Procurement in Motion: How SRM Drives Better, Faster Supplier Decisions

[Transcript]

[00:00:00] Jan Griffiths: This is the Auto Supply Chain Prophets podcast, and we are on a mission to bring you the latest insights and thought leaders leading the charge on supply chain transformation in our beloved automotive industry. This podcast is powered by QAD and AIAG. I'm Jan Griffiths, your host and producer. Let's meet your co-hosts.

[00:00:27] Jim Liegghio: I'm Jim Liegghio from AIAG.

[00:00:29] Terry Onica: I'm Terry Onica from QAD. Let's dive in.

[00:00:36] Jan Griffiths: Hello and welcome to another episode of the Auto Supply Chain Prophets Podcast. Let's check in with my co-host, Terry Onica. What have you been up to?

[00:00:44] Terry Onica: Remember a month ago we had Guillermo from Magna on our podcast, and he talked about making sure we all take care of our mental and physical wellbeing, right? And stress is so important that you manage especially in supply chain.

So, yesterday, I went for my annual visit with my doctor and, at the end, she said, "You're in excellent health," she said, "Keep up that running like you do, and that exercise. It really makes a difference." And so for me, I thought of Guillermo right away. It's so important that we exercise. And you don't have to grow old. So, that's my story for today.

[00:01:14] Jan Griffiths: Okay. Jim Liegghio, what have you been up to?

[00:01:17] Jim Liegghio: Yeah. I'm gonna echo Terry's comments today, Jan. I finished my goals for March in terms of fitness. I did my eight or nine hours of yoga, and I did a hundred miles of running and hiking. So, I'm happy.

And it's, like Terry said, mental health is so important. It's been a very turbulent first quarter this year, it's been crazy. So, yeah, number one vote for mental health in terms of physical fitness for me, as well.

That all said, I'm sitting today in one of our classrooms here at AIAG — different setup for me here today — one of our four awesome classrooms. We've had a couple onsite classes take place in the last month, which has been great having students run around the building. So, just a little bit of a hat tip to our training programs here at AIAG, which are ramping up for the spring. So, that's my new studio today.

[00:01:57] Jan Griffiths: Talking about stress. There's an awful lot of stress in the industry right now with tariffs. There's a lot of uncertainty. And something that we're not talking about as much as we need to, and that is the stress and strain on the supplier relationships from the OEMs to the tier ones, to the tier ones to the tier twos, and all the way down the supply chain.

So today, we're gonna dive deeper into the topic of supplier relationships and SRM — Supplier Relationship Management. And we have on the show today Achim Gatternig. Achim is the Senior Manager for Procurement Projects for Magna Complete Vehicles, and he is based in Austria. So, Achim, welcome to the show.

[00:02:42] Achim Gatternig: I'm happy to be here. Thank you for having me.

[00:02:45] Jim Liegghio: Let's get right into it Achim. A lot is going on in the industry right now. A lot of things are very important strategically. Let's talk strictly about supplier relationships. Where do the supplier relationships rank in terms of overall strategy and business today? What are some current challenges for both buyers and suppliers in today's climate?

[00:03:01] Achim Gatternig: Yeah, very good question. I think the supplier relationships and strategies of companies in particular in the automotive industry is very important. We at Magna have quite an extensive range of services and products across our groups that we deliver to our customers. We do components, systems, but also, as we said, complete vehicles. And with that said, there are strategies for all of those products and services.

Procurement is always an enabler for all of those products and all of the success with our customers. So, it's important that in every project that we do, you have to somehow drill down the top strategy to your project — down to the products that are part of this.

And in procurement then, somehow, you have to map this with supplier requirements. So, I might give you an example. So there is a very general requirements to our suppliers that they have to fulfill IATF requirements. It's a very base requirement. But there might be some project specific requirements saying one time we do a high volume project, next time we make a niche product. And this alone, the volumes alone differentiate about what suppliers might be most appropriate for this project.

With that said, it's always important that you somehow create your target scenario for the best fitting supplier at the very beginning. That you really build a bidders list that is fitting to all of those requirements that have been identified. And this is a very early stage decision that you do with your collaborative teams.

