead of glossy concept

As a matter of principle, we do not promise glossy concepts, nor do we impose the one, presumably correct solution. As in this project, it is often necessary to pursue several approaches at the same time in order to create a prompt solution, but also to strengthen the company in the long term.

Together with the client, we came to the conclusion in this case that individual coaching of the teams would make sense in order to achieve a temporary and timely improvement in internal conditions. In order to fundamentally eliminate the weaknesses and achieve the strategic goals in the long term, the company must pursue a three-pronged approach at a strategic, tactical and operational level.

This includes redefining the standard approach, restructuring and systematically training employees in the procurement department and redefining performance indicators to measure the team’s performance and competence. A complex process for the company, but one that will strengthen the supply chain in the long term.