Sourcing

The Sorcery of Sourcing

Want to optimize costs in sourcing? The best method is to gain an intimate understanding of your suppliers’ products and technologies.

It’s perhaps no coincidence that the word “sourcing” sounds a lot like “sorcery.” A good sourcing manager can indeed appear to know black magic. But Lenka Hrušecká, Sourcing Manager Holic & Projects at Fortaco Group, says doing the job well comes from a combination of relationship building, pure curiosity, and a willingness to understand the suppliers’ world.

Relationships matter

Sourcing is finding the right source for the right costs and right quality with right delivery. “My job is to ensure that the components for everything we assemble in our factory has a source,” says Hrušecká. “That means we build relationships over the entire supply chain and challenge suppliers to improve costs. But not only costs. We ask they improve delivery, quality, and bring innovations and new ideas.”

Hrušecká’s team deals with approximately 200 suppliers, with around 50 of those considered strategic partners. “It’s impossible for our team to know all 200 personally,” she says, “so we invest real time with our strategic partner suppliers to whom we’re closely connected. We invest time in suppliers who want to grow with us, have a good combination of offerings, have the potential to be innovative, and can offer R&D support.”

Depending on your industry, 200 may seem like lot of suppliers, given the constant challenge to streamline and reduce the number of partnerships. “Before you can reduce the number of overall suppliers, you have to develop your strategic suppliers,” says Hrušecká. And that’s done through as many face-to-face meetings as possible with suppliers and her team, as well as category managers. The objective: learn their businesses, learn the cost drivers, learn the limitations and technologies.

Curious about screws

There are always calls to bring down costs and improve cash flow. But in order to do that Hrušecká says you have to understand what’s behind the prices, and what factors ultimately influence the final price. “You’ve got to have a hunger for information. You’ve got be curious about material groups, like screws, polycarbonates, even the simplest materials. The most basic screw will have a huge story behind it.”

For example, suppliers can tell you how the screw is treated and whether it’s possible to reduce the variety of screws used in assembly. “Suppliers can significantly reduce your costs by not only reducing the price, but also by proposing solutions to reduce assembly time, administration, or warehousing,” she says. “Suppliers, if there’s a good relationship, can offer better tools to allow operators to work faster and more efficiently, and they can support you in bad times, as well.”

“Glue is another example,” says Hrušecká. “How’s it made? Is it curing too long and influencing the final product, and final costs? And polycarbonates: what’s important and what differentiates them? High optical, low optical? What are the regulations and norms? Ours is a strangely wonderful business. You’d probably never imagine that suppliers talk about cabin glass with love!”

A fresh, female approach

Hrušecká studied marketing in Bratislava, worked in media, advertising, and then found herself as marketing director at Bratislava's biggest shopping mall. Moving to western Slovakia with her family, she joined Fortaco as a junior in the sourcing department. "I wanted to learn the business from the ground up," she says, "so I studied drawings, absorbed the technical details, and after six months I was responsible for ready-to-weld parts." She bounced around a bit in the industry, but returned to Fortaco, becoming sourcing manager for three Fortaco factories across Europe dealing with cabin and vehicle assembly.

Hrušecká loves the teamwork in what is a predominantly male industry. "There are very few women in the factories, and women perceive different things than men. This combination actually makes for a great team, though it’s not always easy to convince men of this.”

"I once told a future boss in an interview that I was creative and improvisational, and he suggested improvisation wasn't the best approach to the job,” she says. “But since then I've seen the approach bring some very interesting solutions for customers. This way of seeing the world can really impact the numbers."


Safe and Sound Summer Greetings

Looking back to the end of 2019, no one could predict such a turn, which happened during the first half of 2020. After optimistic 2018 and more realistic 2019, business environment was expected to continue in 2020 the same general trend as 2019. End 2019 the signals coming from China were not understood as a foretaste of an economical earthquake.

Standing now at the end of the second quarter, we can say it was a very unusual period. Entering year 2020, Fortaco felt some optimism as regards to the market growth. Our experiences from 2019, and customers’ forecasts for 2020 built a perception of stabilization. However, a quickly spreading Corona virus changed the business environment and rapidly introduced a new reality.

