Germany´s Advantage - Integrated Logistics & Production

Integrated Production & Logistics as a Factor for Success

A study by:Germany Trade & Invest GmbHInstitut für Fabrikbetriebslehre undUnternehmensforschung (IFU) at TU BraunschweigMiebach Consulting GmbHVerein Deutscher Ingenieure e.V.

Neu Isenburg, Berlin,Düsseldorf, BraunschweigApril 2010

Germany’s Economic Advantages

2 3Study Germany’s Economic Advantages

Production and logistics have already developed into a solid economic focus in Germany. According to a current OECD study, the manufacturing trade in Germany contributes a significant proportion – more than 26 % – of the gross domestic product. Well over 12 million jobs are directly related to pro-duction and logistics services, forming a solid foundation for prosperity in the Federal Republic of Germany.

Nonetheless, there is an urgent need to keep making improvements in the areas of production & logistics so that Germany can maintain and continue to expand its leading international role. If Germany is able to supply raw materi-als on short notice, process them very flexibly into products with high quality standards and low costs, and distrib-ute them to customers worldwide, its position in the competitive world mar-ket will be assured. The close dovetail-ing between production and logistics processes seems to be key in this.

One decisive factor in perfectly coordi-nating production and logistics will be the demonstrated flexibility, optimiza-tion and innovativeness of German companies. Some areas show surpris-ingly large potentials, many of which can be tapped through measures that are relatively easy to implement.

The international economic crisis clearly demonstrated the result of a strong dependency on exports: it put pressure on Germany, as a center of economic activity, to take action as the global markets were collapsing. High wages, growing transport costs and an increase expected primarily in foreign sales are all forcing companies to consider whether it makes econom-ic sense to outsource their production operations. It is clear that some-thing needs to be done to guarantee Germany’s attractiveness in the long term as a location for manufacturing companies.

What are some starting points, and how can manufacturing companies in Germany further optimize their processes? How can the tendency to-ward outsourcing be slowed, or even reversed? How can Germany be made more attractive to foreign companies?

A critical success factor is the efficient synchronization of production and logistics. If highest-quality goods can continue to be produced quickly and cost-effectively in Germany, it will be worth building production and logis-tics facilities on site.

A handful of companies in Germany have already recognized this – they have developed Best Practices and are using the existing economic ad-vantages in Germany more efficiently than others.

This joint study by the Verein Deutscher Ingenieure (Association of German Engineers, VDI), the Institut für Fabrikbetriebslehre und Unterneh-mensforschung (Institute for Factory Management Training and Operational Research, IFU) at TU Braunschweig, Germany Trade & Invest GmbH, and Miebach Consulting used a question-naire analysis and expert interviews to assess these measures, potentials and Best Practices. In particular, the study attempted to answer the following question: How can Germany link its own innovative strengths with the best features of Japanese manufacturing expertise and US supply chain man-agement theory to create integrated production and logistics processes and raise them to a new level?

The study began collecting data in October 2009 – this placed it, as indicated above, directly in the middle of the global financial crisis and its effects. However, the economic news slowly but steadily improved over the course of the study. By the time the

study was presented at the Deutscher Materialflusskongress (German Mate-rial Flow Conference) in Munich in April 2010, the picture had stabilized, and constructive tendencies are now predominant.

The authors hope that this study can have a positive impact on companies in Germany and on those considering Germany as a potential investment site, inspiring them to integrate their own production and logistics pro-cesses as much as possible in order to take full advantage of the potential that is clearly available.

Neu-Isenburg, April 2010Tobias Rinza, Miebach Consulting

Alexander SchenkMember of CoC Lean SCMMiebach Consulting

Dr. Johannes MandelartzManaging DirectorVDI Produktion & Logistik

Prof. Uwe DombrowskiIFU – TU Braunschweig

Sven SchürerMember of CoC Lean SCMMiebach Consulting

Isabel da Silva MatosGTAI GmbH

Sven SchulzeIFU – TU Braunschweig

Preface


Management Summary

Study Design

Germany as a Center for Production –

How it is Perceived

Germany as an Environment with Potential –

How it is Used

The Context for Current Locational Research

Appendix

8

12

18

32

44

46

Contents

6 Study Germany’s Economic Advantages 7

ManagementSummary

8 Study Germany’s Economic Advantages Management Summary 9

The decision-makers at the approxi-mately 300 companies surveyed – despite, or perhaps because of, the effects of the global economic crisis – all agreed: by and large, Germany’s location provides the ideal framework conditions for successful, economi-cally sustainable production. However, this does not apply to every type of product: it should be noted that the goods produced in Germany are be-coming increasingly specialized.

Germany – a land of customized products and flexible manufacturing

A particular strength of companies located in Germany is their ability to provide made-to-order production and / or batch and series production for innovative, tailored and increas-ingly complex products. In short, they manufacture premium products, a characteristic strength of German companies.

Germany’s traditional, well-known economic advantages – political sta-bility; a productive, multi-modal infra-structure; high availability of qualified workers; and its convenient geograph-ic location within Europe – simply provide a solid foundation for this. The real attraction, however, comes from the as-yet-untapped potentials that

companies can access relatively easily within their own spheres of influence.

A critical success factor is the close dovetailing of production and SCM / logistics. About 85 % of those surveyed already considered this symbiosis to be one of Germany’s clear economic advantages – and they expect significant potentials to come from further integration.

