The GEXSO index was defined as an indicator for the effectiveness of best-practice approaches. It depicts the extent to which challenges during the management of a supply chain are mitigated by the participants of the study, and measures globalization competences.
Based on the results, the GEXSO index is divided into two categories: internal and external factors. Internal factors are areas such as information, communication and flexibility. External factors, factors with an external impact, are intersections between customers and suppliers, and customer and market orientation as well as supplier management. The resulting portfolio presents a classification of the interviewed companies in the aforementioned industry sectors, and offers direct comparison in accordance with the GEXSO index. The intersection of the four quadrants represents a virtual champion; a company that reaches a predominantly satisfactory level in all studied activities and processes, and shows further potential for optimization. Participants from both industry sectors are marked by colored dots: automotive suppliers are marked in red and machinery and plant engineers in grey. The grey areas A,B,C form the result of a cluster analysis.
The quadrant on the top right depicts those companies that were evaluated positively according to the GEXSO index areas – the champions of the participants. The quadrant on the top left represents companies in which activities in the areas information, communication and flexibility are realized to a high level. However, here, processes concerning customer and market orientation as well as supplier management are still expandable. The quadrant at the bottom left depicts companies that are in a stage of development with need for further action in all areas. Companies in which customer and market orientation as well as supplier management are developed well are represented at the bottom right. Nevertheless, here, activities such as information, communication and flexibility are expandable. However, according to the current survey results no companies fall into this category. In the current study three companies are classified as champions in accordance with the GEXSO index. This corresponds to a ratio of seven per cent. It is noteworthy that all champions come from the automotive supplier industry. 35 of the companies are situated in the quadrant on the upper left, with a balanced distribution of companies from both industry sectors. The major part of 58 per cent of the companies fall in the third quadrant – therefore, there is potential for development in the majority of the companies. The grey clusters represent similar answer sets in the participating companies in the four core areas. In cluster A there are twice as many automotive suppliers than machinery and plant engineers. Even excluding the champions, companies in this cluster have a higher GEXSO index on average than those in all other clusters. In the automotive supplier industry the study generally registered a higher acceptance rate in relation to questions regarding the effectiveness of established supply chain methods and practices according to GEXSO, and therefore higher process maturity. Consequently, the internationalization process of companies in this sector is often evaluated more positively in many respects. Both sectors are represented equally in cluster B. Cluster C contains almost twice as many companies of the machinery and plant engineering sector than of the automotive supplier industry. These companies must seriously reconsider whether they have laid necessary foundations for a globalization process.
GEXSO index vs. supply chain complexity
For a more detailed analysis of the participants’ organization of process excellence, and the factor of supply chain complexity in particular, the GEXSO index – as a sum of internal and external factors – is compared to the sector-specific level of complexity. The regression lines of both sectors indicate a clearly different process. In the machinery and plant engineering sector, organization of process maturity tends to decrease with increasing complexity, while in the automotive supplier industry it increases in the GEXSO index categories. Although some single values of the respective point cloud demonstrate significant deviations from the regression line, the machine and plant engineering sector clearly tends to have smaller GEXSO index values and the automotive supplier industry generally defend/keep or even improve their average (and already higher) value. If the sectors generally only had different approaches in the process categories of the GEXSO index this would result in only two point clouds that would be vertically displaced towards each other. However,correlative analysis indicates that there is a connection with the formed index of complexity – particularly with the number of production sites and their regional distribution.
As described above, the automotive supplier industry generally scores higher in the GEXSO index and also has a higher process maturity in comparison to the machinery and plant engineering sector. The GEXSO survey did not inquire as to the existence of processes but as to their consistent global implementation. A possible causal connection between the complexity values of the participating companies suggests that the machinery and plant engineering sector is less competent than the automotive supplier industry in mastering consistent and global implementation of supply chain processes and concepts during international expansion (and the related higher complexity according to GEXSO). This could be explained by different company sizes: While the machine and plant engineering sector has a revenue of 830 million euros and employs approximately 3,700 people, the automotive supplier industry employs approximately 14,000 people and generate a revenue of 2,700 million euros on average. Even taking only adjusted data into account, companies in the automotive supplier industry have double the number of employees and often more resources for global implementation of the required process quality. Furthermore, customers (generally large-scale enterprises) certainly demand globally consistent process quality. Given the evident differences between the sectors in the GEXSO index, companies can also learn from sector-internal forerunners.