And from that time on, you try to bring in, as we said, suppliers that fit the strategy sheet to the project and to the product, because we really think that this is a way of getting a very effective and a very professional sourcing process into the activity. And with that, we can create very competitive and stable sourcing decisions at the end of the day, which is for sure one of the major tasks in procurement.

[00:05:01] Jim Liegghio: So, what I'm hearing is really clarity of expectations, I would say. Early on clarity of expectations, right out the gates, making sure that the program is understood, the volumes are understood. Am I hearing that right?

[00:05:13] Achim Gatternig: Absolutely. Yeah, you're completely right with that. Because if we all recognized in the last decade that time — lead times for projects, development lead times — they're getting reduced. So, we don't have these very long lead times.

We have to be on the spot, really, with a proper list of capable potential suppliers that we already know from the very beginning. So, we don't have the time to get data collected. We have to understand, at the very beginning, who can be an appropriate source, and then start with the classic typical array of approaching them with RFQing, getting the quotes in, negotiate hard for sure, and that comes out with the best result. But the baseline is already set in the very beginning when you frame the potentials that can get the business at the end of the day.

[00:06:00] Terry Onica: How does supplier relationship management tools help to improve the suppliers? And what's the feedback you get from suppliers on using these tools with you?

[00:06:08] Achim Gatternig: So, I think it's — when we look what has improved over the last years by using an SRM — I think there's improvement on both sides for suppliers and for the buyers. The buyers for sure get much better clarity and overview on what their suppliers can do, and what they can provide to the buyer teams.

On the other hand side, we also use our SRM system to provide feedback to the suppliers on a monthly base. For example, we create an automated scorecard based on all of the data we collect throughout the month on the deliveries of the suppliers, on the qualities, on the accuracy of time and amount. And this is a constant feedback that suppliers can receive from us. And can use to make their internal improvements on all of their processes.

I think it's a give and take. So, if you come to a point where you use this SRM effectively on both sides, I think it's beneficial for both sides and for sure when we started out doing that, I can tell you the suppliers were quite, "Is this necessary? Do we need to go in there? Is this something that really is recommended or is required?"

But over time, and I think the trend in the industry is very clear that all of the global players — I would not know anyone who is doing a too manual way of catching data from suppliers or email form or something like that. I think those days are for sure gone forever.

When they realize there's also a benefit out of that — if they actively work with the system — it's also a platform that they can share the information, that they can share the capabilities with some of Magna's groups they haven't done business so far. So, this can also be an enabler for potential businesses. So, I think it's both side winning situation when using those kind of systems.

[00:07:46] Jan Griffiths: You know, you say that there's suppliers out there that are maybe not using spreadsheets and word documents. Believe me, there are automotive suppliers out there that are still using manual type processes. So, what that tells me is that they don't see the value in it. They don't see the value in it.

How do you build the business case around the SRM tool? How do you do that? Because I can already see a bunch of executives in an executive conference room, you're coming forward with a proposal for SRM, and they look at it and they say, "Nah, we don't need that. We don't need it. We're fine. Our supplier relationships are good. We don't need that."

How would you help somebody through that if they were starting to build a business case around that?

[00:08:31] Achim Gatternig: I think when those executives come together, it is always hard to argue against what is in their minds the best way of doing a kind of business, because they have all their role models that they could have lived through decades and still think it's most appropriate.

But if you think about it, there might be — I talked about now a lot of these project phases that typically last for months or years when we actively use the SRM — but there's also this element in the daily business operational area where supply chain management needs to be very aggressively or actively steering things because there might be a crisis comes around and things change from one day to the other.

So, it is very important to have reliable data on hand that enables you as a procurement management or executive team to make the best possible decision. Because if you do a wrong decision or no decision, this might cost you a lot of money because you don't have too much time to waste.

And if you don't have a lot of good data available for that one use case or the other one use case, it might be very likely that you may not do the best option or choose the best option on the table because you might not even know it. Because if you don't have an understanding about your supplier and the subsupplier set — and the correlation between those things — I'm not sure if you can do a short time period analysis of the situation and with that a good choice of the options, so you can lose.

I think this will be always something that triggers management teams when you tell them on the one side, an SRM helps you to save money based on you get out the best, the better products prices, and quality because you better understand the product and you better understand your supplier from the very beginning.

