Task force in purchasing

Tanja Dammann-Götsch has been calling for a rethink in purchasing in the automotive industry for years: away from being a price suppressor and towards becoming a partner of the supplier industry. The owner of the consultancy Purchasing Professional has more than 25 years of experience in international purchasing. Of these, over 20 years in purchasing in the automotive industry – the “toughest procurement market in the world”, as she says. MBI Buyers in the Market spoke to her about the current difficult situation on the industrial procurement markets and how purchasing can best cope with it.

Buyers in the market: Mrs. Dammann-Götsch, for years you have been calling for a rethink in purchasing in the automotive industry, away from price suppression and towards becoming a partner of the supplier industry. How much do you feel vindicated by the current situation?

Tanja Dammann-Götsch: Nobody could have foreseen the current bottlenecks in material supply. Wood, steel, plastic, packaging – no matter what materials are needed at the moment: You get nothing. Buyers in almost all manufacturing sectors find themselves in a hard sellers’ market instead of a comfortable buyers’ market from one moment to the next. Demand has skyrocketed in many sectors. Now the suppliers dictate the prices. Deliveries are made to where the highest prices are paid or where there is the closest customer loyalty. Those who have built up and maintained good relationships with suppliers as partners are prepared for such a situation. Because loyalty is usually not a one-way street. Instead of always chasing the best price, the buyer achieves significantly better results in cooperation with the supplier. Whether in times of material shortage or in “normal” times. He benefits, for example, from the transfer of ideas and optimizes the ability to plan. Ideally, he thus develops into a company designer. However, this must be strategically desired “from above”. Those who have already implemented this before the pandemic now enjoy a certain advantage over the advocates of price squeezing. There were warning signals for such a rethink in purchasing even before Corona. For a long time now, industrial companies and entire industrial nations have been competing with each other in the procurement of the materials needed for the growing demand for electronics. Microchips are at the top of purchasing lists worldwide. The rampant hoarding of purchases – now known as the “toilet paper effect” – reinforces this.

Besides the external unforeseen circumstances related to the pandemic, what do you see as the home-made structural causes for the current shortage of materials?

The pandemic acts like a burning glass under which one can clearly see all the failures of the last few years with regard to securing the supply chain with foresight. In addition to the “obligatory” price squeezing, another widespread behavior in material management comes to the fore here: those who have entered into strong dependencies out of convenience instead of having at least two other alternative suppliers up their sleeves for articles that are indispensable for production are now also losing out. Ignorance of the commodity groups and ordering according to the principle “what you have always ordered can’t hurt” is also widespread. If you don’t know the specifications of the commodity groups, you can’t look for substitute solutions in case of bottlenecks. Just-in-time production with little storage capacity is now also showing its downside. Some developments were already apparent in the second quarter of last year at the latest. It was (unfortunately) foreseeable that there would be bottlenecks in procurement after the pandemic. Even with a weak order situation, stockpiling with the most important articles should therefore have taken place. Now that orders are coming in, German companies are increasingly subject to purchasing competition. For some companies, complete delivery is paralyzed. Those who came out of the pandemic faster – like China and the USA – can pay higher prices to secure their own production. Wood from Germany therefore goes on the road, while there is a shortage on our doorstep in construction, trade and industry. In my opinion, this is also a matter for the policies of both the EU and the German government. 

What do you recommend to buyers in industry to get a grip on the material shortages and secure the supply chain as quickly as possible now?

Buyers are faced with the problem: material supply versus price increase. In order to find a good solution here, several screws have to be turned. Because purchasing alone cannot solve the dilemma. Supply chain management is also called upon. Stocks must be checked, and the actual state must be precisely documented. It helps to conduct discussions with tact and negotiating skills – both with buyers and with all (!) suppliers. The extent to which manufacturers pass on the increased prices can be renegotiated and jointly shouldered if necessary. In cooperation with partners from retail and supplier companies, creative solutions can be developed that benefit everyone. Purchasing, on the other hand, has to rethink: away from micromanagement and instead trust more in the team. The best thing for the procurement department to do now is to adopt agile methods, which not only help in the current crisis, but fundamentally professionalize the work. In agile procurement, individuals and interaction are given more weight than processes and tools. Silo thinking is actively counteracted, interdepartmental networks are promoted. Managers communicate the company’s goals to employees in a comprehensible way. Short meetings, flat hierarchies and clever software that streamlines the documentation effort are also part of the process. 

To quickly avert the acute danger of a production stop due to material shortages, my recommendation of the hour is: form a task force. By this I mean an interdisciplinary team that sits down for an hour every day and jointly develops ideas for material supply. From every department: from purchasing, scheduling, production control, production and sales. This does not mean a round of managers, but employees who are entrusted with the day-to-day work. After brainstorming, everyone takes the ideas back to their department. Of course, the task force needs comprehensive decision-making authority. Only through responsibility do you get good results.

The task force develops a good idea. What exactly happens to it then, who implements it?

The task force bundles competences in order to solve a problem in a fixed period of time, detached from the usual organizational processes. At the beginning there is always great enthusiasm. The individual departments are motivated to put the ideas into practice. And since everyone pulls together, the first successes are quickly achieved. Once the problem has been solved, the task force is disbanded, partly to avoid tying up staff and incurring costs. Mutual pats on the back and off with the good ideas into the drawer – that is usually the inglorious end of their success. For a company to benefit from the results of the task force in the long term, the full support of the management is needed. Learning from mistakes may mean profoundly changing structures and processes. If the right consequences are drawn from overcoming the crisis, the task force’s efforts will have paid off for a company in the long term. 

The interview was published in issue 13 of MBI Buyers in the Market on 01.07.2021