Management SummaryGermany’s economic advantages – integrated production and logistics as a factor for success. Total savings potential from inte-

grated production and logistics: approx. 20 – 30 %!

According to the experts’ estima-tions, this begins with each company’s own organizational structure. Experts believe that moving the production and logistics departments closer together and eliminating the typical interfaces between the departments can potentially save 5 – 10 % of the annual cost for each area; in part, this can be achieved through very simple measures such as creating cross-de-partmental objectives, sharing project initiatives and combining the planning for both areas.

Additional cost-reduction potential (an average of 20 %) can be gained in production and logistics by optimizing processes, systems and technolo-gies. The preferred method here is lean management, a philosophy that experts say has found broad accep-tance in German companies and is already being faithfully implemented by employees. Here, too, it is ex-pected that the optimization impulses will in fact come from the “shop floor.” However, it is also clear that largely untapped opportunities can be found in networking with suppliers and tak-ing advantage of the wide range of colleges and universities in Germany.

Product launches in Germany – confidence in complexity

The conveniently located and reli-able supplier base, together with the availability of qualified research and development personnel, helps guar-antee successful product launches – a national specialization that is extreme-ly valuable in the international context. In this study, Germany was shown to be a preferred “testing ground” for new products; with its networked, challenging market environment, it also provides positive challenges for companies in terms of service and flexibility.

Social trends challenge, cultivate and drive production & logistics in Germany

In addition, the social trends in Ger-many are generally beneficial, exerting a positive effect on product develop-ment and process design. Even de-mographic numbers appear to present challenges only to a certain extent; they are expected to be partially bal-anced out by immigration, which is seen as an advantage by all levels of management.

Conclusion

All in all, the resulting picture is positive: Germany offers outstand-ing framework conditions and many lucrative possibilities for economical domestic production. A key factor is the integration of production and logistics processes.

Fig. 1Do you see a close interaction between production and SCM / logistics as an economic advantage for Germany?

Yes Neutral No

84 %

9 %7 %


Study Design

12 13Study Germany’s Economic Advantages Study Design

The study’s starting point was a ques-tionnaire posted on an internet plat-form from October 2009 to the end of January 2010; it was made available to management and corporate decision-makers at companies in Germany that focus primarily on production.

The questionnaire was supplemented by “in-depth interviews,” held in person with selected members of top management from well-established corporate groups and medium-sized companies; the interviewers asked tar-geted questions from a catalog, posed follow-up questions and discussed the answers.

A total of 281 people took part in the survey, and in-depth interviews were conducted with another 20 people. More than a quarter of those surveyed held top management positions; as chairs, managing directors or plant managers, they were responsible for one or more production sites. Nearly

half of the people surveyed held man-agement positions and were respon-sible for divisions, main departments or sub-departments. The remaining participants were largely produc-tion or logistics experts, including people from the fields of teaching and research.

Collecting basic information about the companies at the beginning of the questionnaire, together with the in-depth interviews, made it possible to evaluate the survey according to in-dustry segments within the manufac-turing industry. This provided a fairly representative cross-section, analo-gous to each sector’s contribution to Germany’s gross domestic product.

Engineering, plant construction and the automotive industry each make up approximately 25 % of the compa-nies surveyed, and thus formed the focal point of the survey. The “Other” section includes companies that work

Study DesignThe survey’s target group, emphasis and methodology.

Chair / managing director / plant manager

Division / department head Group leader / specialist Other

Fig. 2What position do you hold in your company?

46 %

16 %27 %

11 %

< 10 mill. 10 – 20 mill. 20 – 50 mill.

50 – 100 mill. 100 – 500 mill. > 500 mill.

Fig. 4What was your company’s revenue in 2008 (in euros)?

11 %

11 %

12 %26 %

34 %6 %

1 – 100 100 – 3,000 3,000 – 50,000 > 50,000

* primary product group

Fig. 5How many products do you manufacture per year?*

16 %

24 %43 %

17 %

Simple products Medium-complexity products Complex products

Fig. 7Describe the complexity of the product in a primary product group.

11 %

37 %52 %

Production after receipt of order Production for warehousing Production oriented toward the

medium term, customer-oriented assembly

No strategy

Fig. 6Describe your manufacturing / assembly strategy.

61 %17 %

20 %

2 %

in niche segments, but which should still be considered significant: they are high-tech companies, global players and innovation leaders. This includes, for instance, representatives of the optical industry, fittings manufactur-ers and solar or wind-power system manufacturers.

An evaluation in terms of each company’s annual revenue in their respective segments shows an overall tendency toward larger medium-sized companies and groups – this is espe-cially typical for the pharmaceutical and chemical industries, where a few relatively large players tend to domi-nate the market.

The survey in terms of production volume and the respective produc-tion type showed that more than half of the companies produce individual pieces, small batches or medium-sized batches, and usually have a high level of contract manufacturing and / or customization.

Fig. 3What is your company’s industry?