And on the other hand, as I've said, you can lose a lot of money if you are not at the forehand of whatever is going on the market because time is key. And if you are too late with your decisions, the opportunity that was out there yesterday might be gone today.

So, I think it's time and transparency in the market, in the suppliers, in the products that SRMs can give you, and you should take that as a manager.

[00:10:43] Terry Onica: Do you have an example of how an SRM tool helps when you're in a disruption, like whether it's tariffs or maybe there's a fire someplace. Do you have an example of how it helps you to react quicker to that situation?

[00:10:59] Achim Gatternig: I think tariffs is a very good example because we are currently in a lot of discussions with that. So, the SRM is not just telling me where the supply is located from a production perspective, and it helps me to understand where the products are basically coming from.

That's perhaps the little bit of the difference where your standard ERP system that is very focused on the contractual side of the business, so you understand very well where your contract is going to, where your money is paid to, where your invoices are coming from.

Not always very effectively used to also understand the production allocations with that product — it can be used but sometimes I've seen not so effectively — where SRM is the ideal tool to do exactly this one.

You can also label the spend with the suppliers in the SRM tool to understand what are we talking about in terms of bill of material that's handled here. So, we understand the scope itself, we understand the value behind, and we understand the locations — the countries that we are talking about.

So, I think in a tariff discussion, these three elements are very important for procurements leads to understand. Okay, what is my risk here? How big is it? And what can I do against it?

For example, if I understand my supply location is in the country currently that will have a higher tariff based on recent decisions, this supply has a second location, which is within our country, for example, and we can discuss about relocating tools. There might be an add-on to the production cost, but it might be more effective to relocate the tool here and save all of the tariffs.

So, this decision can only start when you have those data on hand and plan to do some scenarios. And some of them might materialize afterwards, but those data are always to be on hand fast.

[00:12:42] Jim Liegghio: I wanna flip the script a little bit, Achim. You talked about the benefits to the buyer — the procurement team — talking about automated scorecards and some of the other SRM tools. What is one of the benefits to the supplier that's open-minded and willing to learn from that? So, can you give an example of that? What are some of the benefits from the supplier side of using automation tools?

[00:13:00] Achim Gatternig: Sure. So, we linked our SRM tool with our quality management tool, which is rolled out through all of Magna. A supplier which is in our SRM today and does have current business with our Magna Division will receive a monthly feedback, and with a trend setting and understanding of where his logistics performance is going to, where their quality performance is going to, what PPMs are doing, and so on and so forth.

So, there's a lot of parameters on this that can tell you as an expert — and typically we have experts on the other side of the SRM. So, it might be a quality expert, or a sales guy, or logistics expert that is looking into it and understanding, "Oh, I see that my delivery-on-time performance is getting down the last three months. So, why is that?"

So, if I understand this over a period of time, I can see a trend. And with that, for sure, that might not be even visible on their internal screens because, for example, if the company shipped from the division always on time, they think they're good. But in the meantime, their transport carrier somehow is doing bad recently. So, there might be a delay, and they're responsible for it, but they didn't cause it directly. So, they can react and readjust their transport carrier perhaps to get back on where they should be.

So, these are things where they can receive feedback—quantitative feedback—in terms of facts and figures. With that one, I think, it should be a good starting point to start change where it is reasonable to do so from their internal perspective.

[00:14:27] Terry Onica: One of the things with supplier performance — especially when corporate sets the requirements for supplier performance — is the plants are really responsible for the execution. Like, do they deliver on time? is their quality good? How does SRM work between corporate and the plants?

[00:14:42] Achim Gatternig: Magna, as we said, is the big company when it comes to division. So, we have some 300 active production divisions globally — we're quite big in that. And, as I said, we have those different kind of product groups with their different product scenarios. We have fewer comp divisions that only do those modules, or, as we said, we do the complete vehicle spin.

But nevertheless, there might be the same supplier in a tier one situation supplying to the one division—and also to a second, or even a third one. So, the supplier will receive a feedback from a division to the supplier. So, there might be three scorecards for this supplier received in a month because every division gives a different rating or different scoring to that one supplier.

But when it comes to the corporate Magna view of the supplier, the data will be aggregated up through the Magna Group level. So, we summarize the data and we give it a new KPI — first on the group level and later on the corporate level. So, all of the divisional incoming information is summarized up to the top, so you have a Magna view on this one supplier division.

