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How are suppliers strategically dealing with their raw material sourcing dependence on China?

Global sourcing in an era of ‘perfect storms’ – Thomas Pfeiffer, vice president global sourcing HA Group

Raw material prices have been rising sharply for several reasons, including extreme demand, and supply bottlenecks, which are causing serious problems for manufacturers – the raw material crisis is keeping the world on tenterhooks and is likely to do so for some time to come. Companies and suppliers in the foundry industry must adapt to the changing conditions as best they can, because there is no light at the end of the tunnel in sight for the time being.

The be-all and end-all: a global network

The Hüttenes-Albertus Group (HA) is represented in over 30 countries worldwide. The group manages a broad portfolio of chemical raw materials, minerals and sands – from niche specialty materials to large-volume commodities. To ensure that sourcing for all HA companies is crisis-proof, the group’s strategic and operational levels work closely together, yet separately: HA’s strategic sourcing operates centrally, while operational activities are managed locally, close to customers, at production sites worldwide.

The global companies of the HA Group’s sourcing network are in constant communication via digital media to ensure that product market information can be transparently exchanged on an international level. With knowledge of the processes and changes in the various countries, HA companies worldwide are able to react quickly, even in times of bottlenecks, and to help each other immediately, in case of need. It is this close networking that allows HA to effectively maintain its supply chain.

The challenges in 2020 to 2022

As in 2020, this year has also already been marked by significant disruptions caused by the coronavirus crisis. The pandemic is a burden on the global economy, and companies are facing immense challenges. At the beginning of the pandemic, HA’s sourcing department initially focused on assessing suppliers’ ability to deliver and their financial stability. We needed to adjust to the sharp decrease in demand from end customers. On top of that, an unprecedented combination of events occurred in quarter three of 2021 and exacerbated an already tense situation and continues to do so:

  • Highly volatile swings in demand make it difficult to plan effectively.
  • Suppliers and logistics partners have a shortage of personnel.
  • One-off incidents, such as the UK’s exit from the EU and the blockage of the Suez Canal, have exacerbated an already challenging situation.
  • The number of force majeure reports is increasing.

Yes, companies face one or more challenges of this nature from time to time, but the fact that all of these events (and their knock-on effects) have hit the world simultaneously is unprecedented. The world has never seen a ‘perfect storm’ on this scale before.

A strategy for the storm

In dealing with so many concurrent obstacles and disruptions, it is more important than ever to have a cohesive and dedicated workforce. HA’s purchasing team is closely networked, working globally and along the entire process chain – and this is what enables HA to ensure the efficiency and quality of deliveries.

No all-clear for 2022

The semi-conductor shortage continues, energy cost increases need to be assessed and, in China in particular, stringent measures to reduce energy consumption and carbon emissions are having an increasing impact. To remain fit for the future, companies must strategically adapt to the challenges and developments on the horizon. But all hopes of an initial relief in the second half of 2022 have vanished since Russia’s invasion of Ukraine. Europe is highly dependent on Russian gas and at risk of supply disruptions, but Russia is also a major oil exporter and supplier of fossil fuel products that enter international markets through Ukrainian ports. Any disruption to supplies caused by cyber or physical attacks, or sanctions in response, could send shockwaves through the global supply chain. The final impact on the global supply chain is currently unpredictable.

The role of China

China is an indispensable core sourcing market for all industries – whether as a direct supplier or as a supplier to a company’s own suppliers. To plan more effectively and ensure we are prepared for any eventuality, HA incorporates the Chinese government’s plans into our own strategies. Our motto is: ‘Hope for the best and plan for the worst’.

HA’s sourcing strategy is based on supply chains from at least two continents. Nevertheless, we recognise that this may not be enough on its own given the situation today and in the months and years to come. We know how important it is to maintain close lines of communication with our customers and to have alternative solutions tested and approved in case they are needed.

Even and especially in times when face-to-face meetings are not possible, transparent communication plays a key role. HA’s sourcing department regularly communicates digitally and directly with our own suppliers – in China and elsewhere around the world. Intercultural communication and understanding the situation of the different stakeholders is therefore one of the core competencies of a good sourcing manager.

The issues that will shape the future

The raw material situation in China is not the only factor that is creating uncertainty today and tomorrow. At HA, we aspire to be a dependable partner for our customers – locally, regionally and globally – for years to come. In addition to performing our regular sourcing tasks, there are three core issues that we believe will shape the future:

  • Resilience.
  • Sustainability.
  • Digitalisation and Processes.

We have clearly defined each of these three core areas for our teams and have used them as the basis of a new set of pragmatic principles that will guide our future business.  

  1. In our day-to-day business life, resilience means:
    1. The consistent implementation of a supply chain/product strategy, in combination with sourcing from suppliers in different regions. Where this is not possible, we conclude clear, long-term supply contracts.
    2. Thinking outside the box and, where appropriate, identifying alternative products and suppliers.
    3. Proactively optimising the co-ordination of our demand planning processes.
  2. HA is committed to sustainability along the entire process chain:
    1. We expect clear commitments from our suppliers, who are required to sign and comply with our Supplier Code of Conduct or provide us with their own appropriately equivalent code.
    2. We analyse the carbon footprint of all the raw materials we buy and incorporate this as a criterion when we decide which suppliers or products we work with.
    3. Sustainability is firmly anchored in our strategy and in all our terms and conditions of ordering, worldwide.
    4. We are networked across the HA Group through an internationally certified system. Our standards and principles are global.
  3. Digitalisation/Processes
    Our strategy in terms of automation, data processing, new systems, and interdisciplinary collaboration is based on the following principles:
    1. HA uses a standard sourcing process that is as close to fully automated as possible and makes the best use of enterprise resource planning (ERP) software capabilities.
    2. We use automated systems and information programmes wherever possible to allow our sourcing teams to focus on their core tasks.
    3. Data analytics: information and data from all over the world helps us to determine the most appropriate strategic actions.
    4. Last but not least, AI tools and automated programmes play an important role in identifying the best suppliers, possible alternative products and faster processes for HA.

These are major tasks in challenging times. They represent a serious test and one that faces us all. Only companies that resolutely embrace these challenges and constantly adapt their own strategies flexibly to the latest circumstances will emerge from the crisis stronger and, above all, be and remain reliable and dependable partners for their customers.

Contact: Huttenes-Albertus, Tel: +49 211 5087-242, web: www.ha-group.com