Engineering / plant construction

26 %

Automotive industry 23 %

Metal industry / processing 7 %

Pharmaceutical industry 7 %

Chemical industry 6 %

Electronics & high-tech industry

6 %

Fashion / clothing industry 1 %

Other 24 %

14 15Study Germany’s Economic Advantages Study Design

Advantage Neutral Disadvantage

Lower unit prices • •

Greater flexibility for changes in demand •

Better adaptivity to changed market requirements •

Faster product launches •

Higher level of availability for technical systems •

Highest quality for products and processes •

Fig. 8Characteristics of a Best Practice company.

nuance. In particular, this study more closely investigates the framework conditions that are seen around production and logistics processes in Germany. The focused investigation format also means that “traditional” locational advantages and disadvan-tages for production and logistics en-vironments are carefully evaluated and updated using the responses given.

In part, the analysis of the question-naire responses did confirm some common perceptions. These are described in the following chapter, “Germany as a center for production – how it is perceived.”

The chapter after that, “Germany as an environment with potential – how it is used,” specifically looks at the findings that do not necessarily corre-spond to expectations and which are therefore newsworthy.

One focus was on showing how some individual companies use the avail-

able framework conditions in Germany more effectively than others, access-ing new potentials for themselves. The findings from this survey were divided into two categories:

• responses from all of the people surveyed,• responses from companies that can be categorized as operationally successful, i.e. representing Best Practices.

Companies that fall into the Best Practice category are leaders in ser-vice, flexibility and quality in Germany. In terms of costs, a Best Practice company is at least cost-neutral in international competition.

A company only falls into the Best Practice category if all the criteria for locational advantages have been fulfilled for its enterprise.

The category was expanded to include cost neutrality because of the as-

sumption that companies consider a location attractive if they can expect more service, flexibility and quality for the same amount of money.

Finally, the chapter titled “The context for current locational research” looks at this study’s placement in relation to current scholarship and to other research being carried out in the field – for instance, many additional studies were initiated by various parties during the economic crisis, so the authors believe it is worthwhile to give readers some orientation and an overview of the surrounding academic landscape.

hours each and were conducted with selected experts. After a detailed analysis of the available data and in-formation, the results were formulated within the present document.

The structure chosen for this takes into account the fact that various past studies, expert interviews, official anal-yses and research assignments had already investigated various aspects of Germany as a center for economic activity, both positive and negative, and often in a very general way. As a result, public perception included some opinions about production, in particular, that can almost be consid-ered clichés. Typical views, such as:

• “Made in Germany means good quality.”• “Products manufactured in Germany are too expensive.”• “Germany is bureaucratic.”

seem to have become established, and are often repeated without further

In addition, nearly 90 % of those surveyed said that they manufactured medium to very complex products, and more than 80 % exclusively built products to order and / or performed JIT / JIS assembly to order.

In addition to collecting basic informa-tion about general company data as described above, 51 detailed ques-tions were also asked in order to evaluate Germany’s economic advan-tages / disadvantages in each field. The questions fell into the following categories:

• Organization & personnel• Systems, processes, technology • Research & development, innovation• Market environment• Political framework• Societal acceptance

The results of the analysis were validated, or in some cases care-fully questioned, with the help of the in-depth interviews, which lasted two


Germany as a Center for Production –

How it is Perceived

18 19Study Germany’s Economic Advantages Germany as a Center for Production – How it is Perceived

The following – probably familiar – aspects described below were re-confirmed by the results of the questionnaire.

Specialists and management employees: highly qualified and available!

There was a high level of agreement among nearly all of the study partici-pants when it came to the questions about personnel qualifications and availability. 83 percent of the respon-dents believed that the German mar-ket had very qualified personnel in the areas of production and logistics – and even with the current increase in need, this personnel is still available.

According to the in-depth interviews, the unanimous expert opinion is that this educated, company-specific pool of employees provides a basis for further increases in productivity and / or unit cost reductions. However, an important prerequisite for this is the

workers’ positive attitude toward their own work – particularly in compari-son with other industrialized nations, employee motivation in Germany is largely described as “neutral.” Still, there are certainly companies whose survey responses indicated that they consistently track employee motiva-tion in order to derive greater poten-tials.

Another necessary feature is interdis-ciplinary qualification: where produc-tion and logistics intersect, it makes sense for each area to have a com-prehensive understanding of the other process partner’s tasks, competencies and responsibilities. However, joint training sessions are more the excep-tion than the rule here. Of the average 14 days of training held per year for production and logistics, only about 3 involve joint training sessions.

Germany as a Center for Production – How it is PerceivedThis locational study was also used as an opportunity to look at common perceptions about Germany’s typical economic advantages and to update them.

Ouradvantagecomesfromourhighbasiclevelofeducation.How-ever,weneedtocontributemorethanjustanexcellenteducationinordertoretainourownyoungerexperts.Thoseareexactlythepeopleweneed.

Dr. Thomas BerdenVice President of ManufacturingHilti GmbH (industrial fastening technology company)

WehaveasignificantadvantageinGermanywhenitcomestoemployeetraining,qualificationandself-sufficiency.Thiscanbeseenintermsofperformanceandinthequalityoftheproducts,amongotherthings!

Dr. Vera Schöne Managing Partnerheroal Johann Henkenjohann GmbH & Co. KG

Fig. 9Do you see Germany’s position in the following areas as better or worse than other industrialized nations?

In terms of employee qualification

In terms of employee motivation

All respondents

Best Practice

Advantage Neutral Disadvantage

0 % 50 % 100 %

0 % 50 % 100 %

All respondents

Best Practice


all respondents Best Practice

Fig. 12At what point are the departments integrated into the product emergence process (PEP)?