AOn one hand, there are issues such as the inevitable globalization and expansion into international markets with regional customers, the indispensable driving force and motivation of companies, their supply chain and its scope regarding sales, production and procurement. On the other hand, size, complexity and scope pose large challenges to corporate management after successful internationalization, particularly in the areas of customer and market orientation. GEXSO examines the extent to which customer orientation is consistently maintained throughout the globalization process.
According to our study, process maturity in some areas of customer and market orientation is at a good level (central definition of the SC structure, adjustment to local market demands, one-face-to-the-customer concept, aims for logistic key figures, quote process, sales planning, and planning with customers). An analysis of the distribution demonstrates that the participants of the study differ from each other especially in the global implementation of after-sales services, customer service audits, and consistent customer segmentation. The automobile suppliers, and their general of a globally consistent concept for implementation, particularly cause this distribution. When comparing both industries, the automotive supplier industry has a higher average level of implementation regarding the examined measures for customer and market orientation (mean difference 0.38). Across both industries there is a remarkable acceptance of the implementation of a global tracking system.
The results in detail
Primarily, the focus of many companies’ planning processes is on global sales planning. Sales planning does not only include the scheduling/arranging of sales, it also forecasts turnover in the context of budget planning, which generally happens once a year. 76 per cent of the companies state that they have implemented or mostly implemented this process. Still, 63 per cent of the companies determine distribution and sales plans (for the purpose of greatest possible validity) together with their key customers. Furthermore, special attention is paid to logistics controlling: Only 16 per cent state that they have no or only partially defined objectives for logistical key data, such as service level and delivery reliability. 65 per cent primarily work with specific logistical target figures for international activities. As numerous companies have recognized the necessity of measurable customer orientation, GEXSO asked them about instruments for the measurement of customer satisfaction. 84 per cent of the companies state that they have internationally implemented or largely implemented consistent procedures for measurement of customer satisfaction. However, some areas demonstrate a notably weaker implementation. 54 per cent of the participants offer few or no possibilities to track orders or deliveries to their customers; another 23 per cent only partially do so. An option for tracking orders is not important in all industry scenarios (e.g. for a automotive supplier who is located close to the production site of the automotive OEM customer). However, the participants’ predominant rejection suggests that this possibility is not or not yet offered enough in relevant scenarios. Insightful are also the results of standardized offer processes, and those throughout the integration of key customers in supply chain organization and customer segmentation, which we will discuss further. The requirements for efficient sales management have changed significantly. In practice, companies with structured quote preparation and consistent process definition are better prepared for competitive pressure than companies with ad-hoc sales processes and those based on prior experience. According to the results of the study, 73 per cent of the participating companies have implemented a globally standardized offer process: Consequently, the maturity level of the examined industries could be assessed with “good”. However, from experience, we can say that companies’ self-assessment regarding the efficiency of their own offer management is often too positive and does not exclude deficits of process components such as qualification, solution development, quote preparation, quote presentation, offer negotiation and customer support. The implementation of this process is an issue not further discussed herein but should certainly be reviewed by the companies themselves.
Customers are usually not considered throughout the organization of a supply chain. The results demonstrate that companies still use a predominantly uniform organizational approach for the respective value-added network to satisfy their customers’ needs. Differentiated, customer- and product-specific organization of this network is only partly achieved: While 39 per cent of the companies integrate their customers into their supply chain organization, 30 per cent rarely do this or do not do this at all. Nearly another third only partially integrates their customers. Although 51 per cent of the companies already segment their customers according to globally uniform criteria, 26 per cent state that their level of service is not consistently adjusted to respective customer segments in all markets. In 36 per cent of the companies this isdone, though only partially. Supply chain internationalization primarily follows a consistent approach. The adjustment to local market demand does not seem necessary or is not pursued for other reasons – this is in accordance with the decision-making structures that were mentioned in the section on governance, which generally do not allow for delegation to local units if there is a predominantly central implementation. Consequently, a good two thirds of the participants (68 per cent) state that the basic structure of supply chains is defined by the headquarters.