So, this is where we have this levels of division: Magna Group and Magna Corporate. That helps us to get the picture around. For sure, the data is always coming bottom-up, because this is where the business is done. But they also have then a corporate view on the company. And this is helpful when it comes to, for example, senior management or executive supplier meetings. You will not discuss on the daily business level—we will have the big picture on hand. And with that, you can have different kind of discussions. With that data on hand, whatever level is involved, you get the proper data set, I would say — either on divisions or on the top level.

[00:16:25] Terry Onica: Speaking of executives, what are they looking for today out of tools? What are they paying attention to? What are they looking for?

[00:16:31] Achim Gatternig: Today's procurement executives have a wide range of what they should have an eye on. So, it is really multiple stages and they look for different things on different levels.

So, I think, first of all—starting chronologically in a project phase, when you start out—I think the focus is on keeping the costs to target, keeping the timing to target, because we have no chance to skip back any start of productions. We don't have the chance to overshoot the budget. So, I think there is the focus clearly on getting cost and timing under control. And here the SRM, as we use it in Magna, is helpful because we can get the cost in. We get the cost details in—that helps to get analyzed and that helps us to get the cost down.

We also, with the quotes, get the lead times from the suppliers that can be also analyzed and optimized in case necessary. So this is scope number one, I would think.

Then, for sure, as always, procurement will have an eye on the commercials, because we have to control the cost within operations team. Just the part cost, as just mentioned, is one element of it, but we also have CapEx is another topic, for example. So, we are also RFQ-ing indirectly our CapEx suppliers when it comes to the installation of a new assembly line, for example.

And here, our SRM has the capability to being an active tool to use for asset for the RFQ on the one hand side, but we in Magna also like to combine the RFQ with the online auction feature that we use in our SRM. So, you have really the chance to get to a very optimized commercial result, also in the indirect procurement area.

So, yeah, I said keeping cost by the control, I think, will be always very high in procurement executives' KPIs at the end of the day.

And number three is when you're in the steering of the daily operational business, as we said. Crisis fire at the supplier—flooding, bankruptcies—is very big topic these days. So, we have to have under control the elements of seeing financial rating of suppliers getting down. So, we also monitor this in our SRM. So, we see if there's a trend—saying, okay, supplier rating is going from green to yellow. Hmm, do we wait until we see a red? Or do we think about proactive activities to keep and maintain a yellow? Or do whatever is necessary to do?

I think this is the third element—that executives need to understand what is going on with the current supplier set on the market, based on inputs to the suppliers, whatever this might be.

[00:19:09] Jim Liegghio: That's a perfect segue. I was actually gonna ask you about supplier development and what comes next in terms of developing suppliers or coaching suppliers along that maybe are drifting into Yellow Zones. What kind of tools are you using in the supplier development space?

[00:19:21] Achim Gatternig: It depends on the topic for sure, 'cause the procurement teams in Magna are always very closely linked to our supplier quality teams. Typically, there's always a somehow correlation of quality, cost efficiency, and financial stability of a supplier.

Because if a supplier has constant quality issues that might not be beneficial for its commercials internally, in the long run, it might result in a negative financial healthy situation. So, we always try to bring back suppliers to their requested and required performance levels.

We even have a dedicated process within our SRM tool that we call the Top Focus Process. So, this is really when we are reaching a certain level of performance—or go below that—then SQA automatically, also in the SRM, gets information about how the supplier has dropped below the first security level. "Please have a closer monitoring view on that and start activities."

So, we document and for sure those kind of activities and define with the suppliers how to get back to target performance values. And for example, the scorecard — as mentioned earlier — is a way of seeing the trend towards the first red line, where we say, "Okay, this is still acceptable, but if the trend goes on, we have to go into active steering of the supplier." and this is what we can see from the data, from that point of view.

On the financial health side, we also see the trends. We have here, for sure, external parties that provide us, on a database, with updates on the supplier dataset. So, we understand if suppliers get into a critical situation, or, for example, there's a change in ownership. That might also be an element that is very important for us, because there is blacklist sanctioning. And if, for whatever reason, a supplier is now owned by a person who is on a blacklist, then we have to do an activity that. Because this is all part of the space we have to own in procurement.

