claim management

A s a result of the increasing concentration on core competencies, the company's own vertical integration is decreasing radically. As a result, the dependence on supplier networks is increasing. Companies try to avoid a safe start-up and disruptions in series production from the direction of the supply chain by means of preventive start-up management, initial sampling, proof of series capability, product audits or other tools such as process audits or expert opinions. Unfortunately, this is not always successful, as empirical studies in the automotive and rail transport industries show.

Devastating disturbances

Although the tools are used as above, in practice faults continue to occur in the start-up and series 

Responsibility shifted to suppliers

negatively impact cost and delivery performance and thus also damage the image with the customer. Recent examples show the explosive nature of performance problems in the supply chain. Honda Motors, for example, had to recall 437,000 vehicles in 2010 due to defective airbags. The airbags were manufactured by a supplier and delivered to Honda plants worldwide. Due to cost savings, the airbags were manufactured with a short range production synchronized by the supplier and delivered just in time (JIT). Therefore, there were no inventories in the value chain.

2009 and 2010 were probably Toyota Motors' most critical years. The company had to recall millions of vehicles due to defective floor mats. Not only quality failures, but also creditworthiness difficulties can have a massive impact on the company's own production, as the next example shows. Module supplier Plastech had to file for insolvency due to liquidity problems; as a result, plants at Chrysler had to be temporarily closed. The delivery failures resulted in losses in the millions. In addition to quality, delivery or creditworthiness problems, natural catastrophes are also a reason for defaults, as the example of Riken shows. The supplier Riken had to stop its production due to an earthquake, for this reason various customers were not supplied. These production stoppages also led to losses in the millions.

What are the costs?

The amount of the additional expense depends on the timing of the corrective measures implemented. If these are initiated immediately, the damage can still be limited. If the damage is only remedied after a delay, the costs can quickly accumulate to a six-figure amount. Numerous companies are specializing in processes, products and are increasingly focusing on core competencies. Supply chains have become increasingly complex due to growing globalization, the harmonization of markets such as the Eu 

Effort and costs

European Union (EU) and other free trade zones, outsourcing activities or the selection of suppliers in low-wage countries have not only become more complex, but also more international. Experts state that decreasing production depths automatically lead to higher dependencies on suppliers.

Although numerous companies have introduced lean methods and principles into their own organization, these techniques are not yet transferred to suppliers or supplier networks. Lean principles and methods must be a component of strategic supplier management (SLM). Companies can differentiate themselves and create competitive advantage in this way. Various research and case studies show that engaging the supply chain and eliminating waste in upstream supply chain management (USCM) yields significant savings. USCM includes all activities within the supply chain. However, standardized tools and processes in SLM to manage suppliers are still the exception in most companies.

Strategic supplier management (SLM) therefore has an important task, namely to control suppliers operationally, strategically and to synchronize the activities of one's own company with the supply chains. Furthermore, it is imperative to uncover waste, be it hidden or obvious, and to replace it with value-adding measures. It is necessary to think about where under-utilization, over-utilization or waste occurs within the activities.

The risks continue to rise

The focus on core competencies and the outsourcing of developments, services and products to low-wage countries in Eastern Europe, China and other regions continues. Organizations are concentrating on their core business. Companies today only have manufacturing and value-added depths that usually no longer exceed 20 to 30 percent. The transfer increases the ab

Fit in technology and logistics

The dependency on external suppliers and value creation networks increases significantly - as does the associated risk. In this context, quality, logistics and creditworthiness aspects represent a potential risk in terms of production downtimes or interruptions. Breakdowns very often lead to high monetary losses. The increasing frequency and complexity of series start-ups characterize the current situation in the global sectors and require efficient start-up and time-to-market concepts. In Upstream Supply Chain Management (USCM) in particular, it is important for a company to manage suppliers in partnership so that processes and procedures run as synchronously as possible.

The practice

A case study of a supplier of Panasonic Automotive Systems GmbH shows that a "torn-off screw" with a value of approx. 1 Euro on a safety-relevant system can entail follow-up costs of 50,000 to 100,000 Euros, even if immediate corrective measures are initiated; in particular through reworking, recall actions or quality assurance measures. In the case of shutdown measures that take several days and weeks, the additional expenses run into the millions of euros. Although the defect was already identified during start-up production, the costs amounted to a six-figure sum, especially since some products had already been delivered to the customer and had to be replaced. Additional expenses were caused by, among other things:

•  stop of production
• Downtime in production
• Worker downtime
• Inspection of components in our own warehouse
• Replacement purchases from other suppliers
• Qualification of the replacements
• Rework of already produced components
• Exchange of components at the customer
• Replacement deliveries to the customer
• Claims for damages by the customer.

Thanks to a solid contractual basis and the appointment of a claim or contract manager in Purchasing, it was possible to consolidate and summarize the total downtime costs of 60,000 euros associated with this and invoice them to the supplier. This demonstrates the importance of solid contractual values as well as the legally flawless assertion of claims through notices of defects and the setting of grace periods as an indispensable requirement for purchasing and claim management (Figure 3).

Qualification of the Claim Manager

A claim manager should have a legal background, such as a lawyer or business lawyer. In addition, project management skills should be available to manage the various interfaces from the different areas. Technical and logistical understanding helps in assessing disputes and facts in connection with the respective contractual agreements. Analytical skills and negotiation skills should be equally strong. In addition, there should be an interest in negotiation, particularly negotiation on difficult issues and subject matters. In addition to the technical skills, an essential part of the tasks of a Claim Manager is the training and support of the line departments in Purchasing.

The minimum claim documentation includes the date of occurrence of the event, description/justification of the claim, the evaluation

SolidContractValues

tion/calculation as well as the proofs and evidence. Here, invoices, witnesses, photos, correspondence or expert opinions can serve as evidence. Modern companies have a central and electronic recording of additional expenses on a separate cost carrier, whereas conventional organizations choose the paper route. From a commercial point of view, claims due to service disruptions have an immediate effect on the result and improve the project result.

In conclusion

The task of claim management is to ensure that all contractual partners act in accordance with the contract. Assertion of compensation for damages resulting from non-contractual performance should be the focus of the activity. The same applies to the defence against unjustified claims by other contractual partners. The primary objective of claim management is the early analysis, preparation, documentation and pursuit of contractually relevant claims in order to be able to better counteract contractually unfounded claims of the contractual partners and to counteract impending contractual deviations at an early stage.