Joachim Kaiser, Managing Director of Logistics and Materials Management at Rutronik Elektronische Bauelemente, considers the ways of securing long-term partnerships throughout the supply chain

More than two million electronic components with long and fluctuating delivery times are currently available in the market today. This huge variety can result in repeated periods of supply shortages. Sometimes there are communication problems between those involved in the supply chain, which can result in the end customer not receiving what they need in good time.

Contemporary logistics systems are therefore based on a significantly closer cooperation between companies and suppliers than was previously the case. This includes a relationship of trust, which has deterred many ¬companies in the past.

But an increasing number of them are seeing the advantages of such ¬systems and benefit from virtually 100 percent supply security. A pleasant side effect is that they can simultaneously optimise their processes significantly, reduce process costs and increase process quality.

Today the securing of supply and process cost reduction are top of the list of priorities. Because of the sheer quantity of components with their derivatives and the trend to release second or even third generations, makes need-compliant procurement a real challenge.

To ensure it, all contemporary logistics systems are based on a timely, ¬precise and comprehensive exchange of data. It is crucial that the customer provides the distributor with long-term planning figures and passes on all data at item level in an unfiltered manner. Because every influencing factor can change the figures resulting in supply problems at a later stage.

A large number of IT systems with ¬different data formats are available for electronic data exchange. This creates the foundation for automatic procurement and supply processes, which are ultimately identical for every logistics system: the customer sends its detailed short-term and long-term ¬forecasts to the distributor, the latter defines the current need from the weekly planning and supplies the required components in the ¬corresponding units to the customer.

A suitable backlog management of the logistics partner can also cushion longer delivery periods at any time. To this end, the distributor automatically generates the orders with the manufacturer from the customer’s forecast, in a time frame of up to a year.

The manufacturer then keeps the corresponding production capacities in stock. In doing so, the customer retains best possible flexibility, because it does not need to determine the precise items until about four to six weeks before delivery date.

At the same time, transport costs can be reduced in this way, which may make up a significant proportion of unit costs in particular for passive components. If the components can be shipped by sea instead of air-freight thanks to a long advance period, the cost share drops from ten to about one percent of the component price.

If the customer does not have such planning itself, the distributor should be able to provide it. With the use of forecast models, which include figures from the historical use and production of the weeks ahead, for instance, it can generate an artificial forecast, which represents a good basis for the entire supply chain.

This creates a win-win situation for all parties involved: the manufacturer knows the requirement of the market and therefore has a solid indication for its production planning.

The distributor has the security of having items in stock at the time of requirement even in the event of longer delivery times; and the ¬customer benefits from almost 100 percent supply security. It can also be maintained in the event of unforeseeable extensions to delivery periods.

The basis for this kind of cooperation in the supply chain is electronic data exchange. In addition to ensuring the supply, many process steps in ¬procurement therefore become unnecessary and an automated system can be established without needing further process analysis.

Contemporary logistics systems are also based on the three classic systems of consignment, kanban and delivery schedule. Which one suits the relevant customer best is determined from ¬circumstance and relevance, which has a series of factors for the customer, e.g. how much room is available in goods inwards or in the warehouse or how continuously production is ¬carried out. If these factors are interpreted correctly, the customer receives the system that meets their ideal requirement.

The fear of being bound to the ¬suppliers, has kept some companies from using such logistics systems until now. In particular during the Internet boom, it was standard practice to choose suppliers solely on the basis of price without considering product quality and availability.

This narrow focus often resulted in quality issues and production losses, which frequently overshadowed the cost savings. Due to this occurrence and the fact that short-term orders with the strong rise in quantity of ¬components are hardly possible anymore with the various and occasionally very long delivery periods, a different culture of trust has developed in which customer and supplier work together more closely.

Another consequence of this development is companies focus on fewer suppliers. The impact on the process costs for the customer must not be underestimated: every supply partner has its own processes and its own contact, with which the order, the supply and the invoicing must be discussed.

As such, not only the selection of the relevant supplier takes up time, but also the communication with every individual party. This means the logistics partner can cover a bigger proportion of requirement resulting in fewer suppliers a company needs. The time requirement and costs are reduced accordingly.

A long-standing relationship of trust between the customer and supplier or distributor, which is contractually secured, forms a solid basis for such a close connection, which benefits all parties involved.