Category: Risk Consulting

Emerging risks and new threats that are hard to grasp and estimate are a much-discussed topic. Add to that today’s increasing number of Black Swan events. These are unprecedented and unexpected events which nobody could have imagined, making them almost impossible to predict.
 
Experience shows that Black Swan events can, however, turn into emerging risks and can eventually be regarded as conventional risks and be treated as such in terms of standard risk management processes. Cyber risks, a blackout or pandemic comes to mind as typical examples.

Vogl: Which role does supply chain management play nowadays in a global business like ENGEL Group? Are you able to keep your supply chains up and running despite the current situation? Which role does pricing play in procurement?

Pernsteiner: To cut a long story short, yes, we managed to keep our delivery promises. That has always been our top priority. And, prices continue to play a role in procurement – to a possible extent. We produce injection moulding machines which are used in the manufacture of plastics parts and components as well as products for daily use. We are market leaders in Europe and the USA for machines with more than 1000 to clamping force and are active all over the world. We have nine production plants in Europe, Asia and North America as well as subsidiaries and representatives in over 85 countries. Our procurement is centrally organised, which means that all strategic decisions are made at our headquarters in Schwertberg, Austria. My team and I are working in tandem with our international offices in Asia, Turkey and Mexico to ensure an optimal service in these supplier markets.
 
Sales continue to do well, which means we need smooth supply chains. Our advantage is the energy efficiency of our machines. Our customers have stepped up replacement investments to save more energy and operate sustainably. As injection moulding makes up about 25% of the production costs, our machines can reduce this proportion by about 30%. That is why both delivery capability and delivery reliability are key factors for our business. 
 
Vogl: How does ENGEL identify risks in the existing supply chain?

Pernsteiner: We conduct supplier assessments and hold supplier performance meetings for our main suppliers every year. Besides the hard facts, we also look at all other relevant factors, such as quality, technology, logistics, procurement as well as customer service. We evaluate the performance, document deviations from the “mean value”, the “best of” of our suppliers as well as those concerning the “commodity”. For us, transparency is not a lip service but part of our everyday reality. Of course, we communicate the results of our assessments with our suppliers and show them where there is room for improvement.
 
During our performance review meetings with our suppliers, we jointly agree on the measures that will be binding for the next year. At ENGEL, risk management is at the top of the agenda, which is why it also defines the way how we collaborate with our suppliers.
 
Vogl: How do you select new suppliers?

Pernsteiner: We differentiate between procurement parts and engineering parts. We select suppliers for procurement parts via a market enquiry. Suppliers for development parts provide components, such as control units which have been defined in year-long development processes. Following a concept competition and a strict selection process, we jointly carry out further engineering work. When it comes to these types of components, we cannot simply change from one supplier to another, which is why we carefully select our engineering suppliers. However, including sub-suppliers in the engineering phase is currently difficult. We have therefore adopted a dual and multiple supplier strategy with global diversification almost everywhere to protect ourselves against supply chain risks and we try to follow the same strategy for engineering parts. We know that this may come to an extra cost. It has, however, paid off during the crisis. We are consciously spending more money to secure our supply chains and maintain customer promises. That is why we also buy semiconductor chips from the secondary market.
 
A diversified procurement strategy via several continents usually comes with a cost advantage as well. An example is the sheet metal we purchase in China: Despite high transport costs and tariffs, buying sheet metal from China is sometimes cheaper than buying it in Europe. 
 
Vogl: Which methods to you use to evaluate suppliers?

Pernsteiner: We conduct on-site assessments to evaluate quality capabilities – so-called Rapid Plant Assessments (RPA) – irrespective of the location of our suppliers. It is a simple and effective method that was developed in 2007. Only a few pages are needed to show 9 topics for the on-site inspection. They range from maintenance and service, order and cleanliness, parts and logistics, material and process flow to quality management, governance and compliance criteria. Nowadays, our assessments also include ESG criteria, such as environment and humane working conditions. The result of the RPA (based on a traffic light system) determines whether the supplier receives an unrestricted release for quotation requests and nominations (green) or whether improvements must be made (yellow). In case of a lack of stability or a supplier reorganisation, the supplier does not receive any requests for quotation (red).
 
Our RPA approach has been successfully used, has increased quality, and has reduced risks. It features 5 characteristics:

We live in turbulent times, and our world is changing. While change is important and a good thing, we are now facing a whole new dimension and new dynamics of change. Companies are challenged to find ways to manage these dynamics and their impact.

Lippert: Considering Europe’s energy crisis, does Donau Chemie also plan to erect new plants at new locations, and is Europe still an attractive manufacturing market?
 
Dums: Donau Chemie relies on organic growth. Over and above that, we are evaluating possibilities to expand our portfolio – like we did when we decided to bring the amidosulfonic acid production back to Europe – and tap into new markets. Alone in the last two years, we invested about EUR 35 million in our plant in Brückl in Carinthia. We erected a new distribution warehouse and filling facility, a new synthesis with heat extraction as well as a salt treatment facility for solar-dried sea salt.Container ship crews – mostly Asian – were no longer allowed to board or leave a vessel. Container ports came to a standstill, and the entire cycle of transporting and shipping goods was bogged down – until today.
Lockdowns which blocked the global economy ensued. As the restart did not take place simultaneously, the world economy struggled to restore its rhythm. Add to that the war, following Russia’s invasion of Ukraine. While Ukraine has become the main supplier of raw materials and intermediate goods for many industry sectors, the Western world saw itself forced to act by imposing sanctions on Russia.

Sanctions, not only harm Russia’s economy in the medium and long term but which negatively impact the energy supply chains of the Western world in the short term.