According to 42 per cent of the companies, after-sales service is not consequently established in the service sector – as expected, this depends very much on the industry sector. For instance, 35 per cent of the participants from the machinery and plant engineering sector, in which service is generally very important, state that a consistently implemented high global service level isonly partially established in their company, or not at all. The aforementioned wide distribution in the automotive supplier industry can be explained by different sector-specific business models. In the examined companies, globalization generally takes place according to centrally managed supply chain policies and without great differentiation in the degree of supply chain service for local customers. Due to centralized corporate culture, nearly a third of the participants only partly include their customers into their supply chain organization, or do not do this at all. However, best practice processes are implemented by the majority of the participants. In the machinery and plant engineering sector, we noticed weaknesses regarding consistent global implementation as well as in the tracking of deliveries.
Given increasing internationalization in the examined sectors, supplier management becomes more and more important. A globally rolled out process for supplier selection, qualification and development poses large challenges to supplier management. GEXSO examines the quality and consistency of the companies’ international implementation of supplier management concepts.
Important factors for the management of suppliers are: a defined transparent supplier selection process, evaluation of supplier performance on basis of uniform criteria, an international development process for key suppliers, a suitable target system, cost analysis for transparency of purchasing potential across all locations, close collaboration with important key suppliers, extensive transparency of delivery reliability of suppliers etc.
The results of the study show that the maturity of supplier management has increased in general. Most companies implement key elements such as the definition of strategic suppliers, consistent selection criteria and a central supplier database. Analysis of the data shows a general consensus, particularly in relation to cooperation with key suppliers. In the sector comparison, the automotive supplier industry is especially active and demonstrates a high degree of approval with minimal variance. The automotive supplier industry generally has a higher degree of implementation regarding supplier management measures (mean difference 0.6). In comparison to customer and market orientation, here the automotive suppliers differ significantly.
The results in detail
Nevertheless, according to their according to the scattered nature of their responses some companies demonstrate considerable differences in specific areas. Although the companies with the highest level of implementation have globally uniform processes and methods in all areas of supplier management, companies that are rated lower lack supplier management standards. The largest differences were noted in areas such as target system, supplier evaluation and development, and ‘global spend analysis’. A ‘global spend analysis’ still constitutes a huge challenge for the companies. Only 65 per cent of the participants stated that they have globally consolidated procurement costs that are differentiated according to procurement processes and suppliers. Another problem is the extraction and processing of data from different systems. For instance, 17 per cent of the cases are missing data to assess the performance of the suppliers.
Consequently, definition of and cooperation with key suppliers are significant parts of supplier management and ensure company quality and procurement. As described in the section on supply chain complexity, the procurement volume is already heavily consolidated company-wide – in the majority of companies approximately 20 per cent of suppliers are associated with 80 per cent of costs. According to the results of the study, approximately 90 per cent of the participants cooperate more strongly with qualified key suppliers. An analysis of different areas of cooperation shows that cooperation is concentrated in product-centered areas such as product development (74 per cent of companies) and quality management (84 per cent). Relevant areas for supply chains play a lesser role. Only 51 per cent of the companies have supplier collaboration in the area of inventory management, 47 per cent in the area of production planning and 35 per cent in the area of sales forecast. However, differences become evident when comparing the two different sectors: In the machinery and plant engineering sector, product-oriented areas cooperate more closely, such as quality and product development. In the automotive supplier industry there is a stronger cooperation with areas such as sales and production planning. The majority of companies implement consistent approaches to supplier evaluation, whereas challenges occur in the area of global supplier development. Approximately 62 per cent of the participants have already implemented, or largely implemented, a uniform supplier evaluation process. However, only 44 per cent have a global supplier development process, and only 48 per cent use corresponding target systems across locations. Therefore, the problem lies in consistent and uniform supplier development based on data taken from supplier evaluations. At least 60 per cent of the participants apply a ‘lead-buyer’ concept (the responsibility of a purchaser or a purchasing department for the purchase of globally-utilized materials) for the organization of international purchasing; 21 per cent pursue this concept at least partially. The ‘lead-buyer’ concept is relevant for three quarters of the companies that have implemented it to a great extent. In summary, it can be said that supplier management competences – with increasing complexity due to the ongoing nature of internationalization – will continue to become more and more important for transparent procurement. Numerous companies already have globally-implemented supplier management standards. Particularly the development of international suppliers holds potential for improvement.
