In this post, Pierre Simonnet, UniCarriers Europe’s International Key Account Sales Manager, explains how the material handling purchasing process has changed in the last couple of decades – and how the modern industry can return to a more flexible system, which benefits both supplier and customer.
Up until the 1990s, material handling purchases were typically made by logistics managers.
Many of these managers gained their first job experience in production, the core business of their companies. They then usually remained in their logistics manager positions for years, and acquired knowledge by building up on-the-job experience.
The paradox was that they had the authority to make large purchases, but at the same time were often seen as an ancillary division by their companies.
While they made purchases, their companies were attempting to reduce costs by fine-tuning production – when sometimes, optimising the logistics side could have resulted in much bigger savings.
This status quo lasted for a long time, and the connection between the suppliers and these managers was close. Faith and trust were both very important values.
A changing industry
Towards the end of the ‘90s and beyond, something changed – companies were increasingly trying to make savings and improve efficiency in areas other than production. At the same time, the material handling specialists left for retirement, and were slowly being replaced by a younger generation, with different backgrounds. In parallel, their companies began to split purchasing functions from operational ones.
At first, this series of changes had many positive effects – new financing methods were introduced, the supply chain was approached in a much more strategic way, suppliers and their salesmen improved their industry knowledge, and general interest in safety, ergonomics and regulations grew. On the whole, processes in the industry began to be analysed in a much deeper way.
As a consequence, the material handling business saw the arrival of new technologies from other industries – like AC motors, CAN bus, fleet management and new energy solutions.
However, due to this split in internal organisations, the old method of decision-making disappeared. Today, decisions are made by a buying committee – which is made up of people like supply chain managers, technical managers, drivers, purchasers, and even lawyers.
The current situation
In order for these larger groups to form a consensus, proposals from competing suppliers need to be much more standardized and comparable than they used to be. What’s more, personal relationships between purchasers and suppliers are not as strong as they once were.
So, in the last few years, the ‘request for quotation’ (RFQ) system has begun to flourish. Software (and sometimes manual processes) can give a final result and an unquestionable winner when it comes to purchasing decisions.
But even with this new approach from the purchasing side, some suppliers argued that instead of quoting for the existing operation, it is better to suggest a more suitable solution, with a lower total cost of ownership – for example, by quoting a potential customer for stand-in stackers, instead of their requested reach trucks.
For some purchasers, this was like a spanner thrown into a well-oiled machine. As a result, a countermeasure has been taken – the ‘like for like’.
The request usually appears like this: “Dear suppliers, this is our MH operation, please fill in the RFQ exactly how we want it.”
With this system, everything is comparable, all suppliers have the same chances, and the decisions on the purchaser’s side appear to be easier to make.
How we can improve
In my view, this system needs to come to an end. With time, it could have a number of negative effects on the industry – the expertise of experienced salesmen and material handling specialists will become less valuable, useful simulation software developed by suppliers will become less popular, and the material handling solutions will become sub-optimised on hardware cost only.
This development would not be good for material handling operations either, since the total cost of operation will increase. In the worst case scenario, there will be a ‘concentration’ of suppliers, so scale economies can be preserved. This will mean a very limited number of suppliers will remain, prices will eventually increase, and the amount invested by manufacturers in areas like R&D will fall, leading to higher costs in companies’ material handling.
As time goes on and customers decide to change suppliers as a result, no major improvements can be expected, because the rigid system doesn’t allow for them.
The conclusion? The industry must make a change as soon as possible, and try to move back towards a more flexible model – one that keeps the benefits of knowledgeable, strategic purchasers, but which also allows room for suppliers to make their own recommendations on the best solutions for the job. This way, both customers and suppliers will benefit, and innovation and competition in the industry can continue to grow.
What do you think of Pierre's view on the current state of the industry? Do you have any other views on how we can improve?
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