Decision – project implementation

Concept approval

Functionality approval

Start of production

Product pre-production

Production

SCM / Logistics

IT

Purchasing

R & D

Personnel

Organizational structures: more separate than integrated

Still, only a few exemplary companies have the organizational framework conditions needed to access these employee-driven potentials: while the areas of production and logistics are generally combined on an executive and / or management level, on an op-erational level they tend to be divided into two separate departments. On the positive side, one can say that a vari-ety of activities are carried out jointly at the interface between production and logistics – the negative effect is the enormous coordination effort required; in terms of planning, the amount of time spent in weekly and monthly meetings seems especially high.

The respondents’ answers do not clearly indicate who holds the leader-ship role in these meetings. They do identify areas in which either the pro-duction or logistics department tends to take responsibility, but for the most part a variety of organizational solu-tions are used. In fact, the topics cov-ered in the survey are typical interface areas for many of the respondents, and should be handled jointly.

For product launches, on the other hand, the production department nor-mally seems to be involved throughout the development phase, from the concept approval up through the start of production, while SCM / logistics tends to become more influential in the following phase.

In general, it is clear that the organi-zational integration of production and logistics still offers unused potentials – in some cases, process inefficiencies appear in terms of additional handling, inventory and space requirements only because the process flow has been segmented by organizational inter-faces.

Fig. 11Which department (production and / or logistics) is responsible for the following areas?

Program planning & coordination

Replacement parts management

Loading equipment planning

Standards & methods

Hall & layout planning

Plant structure & factory planning

Supplier development

Material disposition

only logistics generally logistics

generally production only production

both production & logistics

0 % 50 % 100 %

Fig. 10How and on what levels does coordination take place between the production and logistics areas?

Main department head

Department head (planning)

Department head (operations)

Employees

throughout the year as needed several times a week several times a month daily

0 % 50 % 100 %


Information technology: SAP is standard – and offers potentials for expanded usage

While the organizational structure for production and logistics in German companies is not yet standardized, the picture of the corresponding IT system environment is different, and /or clearer.

Fundamentally, the study respondents said that standardized ERP systems provided significant support for integrating production and logistics processes. SAP is the undisputed market leader here; nearly 80 % of the respondents named the Walldorf software company’s system environ-ment as the ERP system used in their company – though in various release versions.

The companies named Germany’s geographic coverage by numerous specialized service providers as a clear economic advantage. The wide variety of (independent) implementa-tion providers is considered outstand-ing.

Still, it is also clear that integrated ERP software is not yet commonly used for production and logistics, and / or that the use of ERP software has not yet fully permeated most companies where it is used.

While warehousing and production functions (including order manage-ment, etc.) are mainly integrated with IT, various company-wide processes are not yet completely integrated. This includes CRM and SRM modules, but also loading equipment management, etc.

Sales fluctuations: flexibility is the norm

According to the survey, German com-panies largely see themselves as very flexible. Failing to fulfill customer re-quests – along with the corresponding sales losses – is generally not consid-ered acceptable. This is clear from the responses regarding how companies plan to balance out demand fluctua-tions of +/-20 % within 6 months.

In this situation, companies use some traditional, but clearly very effective, management techniques that have become established in Germany in order to balance out any volatil-ity in customer orders. This includes work-time accounts based on works agreements, personnel adjustments using temporary workers, creative shift models, temporary insourcing or outsourcing, etc.

Furthermore, fluctuations are often counteracted through “business intel-ligence,” for instance through analyses of historical data and previous experi-ence with seasonal variations.

During the crisis in particular, it was shown that the existing job-market tools such as reduced hours, inter-pretation of the protection against dismissal, etc. were accepted and seen positively by all business sector throughout Germany. Today, the job market in Germany is considered to be adaptable and therefore competitive.

In the experts’ opinion, however, flexibility can mainly be achieved by extensively synchronizing production and logistics: in comparison to other industrialized nations, this approach presents different advantages for Ger-many as an economic center.

Fundamentally, experts rate the avail-ability of technical facilities very highly, and the existing infrastructure makes it possible to quickly change production and logistics processes, production sites and transport providers. In addi-tion, the existing quality standards are considered to “enable” flexibility and adaptivity.

Order management

Procurement planning

Production planning

Warehouse management

Distribution planning

Transport management

SRM

CRM

Personnel planning – need & usage

Loading equipment management

Product life cycle management

Fig. 15Which of the following functions are integrated into your ERP system?

91 %

85 %

84 %

81 %

59 %

38 %

33 %

33 %

33 %

26 %

16 %

Personnel adjustments

External process partners

Inventory

Delaying orders

Production network

Accepted sales loss

Fig. 13How would you balance out demand fluctuations of +/-20 % over a period of 6 months?

76 %

40 %

36 %

29 %

28 %

9 %

Fig. 14In the following areas, do you see Germany as being at an advantage or a disadvantage in comparison with other industrialized nations?

0 % 50 % 100 %

Lower unit prices

Greater flexibility

Greater adaptivity

Product launch speed

Availability of facilities

Quality standards

Existing infrastructure

Disadvantage Neutral Advantage

AtKendrion,weseeourselvesasaveryflexiblecompanywithagreatcapacityforresponsiveness.Duringthecrisis,welearnedthatwecanrespondtolargefluctuationsinunitvolumes,andthatwecanbeevenfasterinthefuturethroughourlocationinGermany!

