Difficulties and inconsistencies within supply chains can surface at many different points. They are not always obvious and manifest themselves, for example, in the unavailability of shipping containers for passage to Europe - a condition experienced by many companies in the course of the Covid 19 pandemic.
Even an established supply chain management, which has the task of setting up and managing the logistics chains, i.e. the flow of materials and information over the entire value-added process within, can reveal weaknesses.
A medium-sized family business that manufactures production equipment and packaging machinery was faced with difficulties in its own supply chain last year. The German management found that despite the systems and procedures established for the procurement department, the Indian subsidiary's inventory levels were threatening to reach 50 % of sales. This was 100 % above the strategically planned inventory level of 25 % of sales. But even more alarming was the fact that monthly inventory levels for May 2019 - May 2020 fluctuated between 45 % and 60 % - 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 kickoff meeting, the company's management informed us about the current bottlenecks.
There were two fundamental problems at this point: firstly, there were too many outstanding orders, and secondly, all internal and external communication was done by email, even though the Trello Board software was already available and was to be used by all the staff involved. These two issues resulted in the procurement department not contacting suppliers regularly to follow up on the delivery of materials. This in turn led to time-sensitive, frantic calls to suppliers. In other cases, alternative suppliers had to be approached to source the required amount of stock so that production requirements could be met.
Findings lead to far-reaching consequences
During the preparation phase and in the first days at the Indian subsidiary's plant, we discovered that the previously gained knowledge brought with it a high level of risk. The inefficiency of the purchasing team and the arbitrary approach of the procurement department lead to high inventory costs in the long term and thus to a huge blockage of working capital.
- The documentation of the workflow 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 in German.
- There were numerous deficiencies in the purchasing and delivery documentation.
- In working with individual team members, it was found that even known procurement processes are basically bypassed.
- The competence and expertise of individual employees was called into question.
- 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.
- Team members had limited knowledge of how to use the software.
- It was noted that team members were making incomplete data entries into the software and systems.
- The purchasing team had limited authority to make changes to this software.
- The internal performance evaluation system was not aligned with the strategic direction of the parent company.
- It was noted that there is inefficient storage of parts and there is no order in the storage area.
We classified the identified vulnerabilities into 15 categories that required immediate attention. We also defined the respective impact of each category on inventory. We proposed a systematic approach to address all the bottlenecks with a respective action plan. The German management together with the team of the Indian subsidiary decided that we, as the WB team, would work out and implement the measures for three categories.
Focus on employees
In order to achieve the project goal and to make the three categories more efficient in the long term, we were entrusted with the following tasks:
- Develop a methodology for classifying stocks.
- Define processes for determining reorder points and minimum order quantities using a simple flowchart.
- Supervision and performance review of the Purchasing Department team within a specified time period.
This involved a review of 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 met.
Review of the inventory planning process used by the team Instruments.
Evaluation of the Quality procurement planning and data accuracy in the internal system.
- Organizational structure and management of the procurement team.
- Supplier selection process and related documents, supplier audits, etc.
- Procurement team in handling quality complaints through the use of communication tools and supplier support.
- Problem solving skills of the procurement team regarding delivery delays, costs, tracking, etc.
- Development of new supplier relationships.
- Conveying the importance of milk runs and regular purchases from suppliers.
- Procurement team's assessment of suppliers and ability to identify deficiencies in advance.
- Coaching of the procurement team so that potential deficiencies are identified and reduced in the future.
Building strong customer relationships
As in all projects, we didn't suddenly appear as external consultants, caused chaos in the company, gave some smart advice and then disappeared from the scene again. We always see ourselves as part of the team and immerse ourselves in the company.
The cooperation began with an on-site visit to the state of Tamil Nadu and an assessment of the individual departments involved in procurement activities. This includes the warehouse, quality control and production of the Indian subsidiary. We held one-on-one meetings with each member of the procurement team to determine their level of competency, knowledge of the processes, understanding of their roles and responsibilities, and also 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. This was followed by an analysis of the collected data and the provision of a classification model and a 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 simultaneously in order to create a timely 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 be useful in order to achieve a temporary and timely improvement of the internal conditions. In order to fundamentally address the weaknesses and sustainably meet the strategic goals, the company must take a three-pronged approach at the strategic, tactical and operational levels.
This includes redefining the standard operating procedure, restructuring and systematically training the procurement department's staff, and redefining the performance indicators to measure the team's performance and competence. A complex process ahead for the company, but one that will permanently strengthen the supply chain.