On time!

Crucial percentages

Olivier Buring, Supply Chain and Sourcing Director works for Hager Group in China. The country is home to three production facilities, two logistics centres and 28 sales offices. Together with France-based Group Supply Chain Vice President Philippe Blommaers, Olivier is in charge of ensuring punctual and complete deliveries in the Asia/Pacific region. From a global perspective, this endeavour is going surprisingly well. On average, Hager achieves an on-time delivery (OTD) of 96.6%. This is a genuine benchmark in the industry.

As pleasing as this high percentage may be, Hager focuses most of its attention on the small percentage, the 3.4% of deliveries that cannot be delivered on time because this is a real problem for customers.

Within Europe, customers say that they cannot wait longer than a week for a subsequent delivery. This prompted Hager to develop a key indicator in 2015 to measure this performance. The abbreviation BOOW stands for backlog over one week. Thanks to the joint efforts of teams from production, central and local materials management, and logistics, Hager managed to reduce these backlogs of over one week by almost 66% throughout the group. As things stand, out of a total 90,000 references fewer than 400 exceed this critical threshold.

Specific measures were developed to combat this problem in the different markets. In the Asia/Pacific region, new technologies are being introduced and new structures put into place. “When we identify that not all products ordered are delivered in full on the delivery date, we don’t look simply at providing a speedy subsequent delivery, but at improving our processes,” states Olivier Buring. For him, a key factor here is the human touch.

”We resolve many issues at a personal level and discuss with the customer the best way to go about handling a backorder.” This may be a partial delivery or a late but complete delivery, and perhaps even a subsequent installation of the missing component by a local Hager expert.

In Asia, Hager is mainly involved in large-scale new construction projects. By the time the electrical installation is fitted, there are often several dozen shell construction electricians on their way to the site. By this point, at the very latest, the customer needs the full order of materials to be available on site. If this doesn’t happen, the customer has to pay the workers for a day’s work they haven’t done and enlist their services again when the missing components are subsequently delivered. This not only costs money, but also, more importantly, messes up the strict scheduling of the construction plan. If a fateful chain of interdependent trades were to be knocked off balance, the construction costs incurred could skyrocket.

Ensuring the lowest possible BOOW figure is therefore incredibly important for customers. Achieving this requires a great deal of effort in the Asia/Pacific region. Firstly, because Hager isn’t a market leader in this region. Olivier Buring, describing another big difference to the usual market environment, such as in Europe adds, “neither do we have the wholesaler infrastructure, we negotiate our sales directly with the customer”. Secondly, advance payment is customary in Asia. This also means that customers expect to receive the products they have ordered within 48 hours.

“This is a challenge,” states Olivier, “because we only actually produce a quarter of the products we sell here in the country. The vast majority of products are shipped from production locations elsewhere in the world, which involves time-consuming customs processes and transportation.” A delivery by ship from Europe can take up to 20 weeks. Even in a best-case scenario, it takes at least three weeks and this is still in stark contrast to the expectations of customers, who expect on-time deliveries to arrive in a matter of hours.

Things move faster with product families

In the case of Air Circuit Breakers (ACBs), Philippe Blommaers and Olivier Buring were able to solve this time conflict by changing the warehousing structure.

ACBs are requested in a thousand different combinations together with other add-on components. Suppliers require up to 12 weeks to process these complex orders, which is far too long to satisfy market expectations. Hager’s response has the abbreviation DCC. Of late, the Delayed Customisation Centre has held what are known as Stock Keeping Units (SKUs). This is a kind of product family consisting of a circuit breaker and its most commonly ordered add-on components. An analysis of all circuit breaker orders found that for every ACB, 500 to 3,500 add-on components are ordered on average. Hager now stocks the appropriate packages, which can be put together on demand.

This saw delivery times drop dramatically and delivery quantities rise from 200 to several thousand circuit breakers a year. This has a sizeable effect on sales as the ACB is Hager’s most expensive product in Asia. State-of-the-art IT solutions are another tool for reducing the BOOW figure. Nowadays, a piece of software can identify bottlenecks in the warehouse in real time, whereas before inventories were taken only every quarter.

Rare and flexible

Other Hager Group companies are already using the Delayed Customisation Centre. But in addition to these regional solutions, there are also a number of central challenges. Philippe Blommaers mentions the example of ‘exotic products’ that are required by only a handful of customers worldwide and made exclusively to order.

The level of diversity in the portfolio thanks to these one-of-a-kind items represents a key competitive advantage, but only when these very small quantities can be produced and delivered quickly and flexibly as well. Hager set up small production lines for this purpose, operated by highly experienced workers who produce items on demand, often even by hand. It’s worth the effort when on-time deliveries are seen as a matter of course, at least by the customer.