The increasing degree of global activities in procurement, production and sales raises the need for fast, accurate and secure information and data exchange. GEXSO examines areas in which the machinery and plant engineering sector and the automotive supplier industry communicate, the quality of communication and the implementation and failsafes of data management standards. Due to the geographic distribution of product and process knowledge that accompanies globalization, protection of intellectual property and implementation of consistent security and control mechanisms become more and more important. GEXSO queries measures to ensure security during data exchange.
The results of the study show a high degree of implementation within the interviewed companies on an overall level. Data standards and data correctness, as well as global security standards and central databases, were implemented less often than average. The value is particularly low in relation to security measures that were defined in collaboration with supply chain partners. The analysis of responses showed a strong consensus amongst the participants regarding standardized processes for global IT systems and access protection for sensitive data. The examined industries generally have a similar level of implementation in this GEXSO index category.
The results in detail
The support of corporate processes through globally used IT systems is very important in the process of internationalization because these systems offer integration benefits. 84 per cent of the interviewed companies use them for supply chain processes, while standard processes are primarily employed: The level of technical support is high. According to the results of the study, data security is an essential factor in the globalization process: 93 per cent of the interviewed companies stated that they have implemented access protection for sensitive data, two thirds of whom have used global standards. More than 80 per cent supervise and coordinate the implementation of standards through a central unit. It is striking that the level of implementation of security processes in poorly assessed companies is far below the average value.
Global cooperation increasingly requires an integration of supply chain partners (suppliers, etc.) in corporate processes and systems. Coordinated, accurately defined security measures are vitally important where shared or common data is used. However, this only applied to approximately one third of the interviewed companies, and it hardly applied to 37 per cent. According to GEXSO the issue of security is currently neglected by a large part of the participants. In some companies, processes for the definition of data standards and failsafes of data consistency and quality are implemented very differently compared to others. The participants’ statements in relation to this issue are examined closely because for GEXSO they are a basic prerequisite for efficient cooperation.
To ensure data quality, two thirds of the participants have largely defined global data standards. Equally, two thirds confirm that their supply chain data is correct. This is remarkable because checking for adherence to data standards by a central unit is only undertaken by 33 per cent of the participants. The majority of the companies achieve satisfactory results, whereas only 19 per cent fully confirm the correctness and completeness of their supply chain data. Approximately 17 per cent of the participants of the study have deficits regarding global data. Since correct data is indispensible for effective supply chain management, these companies are lacking an elementary prerequisite for global integration.
Furthermore, GEXSO analyses which information is exchanged by the IT systems: from planning, order processing, deadline confirmation, invoicing and crediting, and quality data, to product development data, the companies’ internal and external exchange with customers and suppliers was examined. The automotive supplier industry has significantly more exchange of information than the machinery and plant engineering sector, which can be explained by their dominant production type (large series productions) with high order and retrieval/call-off frequencies, which are discussed in the section on the demography of the study. Such process automation creates enormous time and cost advantages within the international network.
The mean value for electronic exchange of information with customers is 74 per cent in the automotive supplier industry and 36 per cent on average in the machinery and plant engineering sector that is “only half as communicative”. There are larger differences between the sectors in several process areas: nearly 90 per cent of companies in the automotive supplier industry share planning/scheduling information with customers. In the machinery and plant engineering sector, this applies to only one quarter. This also applies for communication regarding returns and quality data. Product development data is hardly exchanged in the machinery and plant engineering sector. Although automotive suppliers are integrated/incorporated significantly more strongly, (deutlich höher integriert sind) the gap is considerably smaller regarding process areas such as purchase quoting and ordering, appointment confirmation and dispatch/delivery notifications, invoices and credit items.