Peter StrötgenDirector of Production Kendrion Binder Magnete GmbH


All in all, the picture is positive: Germany offers excellent

framework conditions, together with numerous lucrative

possibilities for cost-effective domestic production.

The key is to integrate production and logistics processes. Tobias Rinza, Miebach Consulting


Market environment: solid supplier base, sophisticated sales market

In particular, production in Germany is made possible by a strong national supplier base: more than 50 % of the procurement volume for the respond-ing companies came from Germany, of which 15 % even came from the immediate regional surroundings. National suppliers were distinguished not only by their high-quality products, but also by the corresponding process quality. The study participants gave consistently high marks for prod-

uct quality as well as for consistent delivery volumes and timeliness. In contrast, the process weaknesses found in continental and global sourc-ing increased in direct proportion to the distance of the supplier. It should be noted that import processing, cus-toms clearance, port processing and transport organization within Germany – in short, national logistics – are all fairly smooth. For the most part, any recorded damages, delays, incor-rect and missing deliveries primarily resulted from problems within the shipping countries.

Germany is not just attractive as a buying market. Because of its high population density and high purchas-ing power, the country also offers interesting potential as a sales market – as long it is used properly and production and logistics processes are designed accordingly.

German customers’ cost awareness, quality expectations and service needs are extremely high. How-ever, that should not necessarily be seen as discouragement or a seri-ous disadvantage. According to the respondents, the international markets quickly follow Germany in terms of customer expectations, so it is used as a testing ground for new products. Anyone who succeeds here has a good chance of succeeding interna-tionally.

Germany in Europe: central loca-tion, multimodal infrastructure, closely networked

In fact, most of the respondents expected to see the greatest sales growth opportunities not in the local market, but in other countries. Accord-ing to the experts surveyed, Germany will continue to be a leading export country, and will benefit strongly from its exposed geographical position within Europe. This position allows for timely networking and a high level of reliability in deliveries, which are im-portant requirements for an attractive production and export location.

The experts who responded therefore expect to see growth in terms of ex-ports to the traditional EU countries as well as sales to growth regions such as Eastern Europe, Asia and South America. In general, the more interna-tional the sales market, the greater the expectations for sales growth seem to be. Reaching these markets will require participation from the supply chain managers at the companies located in Germany.

The infrastructure, which is known to be solid, forms the backbone of this strategy. In addition to the dense network of basic services such as power, water, etc., transportation networks – across all forms of trans-port – should also be mentioned. A question about the development of key transportation carriers produced the expected response: in the future, trucks will remain the most common carrier. The respondents all had similar expectations about its rapidly growing importance. In contrast, the relevance of inland navigation was expected to stagnate at the current level, while air traffic was expected to show moder-ate growth. Only rail service produced mixed responses – the future signifi-cance of rail transport is very unclear.

Fig. 17How do you expect the sales market to develop through 2013?

sharp increase

increase stagnant decline sharp decline

Service demands

National 25 % 61 % 11 % 0 % 3 %

Europe 19 % 72 % 8 % 2 % 0 %

International 18 % 63 % 18 % 2 % 0 %

Cost awareness

National 38 % 54 % 8 % 0 % 0 %

Europe 29 % 61 % 9 % 2 % 0 %

International 29 % 54 % 16 % 2 % 0 %

Quality demands

National 15 % 51 % 34 % 0 % 0 %

Europe 12 % 58 % 29 % 0 % 0 %

International 16 % 51 % 32 % 2 % 0 %

Purchase volume

National 0 % 9 % 55 % 34 % 2 %

Europe 2 % 40 % 38 % 18 % 2 %

International 21 % 48 % 25 % 5 % 2 %

Majority of responses

Fig. 16How would you rate your suppliers in terms of the following characteristics?

70 % 80 % 90 % 100 %

within Germany within Europe outside Europe

Reliable delivery volume

Reliable delivery quality

Satisfactory product quality

Timeliness


Particularly when it comes to new investments in production facilities and logistics centers, there are always plenty of examples of relatively short approval times, flexible adjustments to construction plans, exceptions made for plant usage hours, etc.

One interesting aspect here: while the fundamental legislation was seen as neutral – neither particularly support-ive or obstructive when it came to building and operating production and logistics facilities – the general trend in environmental legislation was seen as a positive influence. This means that the companies have actively accepted the consistent increase in regulations governing CO2 emissions, particulate matter, noise, reusability, resource pro-tection, etc., and that they take these into consideration both in their own product portfolios and in value-added and non-value-added processes.

Political framework conditions: stable and supportive

The study participants’ main expecta-tion from German politics was a guar-antee of stability. Primarily, that meant preserving the status quo, something that was also expressed under “other goals”: reliability, planning security and setting a long-term course, among other things.

In some cases, there was also a call to reduce bureaucracy – but not to the extent that might have been expected.

Interim Conclusion

Stability

Modified taxes

Financial support

Other

Fig. 18What do you expect as a result of political decisions in Germany?

76 %

40 %

36 %

29 %

IseeGermanbureaucracyasbeingveryprofessionallyoriented.Thatisactuallyanadvantagecom-paredwithothercountrieswherethestructuresdonotyetfunctionthesamewaytheydohere.

