German giants grapple with procurement and supply chain management

“The world is becoming too fast, too complex and too networked for any company to have all the solutions inside.” It’s also too costly for any company, whatever its size, to go it alone – and that even applies to a multinational conglomerate the size of Germany’s thyssenkrupp, which has 156,000 employees worldwide and operations across 2,000 locations in 80 countries.

The observation comes from Jens Klaesener, the group’s head of procurement and supply management processes, who was a keynote speaker at the SAP Ariba Live event held in Prague earlier this month. He reported that thyssenkruup has no less than 470 companies within the group, although this marks a significant reduction on the total of 800 as recently as 2011.

In addition to its steel production in Europe and North America, the group’s businesses include components technology, elevator technology, industrial solutions and materials services. “Across these various products and services, we’re working on offering improved solutions to our customers,” Klaesener reported.

“In the past, our 800 companies didn’t work together or combine very well and we’re still struggling financially due to our nightmare in the US.” The group’s financial performance – annual sales of €39bn (US$43.5bn) and pre-tax profit of €1.5bn – has been dented over the past decade by heavy losses in North America and also Brazil, where it recently sold its CSA business at a €900m write-down.

Stable financials

Thyssenkrupp is also “on the point of selling” its Steel Americas operation, which since the global financial crisis has been forced to sell its product at below production cost in order to remain competitive.

“So, the aim is to achieve greater financial stability and focus on our leading engineering expertise,” said Klaesener. “We’re also aiming for the digitisation of our procurement and supply management (PSM) and driving the technical levers across the product lifecycle.”

This will be accomplished by developing a closely-connected internal procurement network and clustering thyssenkrupp’s procurement teams together so that they work as one when approaching global supply markets.

“The clusters bring together strategically-selected suppliers into a high-performing network,” explained Klaesener. “Suppliers are digitally connected to the group’s processes and systems, giving high transparency and efficiency.”

The next step is for the group to get fully into the area of direct materials sourcing, which will enable thyssenkrupp to make savings through an efficient digital source-to-contract process and procure materials direct. Currently there are “a lot of things in place” in readiness for direct sourcing, but further work will be needed to integrate them.

BASF’s vision

Direct materials sourcing, currently a “massive area of investment” for SAP Ariba, is also being deployed by another massive German multinational, the chemicals group BASF whose products “are used in almost all industries” according to Dr Jürgen Eberz, its global head of processes and systems. BASF’s global workforce totals 114,000 employees, annual sales are €57bn and pre-tax earnings currently run to €6.3bn.

Like its peers in the chemicals sector, BASF is transforming its operations through what has been dubbed the Fourth Industrial Revolution, or Industry 4.0, which is introducing automation and data exchange to businesses. Seven core technologies form the basis of Industry 4.0 at BASF: artificial intelligence (AI); big data analytics; cloud computing; the Internet of Things (IoT); mobile devices; 3D printing; and augmented reality.

Eberz summarised the group’s future as one in which fully integrated and automated networks will provide a seamless flow of information between all parties. BASF’s vendor interaction portal and strategic procurement suite, powered by SAP Ariba allow for the optimisation of its procurement.

“BASF has a number of core business requirements and benefits,” he reported. “There is now an established industry standard that enhances collaboration with our partners – replacing the previous lack of any standard and a landscape of individual connectivity solutions.

“The source-to-contract (S2C) tool integrates what were previously fragmented tools into a single platform for buyers and suppliers, while six major areas for improvement have been identified in the current IT set-up.

The group’s overall target, added Eberz, is to simplify life for the buyer and to free-up time for value-creating activities. “BASF’s supplier management and S2C provides the framework for implementation of our strategic procurement suite (SMS).

The three major trends impacting on supplier management for companies around the world were identified by Ruud Willemsen, a solution consultant at the SAP Procurement and Business Network. First is globalisation, which means more parties are involved and managing supplies becomes more complex, while political risk, language problems and inadequate local regulations add to the challenge.

Second is big data, which presents the question of how best to utilise huge amounts of data and leverage it to drive business value; and third is new digital technology, which is disrupting traditional operations and “providing a rich environment for innovation.”

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