There is a considerably different picture in relation to the exchange of information with suppliers: Here, the mean value of the automotive suppliers is 64 per cent, and it is nearly the same in the machinery and plant engineering sector, at 63 per cent. We assume that the smaller level of integration with suppliers, in the automotive supplier industry, compared to their level of integration with customers, can be attributed to the large number of smaller companies on the side of the suppliers. In some areas, the machinery and plant engineering sector is integrated even more strongly.
The majority of the interviewed companies consistently pushed for electronic integration and are therefore well positioned for the ongoing process of internationalization. Automotive suppliers are linked more strongly to their customers, which can be explained with their production type and volume. Both industries are integrated equally strongly with regard to suppliers. The majority of the companies have globally rolled out IT systems and confirmed the correctness of their supply chain data. A lack of common security measures with supply chain partners are one deficit regarding the protection of intellectual property. However, a small but significant number of companies are badly positioned in the area of information and communication due to missing security measures, global IT systems and data standards.
For GEXSO, flexibility is a vital factor for success in the process of internationalization. After successful internationalization, company size, complexity and scope place great demands on a company’s flexibility, which is supported by the international structure but can also be limited by policies of excessive centralism. GEXSO examines the participants’ flexibility throughout the globalization process, and analyses their reaction to the changing circumstances. Important preconditions for a prompt response to changes are transparent, globally available stock, orders and capacities one the one hand, and a quick implementation of decisions on the other hand.
On average, the participants regarded themselves to be well positioned in many categories of flexibility (but with significant distribution of responses). Analysis of these responses indicates the smallest variance in the prompt implementation of decisions within their supply chain organization. Participants from the automotive supplier industry in particular seemed to concur, with an overall great acceptance. Deviations are comparatively high in relation to planning processes across production sites, and the need for storage of standard components. Generally, agreement regarding planning processes is relatively small across industries. Agreement is higher concerning stock keeping. The large deviation in both industries indicates that there are different process designs in these areas. The examined industries generally respond very similarly in this GEXSO index category.
The results in detail
Planning processes across locations are only implemented by 22 per cent of the participants. The planning of production sites is largely limited to single production sites. For technical or economical reasons, there seems to be no option given, in existing policies, to shift production volumes for production site policies. Planning across production sites requires strong operational management by a central or global supply chain manager. In the area of governance, responsibility for operational quantities (e.g. stock, delivery reliability) is managed on a local level. Consequently, in relation to strategic planning, the manager should be responsible for capacity planning across production sites due his or her generally strategic importance.
Therefore, the definition of the role of global supply manager holds potential for development. The ability to react flexibly to changes in demand requires transparency in three areas: stock, order status and production capacity. Just like the area of information and communication, the results of the study demonstrate that a large number of the participants have transparent global stock, orders and capacities. 17 per cent of the participants complain about deficits in relation to the transparency of global stock and stock developments. 12 per cent mostly have no information about incoming global orders, and 19 per cent have no knowledge about the available global capacities. These companies lack substantial prerequisites to act in a globally flexible manner.
Depending on the current situation of individual companies, this can hinder the process of internationalization. However, as GEXSO shows, a large number of similar companies are significantly more well-positioned. Another aspect of flexibility is compensation for fluctuations in demand.
Here GEXSO examined four possible strategies:
1. The establishment of an inventory of finished products;
2. The use of production capacity reserves;
3. A combination of the two, or;
Given the results, it is noteworthy that especially small- and large-series manufacturers often have mixed strategies, while make-to-order manufacturers, whose more individual business precludes stock keeping, mostly rely on capacity reserves. Here, large-series manufacturers are more likely to have the necessary volume. We also examined the level of stock buffering in relation to components. 37 per cent of the participants confirm that they stock standard components; another 30 per cent partly use this method while also compensating for fluctuations in demand by purchasing the required parts. Another criterion of flexibility is the short-term nature of production planning and specification. Changes in demand are more likely to be considered in short-term planning.