Hermann PoothManaging Director HDM GmbH

But what does this mean, specifi-cally? What must companies do and what should they avoid in order to be successful? What defines a high-performing company? What Best Practices can leverage Germany’s existing conditions in order to access significant ratio potentials of 15 % and higher?

The following chapter – and the opin-ions of the corporate decision-makers found therein – will provide a few answers.

The survey of relevant economic fac-tors reveals framework conditions in Germany that are not unexpected, but advantageous in comparison with other countries when it comes to purchasing raw materials, manufactur-ing goods and carrying out worldwide distribution.

These conditions create a healthy foundation for successful production and logistics processes – in other words, processes that are profitable in the long term. Companies that are able to use this foundation in an intel-ligent manner can position themselves to succeed in the extremely fast-grow-ing, competitive global market.


Germany as anEnvironment with

Potential –How it is Used

32 33Study Germany’s Economic Advantages Germany as an Environment with Potential – How it is Used

Germany as an Environment with Potential – How it is UsedThe following results derived from the questionnaire demonstrate some of Germany’s less commonly known and occasionally surprising aspects. Ideally, these will help provide companies with concrete advice.

Organizational optimization: integrating departments provides opportunities for rationalization

In Germany, as described above, the assigning of company functions to either production or logistics depart-ments very much depends on the individual companies. While there are certain shared focal points within vari-ous sectors, keeping the departments separate tends to create dislocations rather than correspondences, which requires increased coordination effort.

Even simple organizational measures can produce improvements. In gen-eral, it can be said that the organi-zational integration of production and logistics, which coordinates and

improves processes, still has further efficiency gains to offer. Thus it makes sense that 75 % of the study partici-pants believed simple organizational measures, such as introducing cross-departmental objectives, provided an important starting point for improving the collaboration between production and logistics departments.

Another measure involves shared project initiatives such as re-engineer-ing approaches, integrated process optimization and joint planning for interfaces between production & logis-tics. The desired result on both sides is a clear definition of tasks, compe-tencies and responsibilities – various companies still have numerous gaps and weaknesses here.

Fig. 19What starting points do you see for optimizing the collaboration between production and logistics?

Joint product development

Process design

Strategic planning

Joint lean-management initiatives

Cross-departmental objectives

32 %

66 %

67 %

67 %

75 %

Fig. 20How are production and logistics represented in the company’s management?

One chair each

One chair for production & logistics

One chair for production(includes SCM / logistics)

One chair for SCM / logistics(includes production)

0 % 20 % 40 % 60 % 80 % 100 %

Best Practice all respondents

Fig. 21How are the production and logistics areas organized at your site?

2 areas managed in parallel

1 SCM area(includes production)

1 production area(includes SCM / logistics)

0 % 20 % 40 % 60 % 80 % 100 %

Best Practice all respondents

Theideaofthe“supplychain”hasbeenacceptedallthewayupthroughthemanagementlevel.ThepositionoftheCOO–responsibleforproduction,logistics,purchasingandquality–helpsanchorthesupplychaininthecompany,alongwithaunifiedwayofseeingthings;thegoalistoensureacontinuousflow.

Alexander ThomaTakata PetriLogistics Europe


Thus nearly 60 %, or a clear majority, of the respondents expected cost-re-duction potentials of 1 % to 10 % from relatively simple integration measures, and 37 % even expected rationaliza-tion potentials from 10 % to more than 30 %!

This is an impressive figure, especially since it can normally be achieved without making significant invest-ments.

This seems to largely nullify the earlier perception that organizational problem areas should ideally be outsourced:

In Germany, all of the companies now see outsourcing as a valid option, but one that must always be care-fully analyzed; it usually requires very clearly defined interfaces with the company’s own departments in ad-dition to a careful cost-effectiveness study. The tendency is to outsource typical logistics areas more often than production areas. However, the basic rule is that the processes must be made more efficient before outsourc-ing is considered.

Outsourcing level

Purchasing Ware-housing

Production supply

Production Distribution

< 5 % 13 % 38 % 45 % 55 % 16 %

5 % – 20 % 7 % 15 % 16 % 25 % 4 %

20 % – 40 % 5 % 14 % 10 % 8 % 2 %

40 % – 60 % 7 % 11 % 8 % 3 % 0 %

60 % – 80 % 6 % 5 % 5 % 0 % 5 %

80 % – 100 % 62 % 17 % 17 % 9 % 73 %

Fig. 23In which segments of the process chain do you use outsourcing?

Increasing efficiency: automation is out, intelligent lean management is in

According to the survey, Germany clearly offers a preferred environment for manufacturing complex prod-ucts; the general goal is to tailor the production to the customer’s wishes. As described above, all of the compa-nies work hard to achieve significant increases in efficiency.

When respondents were asked about their preferred approaches and meth-ods for improving process sequences, the impact of the worldwide economic crisis was apparent. Because of the significant sales declines that affected nearly every company, there was increased pressure to lower costs; at the same time, the consistently low sales figures meant there were not enough liquid assets to invest in new technologies.

The responses to the automation trend were similar: respondents expect the level of automation to rise only moderately in the areas of production and assembly, and it is expected to stagnate in the area of logistics, even though various handling-intensive ac-tivities are being moved from produc-tion to logistics.