During the first quarter, Fortaco factories continued with the normal production output, deliveries were not interrupted. Shortage of components from China did not impact our operations. However, the rapidly rising number of infection cases as from end Q1, and quickly spreading virus through Europe, forced most of the economies in the old continent to implement various tools for temporary lockdown, which did not left Fortaco intact.

The overall slow-down on the market influenced us mainly through the situation at end-customers. Due to the governmental regulations, issues in supply chain, and protecting of employees’ health, the most customers implemented security measures and temporary closed their operations. All this had a strong correlation with Fortaco’s operations and our production and delivery plans. Luckily, from a supply chain perspective, Fortaco did not suffer from any major shortages which could have seriously impacted our customer supplies. Thanks to common understanding, good collaboration with suppliers and partnership approach, Fortaco has managed to secure the flow of parts and modules to our customers as well as for aftermarket.

The second half of the year remains to be a big question mark. Our customers’ forecasts follow the general trend in the industry. At Fortaco, we are preparing ourselves already now for the quick reaction once volumes return. We believe, the market situation caused by the pandemic will give new opportunities for those, who are ready in proper time to support customers quickly and agile way. We Trust in Tomorrow.

I am wishing all of you safe and healthy holidays. Enjoy the summer with your families and friends, getting ready for challenges in the second half of 2020.

 

With best regards,
Krzysztof Michel
Senior Vice President,

Fortaco Sourcing & IT


Time for Vacation

Dear customers, business partners and Fortaco team,

The Corona crisis is still reality for all people around the globe. Countries are using their best knowledge and experience to reduce and eliminate the crisis. We are all impacted, harder or softer. Most probably, we will experience a new normal when Covid-19 is a new illness in our global society.

Since the beginning of March, Fortaco has taken serious actions to safeguard our employees, customers and business partners, and to keep our deliveries as promised to our customers. I am very honored to see a strong commitment by everybody involved in the complex supply chain, including the Fortaco team. Despite of somewhat declined net sales 2020 year-to-date, we have taken extraordinary actions and improved profitability. We have also strengthened our liquidity in case it is needed going forward.

New Chairman of the Board
Mr. Panu Routila has been appointed the Chairman of Fortaco Group Board of Directors as from May 2020. Mr. Routila has served as President & CEO at Konecranes and Ahlström Capital. Mr. Peter Augustsson has successfully chaired Fortaco Group since company’s establishment 2013.

Factory extension in Narva
Fortaco’s strategic investment in Narva, a new factory of 10.000 m2, is proceeding exactly according to the plan. Operational take over takes place in coming days. More information to be released after summer.

Make Tomorrow Safer and Better
Fortaco’s operational focus is on safety, quality, delivery performance and productivity, according to our strategic approach “Make Tomorrow Safer and Better”. By continuous development we have successfully been improving our performance.

Outlook for autumn
Fortaco is perceiving the outlook for autumn to large extent unknown. The Corona crisis is still alive with the releases of restrictions, depending on country and specific situations. We have updated our scenario plans for autumn to be prepared, varying from a slight optimistic to a less optimistic, equal to the second quarter net sales.

As of beginning of August, we are going to allow visitors at our Business Sites; changes might occur, depending on Covid-19 development. Since the beginning of March, our approach is “no panic”, we are managing our operations professionally day by day – and this is still valid.

I would like to thank you for your trust, and I am wishing all of you a nice summer period. Stay safe and healthy!


With best regards,

Lars Hellberg
President & CEO


Changing a Culture

When a culture improves, KPIs follow.

Anna Młynarczyk-Widomska holds a Master of Engineering degree from Cracow University, though as fate would have it she never worked as an engineer.

Right out of school she got a job in selling technical maintenance and infrastructure services, then soon transitioned to do controlling for a production company from the automotive sector, and then worked for a Spanish construction company which built highways, buildings and airports. This was the beginning of her journey into finance.