Since on-site-production in the international network possibly only accounts for a small proportion of the entire processing time, more flexibility would lead to a reduction of processing times, particularly in multi-stage production at different locations. The planning horizon of the machinery and plant engineering sector is considerably longer, as it is in the automotive supplier industry. 27 per cent of automotive suppliers usually change their production plan shortly before the beginning of production.
Only a tenth of the companies in the machinery and plant engineering sector demonstrate this level of flexibility. Here, the majority of production plans are fixed over a week in advance. For the most part, this difference can be explained with sector-specific requirements in the automotive supplier industry. At least, the production plans of 50 per cent of the companies in the machinery and plant engineering sector are adjusted within a week, and in 30 per cent of the companies within a day. Regarding the ability to implement changes within their supply chain, 60 per cent of the companies are able to quickly implement decisions. For 40 per cent of the companies, this applies only partially or very little. Given the mostly central decision-making culture of the participants of the study – described in the section on governance – this demonstrates that a significant proportion have difficulties to enforce their governance globally.
Therefore, a number of the companies are less flexible when it comes to global issues. Furthermore, GEXSO examines the proportion of value of manufacturing that occurs in-house. Here, the proportion of value is 30 per cent in half of the companies. The machinery and plant engineering sector has an even smaller proportion of in-house manufacturing: in 32 per cent of its companies, compared to 24 per cent of companies from the automotive supplier industry, the proportion is up to 20 per cent. However, in both industries, 42 per cent of companies have a proportion that is 40 per cent and more. In approximately a quarter of companies in the automobile supplier industry, and a fifth of companies in the machinery and plant engineering sector, the proportion is more than 50 per cent.
There is a majority opinion in relation to an adequate proportion of in-house manufacturing but no consensus about the appropriate establishment of same. Companies in both industries are willing to accept a smaller degree of flexibility, which they compensate with a larger proportion of in-house manufacturing , while others place greater value on the international coordination effort in the case that they have a smaller proportion of in-house manufacturing. In this context we also examined the outsourcing strategy. 43 per cent of the automotive suppliers and 47 per cent of the companies in the machinery and plant engineering sector make use of outsourcing in one of the following areas: planning, product development, procurement, production, final assembly, distribution, maintenance, and IT. Particularly areas that do not belong to the key competences of the companies are outsourced: Distribution is mentioned most often (42 per cent), followed by IT (19 per cent). Only 11 per cent of the companies with an outsourcing strategy mention production (11 per cent), final assembly (8 per cent) and procurement (8 per cent).
Although maintenance and servicing are technologically intensive, only 12 per cent of the companies mentioned them in the survey. No company follows any outsourcing strategy in relation to their product development. In both industries, outsourcing is in areas that have no technological impact on the products. In summary, a large number of the participants of the study meet the requirement of transparency of important supply chain data. Limited planning processes across locations, however, suggest that there is still room for improvement regarding the role of global supply chain manager.
Make-to-order producers compensate for fluctuations in demand with capacity reserves, while small- and large-series manufacturers mixed strategies. Two thirds of the companies also make use of buffering at component level. Flexible production planning in a large number of the companies allows for changes to be realized within days, possibly same-day. Sector-internal, a considerable number of the companies in the machinery and plant engineering sector (40 per cent) are lagging behind significantly, with comparatively higher processing times throughout the entire supply chain that affect their flexibility. Furthermore, 40 per cent of the participants state that the international implementation of their supply chain does not happen fast enough, which hinders their ability to respond flexibly to market changes. Moreover, many companies across both sectors still have a high level of in-house manufacturing. The anticipated higher coordination effort could be questioned since companies in the reference group achieve a smaller proportion of in-house manufacturing. The machinery and plant manufacturing sector stands out with a generally lower proportion of in-house manufacturing. The companies have quite a conservative viewpoint towards outsourcing strategies, which most of them only pursue outside of product affiliated technological areas. Evidently, the supply chain processes of many companies are not yet flexible enough and they can be classified as another area of improvement for successful internationalization.