Instead of installing complicated automation technology, the responses clearly showed that companies were emphasizing increased efficiency; they did so by focusing on activities that add value, concentrating on process-ing times, decreasing inventory and making ongoing improvements.

Fig. 24How do you see the tendency toward automation at your site?

0 % 50 % 100 %

Production: all respondentsBest Practice

Assembly supply: all respondentsBest Practice

Assembly: all respondentsBest Practice

Logistics: all respondentsBest Practice

strong decrease stagnant strong increase decrease increase

Fig. 25How well established is the lean management philosophy (including CIP, 5S, value-stream analysis and other lean methods) among the employees in production / logistics?

0 % 50 % 100 %

Production: all respondentsLogistics: all respondents

Production: Best PracticeLogistics: Best Practice

not established halfway completely pilot phase largely

Fig. 22What cost-reduction potentials do you see for the logistics and production areas in terms of organization and personnel?

0 % 0 – 5 % 5 – 10 %

10 – 20 % 20 – 30 % > 30 %

22 %

37 %

23 %

6 %8 % 4 %


In short, lean management has ar-rived in Germany, and according to the respondents it is part of standard management practice. More than 90 % of the respondents are working to introduce lean management meth-ods, while more than 50 % describe their own lean methods and elements as being largely or even completely implemented.

An interesting observation: the companies that consistently follow lean principles also work to reduce inventory, minimize processing times and shift materials into a “flow” – this actually leads to transport costs that are approx. 3 % higher than average relative to sales revenue, because deliveries are more frequent! However, optimizing all of the networks pays for itself through the overall costs for production and logistics. In general, these costs are about 15 % lower than the average for other companies.

Because of the need for flexibility, series and small-series producers in particular must take supplemental measures for agility and adaptiv-ity in addition to lean methods – this adaptability can well be considered a national core competency. Some methods include intelligent safety stocks, highly flexible manufacturing cells, and above all adaptable work-time models; the versatility required in this field usually puts lean approaches to the test, and often causes them to fail.

4,08 %

4,74 %

5,30 %3,49 %

2,94 %

4,68 %

3,27 %

6,00 %

Fig. 26What proportion of sales revenue is used for transport costs at your site?

All respondents

Lean (professionals)

Lean (beginners)

Best Practice – clusters

Transport costs for purchasing Transport costs for distribution

CIP: Operational areas drive im-provements – external partners offer potentials

In particular, there is a well-known need for action when it comes to higher unit costs in Germany, and it is constantly being addressed by the companies surveyed. More than 60 % of the respondents see surprisingly high cost-reduction potentials even within their own systems, processes and technologies – they expect to see rationalization potentials between 10 % and more than 30 %!

If this can be implemented in a timely manner, all of the existing cost disad-vantages can definitively be balanced out, compensated and / or transformed into significant advantages in compari-son with other industrialized nations.

Inkeepingwiththeleanmanage-mentphilosophy,RitterSportreliesonhavingwell-trainedemployees.Wehavedrasticallyreducedthenumberoftemporaryworkers,sinceourownemployeeswithRitterSportcontractsidentifymorestronglywiththecom-panyandcansuccessfullyimplementmanyCIPmeasures.

Andreas RonkenRitter SportManaging Director

0 % 0 – 5 % 5 – 10 %

10 – 20 % 20 – 30 % > 30 %

Fig. 27What cost-reduction potentials do you see between the areas of logistics and production in terms of systems, processes and technology?

35 %

22 %

10 %

25 %

5 % 3 %


Product launches: Germany is a testing ground

This survey confirms something we al-ready knew: Germany is (and remains) the place where companies carry out research and development. The decision-makers surveyed here see a clear, continued focus on design-ing complex technology components. This concentration is supported by Germany’s highly qualified employ-ees, including in the area of R & D; by the existing innovation networks; and by the current norms and standards, which provide a stable platform for further development.

In addition to its suitability as a site for innovation, Germany is also a pre-ferred “testing ground”; it provides the right environment for complex product launches and fast marketing. Particu-larly when it comes to the adaptability and flexibility needed for launching a new product, experts consider Germa-ny to be at the top of the international market. This guarantees the optimiza-tion of important commercial success factors such as “time to market” and “time to cash.” In addition to the avail-ability of experts, as mentioned above, this is due to the qualified supplier base – the companies’ participation in cooperative networks, development

partnerships and strategic alliances creates a beneficial foundation here.

After a successful market introduction and experience in the “German pilot market,” established products are often shifted to low-wage countries – but only if the production technol-ogy in Germany has reached a stage that allows a shift and subsequent safe production in another country. In addition, Germany also offers a critical testing ground for market introduc-tions.

Fig. 29Do you see Germany as being at an advantage or a disadvantage in comparison with other industrialized nations in the following areas?

0 % 50 % 100 %

Availability of motivated and qualified R & D personnel

Availability of external partners and innovation networks

Availability of norms and standards

Availability of public support funding

Disadvantage Neutral Advantage

Fig. 28At your site, which elements provide the incentives / triggers for R & D efforts to improve processes?

0 % 50 % 100 %

Visions & strategies

Project experiences

Operational experiences

Own R & D employees

Other employees

Customers

Suppliers

Competitors

Research institutions

often sometimes rarely never

In keeping with the lean philosophy described above, process improve-ments seem to be initiated primarily through experience gained in opera-tions or through corresponding CIP initiatives. The internal R & D areas, which are always focused on product development and manufacturing pro-cesses, decline correspondingly. Thus even – or particularly – the shop floor level offers companies in Germany significant potential for the improve-ments described above.