At Fortaco, as Finance, People, and HR Director, she supervises a team of eight responsible for the financial areas of accounting, cash flow management, financial KPIs, and relationships with banks. Her team’s HR responsibilities include payroll, recruitment, and motivation. Motivation and people engagement is a topic of particular importance to her. She is lead of the IT and Administration team.

Communication and our behavior

“When I joined Fortaco in 2014, we still encountered elements from a very formal and old fashioned culture in our factory,” Młynarczyk-Widomska says. “Managers were addressed very often as ‘mister’ or ‘missus,’ doors were kept closed, people kept to their own departments, and the opinions of employees were not often sought.” Mrs. Młynarczyk-Widomska set out to change that.

She began to lead by example, using names instead of positions during daily work, keeping her office door open, greeting people in the production hall. “With other leadership team members we focused on introducing cultural change at Fortaco Janów Lubelski.

“Day by day we were able to see improvements. It was very helpful that new people joined our team. For example, we had a new production director, engineering manager, and quality manager.” Over the last five years new tools were implemented, including monthly meetings with three employees to hear their opinions about equipment, health and safety, salaries, or anything they wished to discuss. General meetings with the managing director were held in the production hall where people could ask questions and get key information about our current situation and our challenges.

The management team also began a campaign to tidy up the factory to make it a more pleasant environment. “You don’t have to spend much money to do that,” Anna says. “We painted walls and changed the carpets, put things in their proper place.”

Most important was the interaction with people, the hellos delivered on the factory floor. "It’s important to show people that we see their work, that they’re important. We must communicate with them, and treat them as partners whose ideas are valued.”

Accounting not only in the finance department

We are here to deliver the right numbers to our owners. “In the past, the forecasting process was located in the finance department. I changed it and asked managers responsible for each area to deliver data necessary to complete forecasting process,” she says. “We had to ‘clean up’ some mistakes from the past in case of bookings, clear up some accounting process ‘doubts,’ and take control of the flow and verification of financial documents. We created a new structure of cost centers and a transparent cost allocation process. Managers now get to manage their own budgets.”

“The beginning was very difficult because people couldn’t understand why they had to do these things, but now I know that they also see benefits from this changes.”

KPIs will follow

The soft changes quickly produced hard changes. Financial KPIs and survey results improved. EBITDA moved from three percent of turnover to double digits. Return on invested capital moved from a negative number to over 30 percent in the positive. Employee turnover is within normal bounds.

“There are lots of intangibles, too,” Anna says. “You can ask people how they’re feeling and get a very positive answer.”

Anna believes creating the right culture is essential to tackling problems which turn out to be more complex than previously thought. Several years ago, when KPIs did not improve after an across-the-board salary increase, we introduced a productivity bonus tool. To decrease sick levels, we created an availability bonus. “It’s a simple system. It’s very transparent, and people can easily calculate themselves the results of doing things differently.”

“Poland is not a low-cost country anymore,” she says. “In this period of transition it’s more critical than ever to create the best possible environment for people. It’s in everyone’s best interest. In Fortaco I meet a lot of fantastic people with great personalities. I am very proud to see what we achieved in Fortaco JL. We are aware that this journey is still ongoing. Trust in tomorrow.“


From Safety Cop to Safety Culture

Changing the way safety is viewed in an organization.

Safety has traditionally been a matter of compliance. Pity the safety specialist, the compliance officer responsible for filling out reports, recording infractions and sending information to management.

"Historically, people on floor think someone else is responsible for safety. That someone else is a safety policeman," says Andrzej Wrona, Operational Excellence Director at Fortaco Group. “And lots of people don’t like the police.”

What doesn’t work

The safety policeman approach may be popular — it has many years of manufacturing tradition behind it. But it's being shown to be ineffective. "The policeman approach either doesn't work or its effect is temporary," says Larissa Shabunova, Managing Director of Fortaco Estonia. "You can issue a lot of rules, you can make demands, but the only thing that’s effective is constant reminders, trainings, and showing examples from other factories."

Shabunova’s statement is borne out by modern research, which shows safety cannot be disconnected from quality, delivery accuracy, and productivity. Record safety goes hand in hand with record performance. With that in mind, Fortaco is working toward transforming its safety cops into culture creators.