So, it's not just the part price that counts — it's much, much more. And we all know that security topics are coming in more and more. So, we have to assure that our suppliers are capable of developing and securing their parts, to not open up any gateways for any kind of hacking down the road.

So, more and more requirements are coming in and I really think you have to have a kind of a central point, or central data hub, that allows you to really understand your supplier — the capabilities of the supplier, the best appropriate contact persons if you have to reach out for whatever reason — and being a communication center to the supplier at the end of today.

With feedback, with quotes, with all of the important stuff flipping around there — I think it's important to have it.

[00:22:01] Jim Liegghio: I love the cross functionality of everything you just described, right? The intersection of quality, finance, compliance, procurement, finding the best cost, but also obviously paying mind to all of those other factors. Excellent. That's the way I see it.

[00:22:14] Achim Gatternig: Thank you. It's not a one player game, right? So, you have to be in a team approach, for sure. For some topics, you are in the lead, but at the end of the day, you will only be successful when all of the team members are playing the same game.

And they all need, somehow, the same source of truth that you can work on — because otherwise, you run into different directions and nobody knows why. So, a single source of truth is a good thing to have in this case.

[00:22:38] Terry Onica: One question that I like to ask a lot of people that are involved in procurement is— a lot of the OEMs want you to pass things down the chain. So, it's not just good enough for you as a tier one to get to tier two, but they want you to tell tier two, to get to tier three, and so on and so forth. Sustainability assessments are a good thing for ESG, right?

[00:22:57] Achim Gatternig: Absolutely.

[00:22:58] Terry Onica: It's something they want you to pass on and really would like to get that down the supply chain. How are you managing that at Magna? To get to the tier two, and then to tell the tier two, "We really need to get beyond here." I'm just curious what you're doing in that area.

[00:23:11] Achim Gatternig: Absolutely. So, this is one of our focus topics these days. We have successfully rolled out an ESG initiative within Magna in the last month, steered by our Magna Corporate procurement team, and we were quite successfully on the one hand side of bringing this to for sure with the tier one level. They're very well aware of what is required from them to pass on to the tier two.

But we also use external company sources to understand the supply chains at the tier two, three, and four level better today. Because at some point in time, it's hard to get back off of what is going on. So, there are sources outside that can easily link to an SRM system, using data and connect it with your existing ones.

Because we made an analysis on how big we understand that Magna has thousands of tier one suppliers or first level suppliers. Regardless what level you are, if you bring this down, there's hundred thousands of involved players if you go down to a very low level. So, you have to use efficient methods to be able to track those.

And, I said, there is sources that can help you with that. AI is playing a very important role these days on getting this data collected, because there is ways to get the data collected and make and build up those elements. Manually only? I would hardly think it's manageable in a reasonable time with reasonable amount.

So, we anyways put a lot of effort and amount into this topic. And, as I said, AI will be a game changer when it comes to this kind of understanding the supply base on a very deep level.

[00:24:46] Jan Griffiths: Achim, as you look back on your journey through SRM implementation, many, many lessons learned, I'm sure.

Can you give us one piece of advice? One thing—that if supply chain leaders, purchasing leaders out there are about to embark on selecting an SRM, on implementing an SRM — one piece of advice, what would you tell them?

[00:25:12] Achim Gatternig: First of all, if you are really not sure if you should go for a SRM system or not, I can only tell you — it's a must to go this way if you wanna be successful in the future. I think there's no way around.

For sure, there's multiple suppliers on the market that can provide you with SRM, and you have selected one you think it fits best to your needs and to your environment. But doing it without, in a too manual way—seeing the challenges that are coming up, knowing that we are currently in such frequently changing requirements times—I really can only tell you: make a wise choice and invest in your future in terms of getting your supplier information to one spot, and be prepared to whatever comes—you might know tomorrow.

[00:25:56] Jan Griffiths: And there it is. Be prepared. Know your supply chain. Have that transparency. Have the visibility. And you need an SRM to make it happen. Achim, it has been an absolute pleasure having you on the show today. Thank you.

[00:26:08] Achim Gatternig: It was a pleasure for me. Thank you.

[00:26:10] Jan Griffiths: We love to hear from our listeners, reach out to any one of us, our contact information is in the show notes. And if you want to dive deeper into our content, check out our website at autosupplychainprophets.com.