Supply Chain Process Management in Vestas

1. Supply Chain Process Management in Vestas Presentation done by Roxana, Christel, Beathe John and Thomas

2. Introduction • The study • Vestas • SCPM Problems • 7 objectives • Evaluation • Recommendation / conclusion

3. Study question The study of Supply Chain Process Management application in Vestas WHY • Vestas changed their strategy in 2006 to improve its market leader position in the global wind power industry • Facing problems, especially in SC process management

4. Supply Chain Process Man Suppliers Vestas Customers Towers and Steel components • Private owners • Wind turbine asso • Local power companies

5. Company Information • Vestas is the world’s leading producer of high-tech wind power systems • Head office in Randers Denmark. • 13000 employees. • Production facilities in: Denmark, Germany, India, Italy, Scotland, England, Spain, Sweden, Norway, Australia and China.

6. Strategy “Vestas’ strategy is to supply customized wind power solutions… that can generate electricity of the optimal quality at the most competitive price” • Vision: Oil, Wind and Gas • Mission: At Vestas failure is not an option

7. Share price 1998 - 2007 Source: www.Euroinvestor.dk

8. Supply chain • Complex product (over 8000 parts) • Deteriorating customer satisfaction • The stability of supplies of key components is crucial to Vestas’ ability to fulfill orders

9. SWOT Strenghts Weaknesses • Goodwill from capital markets • Geographically spread (less risk) • R&D department with great • knowledge • Employee development programs • Market-leader position in all • product segments • Lack of production facilities in the US • Past production errors has resulted in uncertainty • Backorders

10. Threats Opportunities • Green power is supported politically with subsidies, and preferred choice among consumers. • Deregulation of power markets • The production price per output (kWh) • Economy of scale makes • Large projects with large customers e.g. offshore wind parks • local community attitude towards turbines • Larger customers lead to more competition and bargaining power • Growth without the necessary capital for development • Dependent on high-tech components from suppliers

11. SCPM objectives • Effective • Efficient • Adaptable • Customer Friendly • Supplier Friendly • Environmentally Friendly • Mistake proof

12. Effective SCPM • Until 2005: effectiveness internally: • growth, R&D, market share, acquisitions • Efficiency demanded by suppliers • Mergerforced suppliers to lower prices • Pricetag sourcing • Lack of common SCP improvement • Defects occurred after installation  loss Source: Bang, 2005

13. Lack of common SC objectives Suppliers Vestas Customers Effectiveness Efficiency Efficiency

14. Ideal situation Suppliers Vestas Customers Effectiveness Efficiency Difficult to balance effectiveness and efficiency but needed to survive in compettition

15. Efficiency and effectiveness in SCPM after 2005 • efficiency in Vestas • effectiveness in suppliers • Goals: • short and long term profitability for all trading partners • asset utilllization in SC • Vestas’ Six Sigma consultants help suppliers for long term commitment alliances • Increase prices to take advantage of capacity shortage and high demand • Lesson learned: ”The fundamental challenge of integrated mangement is to redirect traditional emphasis on functionality in an effort to focus on process achievement” (Bowersox et al. 2006)

16. Adaptable • Adapt to changes in the environment • 2005 New business structure • Geographically distributed business units • Closer to the customers (logistics) • Local knowledge (culture) • Improved relations with local suppliers • ERP system (SAP) implemented in 2006-2009 (parallel integration) • Full integration of the different BU’s

17. Customer Friendly • Study shows a decrease in customer satisfaction due to poor… • Turbine performance • Handling of customer wishes and enquires • Handling and performance of service • Information/knowledge sharing with customers • Delivery of spare parts on time • 2006: “Dialogue for development”

18. Improving customer satisfaction • Investing in testing facilities • Policies for quick responses to customers • Acting proactively, contacting customers regularly to get feedback (Use of Key accounts) • Integrate customers in the ERP system, to improve knowledge sharing • Extensive reporting

19. Supplier Friendly Forecasting and Demand High Demand Pressure on suppliers High emphasis on Dialogue suppliers Estimate safety stock and inventory pre-build Good forcast can be made from statistical data

20. Supply Demand Vestas Actual demand – Rates are the answer Suppliers’ and own inventory – Magnifies with the Supplier inventory over or under Replenishment rules - Magnifies with the customers replenishment rules

21. Supplier key suggestions • Integrated product development is the key word with strategic suppliers • Due to ERP they can intergrate supplier in the process • Never be dependent on one supplier • Why = To reduce reliability and vulnerability • Recognizes the need for strategic suppliers, and give a fair margin on their products • Why = satisfactory is more important in the long run

22. Environmentally friendly processes “With quality and care we use the wind to create competitive environmentally friendly energy” • Big issue: Environmental awareness is increasing throughout the world • At Vestas consideration for environmental aspects is the foundation for the products and the basis for the business concept • high priority to the environment– both globally and locally Increase in external environment issues and safety

23. How are processes being made environmentally friendly? • Certifiable management system • ISO 14001 and OHSAS 18001 (77%) • Communicating knowledge at all levels • integrated enviromental policy • Continuous environmental improvement • Suplliers auditing • abide by Vestas’ chemical and material blacklist • Reporting system • Group level environmental reporting

24. Impact on the external environment Most significant environmental impact: CO2savings from Vestas’ turbines. Environmental pay back time: 7 months HOW: true LCA (Life Cycle Assesment) reports and Environmental Product Declarations Suggestion: Sponsor ”green” events to increase brand awareness and attention like theFIRST LEGO League (FLL) tournaments

25. Occupationalhealth & safety issues • Top priority at Vestas: Safety • Integration: ’Will to win’ culture = high safety culture • Changing mission: ’Failure is not an option’= zero accidents Major challange: reducing injuries by improvement, information and training implementation Results: decrease with 22 % from last year but still major concern! • Suggestions:- continuous improvement in in-house processes, training and education • integrate different cultures together

26. Mistake proof • Failure in First Off Shore project • Weakness was component quality performance • Repair at sea not possible transport on shore for repair extremely costly • Learning: • failure is not an option also apllies to suppliers • education of everyone in Vestas also suppliers: Vestas lends Six sigma consultants to its suppliers • Stop selecting by pricetag New Mission: Failure is not an option

27. Suggestions • Focus on importance of supplier qualification and selection by: Implementing an efficient supplier selection process • Contract administration

28. Summary • Emphasis should be put on some issues in particular • Improving communication throughout the supply-chain • Quality problems escalate throughout the SC • An efficient supplier management is of central importance for successfull supply chain

29. Questions …. • Why does supplier management (or suppliers as trading partners) – play such an important role in SCPM? • What possible risks and losses can an enterprise face due to lack of integration, collaboration to trading partners in the SCM?