From the top to the shop

But just as the lone policeman cannot be effective, it isn’t possible to assign one individual to create a safety culture. Safety must permeate every level of the organization, from top management to the most junior employee on the shop floor.

Buy-in must start with not only group-level management, but with top management at every production site, as well. “We spend a lot of time doing night audits to show people that top management is involved, says Yuri Krupinin, Fortaco Estonia's QHSE Manager. “We’re not only present, but we’re leading by example. Safety starts with us, and you’ll see the director wearing a hard hat. We don’t ask people to do anything we don’t do ourselves.”

Asking employees to take part is critical, because there are barriers which simply cannot be broken without them. “It’s difficult to get your LTIF rate below five or six without employee involvement,” says Andras Csizmazia, Head of QHSE for Fortaco Group.

Hard heads and transitions

Historically, Fortaco has required hard hats to be worn by employees operating a crane from the floor. Welders and forklift operators were not required to wear them. In 2018, Fortaco weighed its options to make hard hats obligatory for all.

"We could have issued an order and then administered warnings and punishment, but we tried another approach,” says Larissa Shabunova. “We bought a variety of helmets, tested them with management when we went to production. This allowed us to both see which helmets met our needs, but also demonstrate to workers that we were wearing them. We chose three suitable models, and then allowed middle management to choose the one they liked. They started showing up on the floor in them. Then we added shop floor supervisors, department managers, and team leaders, slowly moving down the chain. We never issued a formal order, though we told people hard hats would eventually be required. Finally, when we approached the workers there was little resistance, because they'd already seen us setting an example for several months."

As of January 1, 2020, everyone in a Fortaco factory in Estonia wears a hard hat.

The workers know

Educating workers about what’s unsafe isn’t the real challenge according to Agnieszka Koziara, Fortaco's SVP People & HR.
“I have a feeling that people know exactly what is safe and unsafe. I know that if I’m hurrying to pick up my kids, I know that’s dangerous and improper. We have to be honest with our colleagues and with ourselves.”

Koziara says the challenge of creating a safety culture lies in convincing workers that safety at work is as important as safety at home. “Why don’t we take responsibility for our colleagues at work, just as we take responsibility for our family members at home?” she asks. “If you see something unsafe you need to say ‘stop.’ I think there’s a barrier in our minds.”

Teaching safety

Larissa Shabunova has tried to cross that barrier one step above the individual level: with the team.

In order to improve efficiency we need to empower team leaders. "Before, a foreman managed 50 to 60 people, which is far too many. A leader should be responsible for a maximum of 15 people. We selected the best workers to be team leaders, since they were unofficial leaders, anyway. The team leaders became ambassadors of our values, with safety as one of those key values.”

What’s the most impactful teaching tool for safety? Many believe it to be real-world examples. Since human beings are by nature curious, and often competitive, frequent trainings and constant emphasis on safety should include information from other factories.

Fortaco Estonia's Yuri Krupinin organizes trainings for welders and bending machine operators. His sessions include not only safety requirements for each task, but fault and deviation figures from other factories. It’s also routine to distribute accident reports across the Fortaco organization. "If you show real situations, not stuff from the newspaper, then it's very effective," says Krupinin. "Forklift drivers are always curious about forklift drivers in other factories."

Tomorrow’s safety education

As technology develops so will safety training. "If we’re going to have trainings," says Andrzej Wrona, “then let’s make sure we benefit from it. I believe that virtual reality training can be very effective and is a good option to consider in the future. Put people in unsafe situations in a virtual setting. Make it interesting and deliver a message.”

Regardless of modern tools available, the most effective safety tool will remain the one between the worker’s ears. That tool, combined with the clear understanding that the employee is actually encouraged to stop work if something is unsafe, will bring Fortaco closer to its goal of zero accidents.

It’s a cultural shift that won’t come overnight, a step toward Eastern philosophy, as Yuri Krupinin describes it. A workplace environment where it’s clear one impacts his own safety, and a company that has your back. “If you’re part of our company,” says Krupinin, “then we’re here to teach you, not to blame you.”