"Companies fear more bureaucracy" | logistics

MOB: Mr. Saric, what impact have the global corona pandemic and the war in Ukraine had on the local supply chains of companies in recent weeks and months?
Alex Saric: The corona pandemic and the crisis in the semiconductor industry continue to lead to delivery bottlenecks for important individual parts and assemblies – especially in the manufacturing industry. The war against Ukraine has further exacerbated the problems: companies with little vertical integration and suppliers from Ukraine and Russia are currently having great difficulty maintaining their production and are even having to cut back massively. A good example of this is the automotive industry: Some manufacturers had to shut down production due to the lack of deliveries of wiring harnesses from Ukrainian plants. As a result, exceptionally long delivery times are currently to be expected, even for standard models.

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MOB: What are the biggest problems or stumbling blocks in supply chain management (SCM) at the moment?
Saric: There are basically three challenges: Many companies know their direct top suppliers, but unfortunately they often lack information about sub-tier suppliers. This means: You cannot identify critical dependencies at first glance. In addition, there is a lack of integration options for external risk information, its structured evaluation and the derivation of concrete recommendations for action for purchasing. In addition, they often have difficulties in finding suitable replacement suppliers in good time in the event of breakdowns or delivery delays.

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MOB: Another challenge is certainly the Supply Chain Due Diligence Act (LkSG), which is to come into force on January 1, 2023 (initially only for companies with more than 3,000 employees; one year later also for companies with more than 1,000 employees) . What are the points of criticism from the companies?
Saric: Companies fear more bureaucracy, rising costs and a weakening of competitiveness compared to foreign competitors who are not affected by the regulations. It is all the more important to keep the additional effort as low as possible with the right tools and, for example, to aggregate the necessary data and reports for the new evidence with IT support at the push of a button and to automate new or adapted processes as far as possible.

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MOB: What opportunities should the law offer?
Saric: The demand for products that are produced sustainably and under fair working conditions has been increasing for some time on the part of consumers themselves. Many companies have therefore voluntarily committed themselves to complying with international standards with a “Code of Conduct” – and also demand the same from their suppliers. I think the supply chain law will act as a catalyst and motivate companies to further promote compliance with international standards and also to demonstrate this. In addition, the law offers the ideal opportunity to completely digitize purchasing processes and set up professional risk management that aggregates and evaluates information from external data suppliers and can make findings available to purchasing as concrete recommendations for action.

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MOB: To what extent does the law open up new playing fields and opportunities for cooperation, e.g. for start-ups?
Saric: The evaluation of suppliers requires a variety of different information. The same applies to determining the CO2 footprint in supply chains and at order level. Companies, purchasing and also manufacturers of purchasing software therefore have a strong interest in getting this information and working with innovative start-ups. In my opinion, the most interesting ones right now are Carbmee, Ecovadis and Tealbook.

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MOB: How are companies already making their procurement and purchasing organization fit for the Supply Chain Act 2023?
Saric: The implementation of the German supply chain law means above all an expansion of the existing risk management to include CSR risks. Many companies are currently putting a lot of effort into ensuring the required assessment of their direct suppliers – be it by purchasing new risk management software or strategically collaborating with external partners. Large companies, in particular, are working flat out to expand their competences in the area of ”sustainability” to include purchasing. Nevertheless, I expect that a not inconsiderable proportion of companies with an insufficient degree of digitization are not yet fully prepared for the Supply Chain Act – and will probably miss the required deadline.

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MOB: Which mobile technologies and solutions can help with the digitization of supply chains and thus ensure more efficient and transparent processes?
Saric: In order to achieve a minimum level of transparency in international supply chains, companies must take a holistic approach. The digitization of their purchasing processes is a necessary prerequisite so that they can continuously monitor the compliance of their suppliers with regulations. To do this, regular and intensive communication with suppliers must take place – whether at a fixed workplace or via a suitable mobile device. Valid external risk data plays a crucial role when evaluating suppliers. Companies must enable their purchasing departments to assess CSR risks before placing an order and to decide on the right suppliers – and to document these decisions with legal certainty. In order to keep up with developments, the purchasing software used should be flexible and offer options for data integration. In this respect, I also see the development of Deutsche Telekom to check individual suppliers in the form of online audits via video transmission with augmented reality (AR) as useful. Corresponding data should, however, be able to be integrated into existing purchasing solutions and also be evaluated there.

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MOB: What role do artificial intelligence (AI) and robotics play in automating supply chain processes?
Saric: Automation is a big topic in purchasing. It helps organizations onboard new suppliers, accelerate the procurement of goods and services, pay invoices, and improve collaboration with suppliers. The prerequisite for this is a consistently digitized source-to-pay process – starting with the tender, through the commissioning, delivery and payment.

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MOB: What are the challenges that still need to be overcome?
Saric: It is our impression that software solutions alone or specifications from above are not enough for a successful modernization. Purchasing organizations should take the opportunity to raise the relationship with their partners to a new level and work together much more closely than before. To do this, it is important to create a consensus about changed customer requirements, to accept the need for significantly greater transparency and to agree on this contractually. This new form of partnership is essential if responsibility is also extended to sub-suppliers and their partners – for example with an EU supply chain law. As of today, companies cannot ensure complete transparency about their supply chain because they do not know their suppliers’ partners. The reason: Many sub-suppliers are contractually bound to secrecy and are not allowed to talk about customer relationships and consequently not document them in writing for third parties. Supply chain transparency is currently still a vision of the future, which is technically solvable, but will only be possible in practice through changed customer relationships.

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MOB: What trends do you see in the logistics industry in 2022?
Saric: Companies should expect that sooner or later they will be held accountable for complying with fair working conditions and stricter environmental regulations throughout their supply chain. This can be seen, for example, in the first draft of an EU supply chain law that also applies to the logistics industry: companies act as suppliers and buy products and services from third parties. We see that companies in all sectors are currently working at full speed on the digitization of purchasing processes and building up competencies for sustainable purchasing – the extent to which this succeeds depends on the technical and organizational maturity of the company.

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