Furthermore, additional improve-ment incentives come from outside the organization. A significant push seems to come from customers, who are constantly asking for product and process optimizations and subsequent price adjustments.

Meanwhile, optimization potentials on the supplier side seem to be largely untapped. Even the existing Germany-wide research landscape, which could potentially drive process improvements, is underutilized by most companies. As an initial conclu-sion, optimization seems to be driven primarily by internal areas, while external networks still offer untapped opportunities.


Fig. 30How will the following social developments affect your production and logistics processes?

0 % 50 % 100 %

Demographics

Education

Immigration

Ecology

Increasing dynamics

More flexible working hours

Gender equality

Maternity / paternity leave

positive negative

One interesting finding here was that the experts surveyed saw nearly all of these issues as providing posi-tive stimulus. Only the demographic change is seen as a significant chal-lenge. An aging workforce will fill positions in production and logistics, and operations will need to adjust accordingly. According to the experts, some of this demographic change will be balanced out by immigration – positions vacated by older employees will be filled by young immigrants. This trend is largely seen as a positive, enriching factor – by people on every level of the company hierarchy.

Social environment: positive challenges

In looking at Germany’s social environ-ment, it is clear that some significant tendencies in the socio-cultural land-scape will change in the future. This includes, for example, the continuing advances in gender equality in the workplace, more flexible working hours, and a growing focus on ecol-ogy and sustainability. In turn, these general developments can be expect-ed to affect production and logistics in Germany.

From the participants’ responses to questions about framework conditions and expected potentials, it is clear that Germany, enjoys a generally positive perspective in terms of production and logistics – despite the global eco-nomic crisis.

Fundamentally, this confirms the view that “‘Made in Germany’ stands for good quality.” And although good quality requires a corresponding cost level, there are numerous opportuni-ties to cost-effectively manufacture products in Germany that are truly worth their cost.

Numerous criteria thus seem to be fulfilled that allow the purchasing, production and efficient distribution of goods within and out of Germany. In addition to Germany’s crucial availabil-ity of qualified personnel, its optimal location in the heart of Europe and its solid infrastructure, the companies also – above all – have numerous possible ways to optimize their own structures and radically lower costs.

The most important of these seems to be building low-waste supply chains – from simple organizational changes, integrating companies’ own production and logistics areas, to “low-cost high-touch” initiatives using lean management methods and more intensive collaboration with external process partners. On average, the respondents believed that combining

these approaches would create sav-ings potentials of 20 – 30 % in compar-ison with current costs. An amazing perspective!

Furthermore, Germany has shown itself to be an excellent environment for developing innovations and man-aging complex product launches – an important prerequisite for success on the competitive global market.

This perspective could not be any better, particularly since it is clear that the companies can achieve these goals using their own resources, and they are not dependent on external developments, political incentives or social changes.

On the contrary: Germany’s social trends seem to have largely positive effects, since they stimulate both product development and process design. Even the specter of demo-graphics seems to be a problem only in some senses; it is expected to be balanced out somewhat by immigra-tion, which all levels of management see as an advantage.

Overall summary


The Context for CurrentLocational Research

44 45Study Germany’s Economic Advantages The Context for Current Locational Research

The Context for Current Locational Research In addition to the present study analyzing “Germany’s economic advantages – through integrated production and logistics,” there are various other studies that have similar contexts but a slightly different focus.

Without claiming to be a complete list, the following describes some current studies and significant findings in or-der to supplement and possibly round out the image of Germany’s produc-tion and logistics environment that has been developed here.

Various publications by the German Federal Ministry for Education and Re-search (Bundesministerium für Bildung & Forschung, BMBF) from a study directed by Prof. Nyhuis at the Univer-sity of Hanover in the first quarter of 2009, titled “Versatile Production Sys-tem” (“Wandlungsfähiges Produktions-system”), describe Germany’s role as a driver of economic development. Due to global trends, the reactive and proactive adaptability of production is becoming increasingly significant. In response, companies are trying to make their production systems more versatile; the key to this appears to be making logistical and supply-chain-

related adjustments. An important note is that this new understanding of production systems considers not just the technical process, but also the people and skills involved, as well as the idea that the company’s organi-zational structure must be involved. This conclusion is confirmed by the expected potentials revealed in this study.

The “Manufacturing Excellence Report” published by TU Berlin, excerpted in the Financial Times on December 15, 2009, emphasized that manufacturing companies in Germany receive more support today than ever before. With today’s increasing inno-vation speed and cost pressure, end users more and more often expect individually tailored solutions. This analysis also shows that, for strongly globalized supply chains and on-site assembly in Germany, the critical success factor is a synchronized interaction between logistics and production. It is also clear that every bottleneck costs money; here, too, Germany generally has an advantage, for instance over industrial centers in emerging countries, because of its solid infrastructure.

On November 27, 2009, the VDI (As-sociation of German Engineers) and the ISI Institute issued a report in the VDI news about the outsourcing behaviors of German operations dur-ing the economic crisis. The authors

summed up their findings in a simple formula: “‘Made in Germany’ beats low cost.” Germany is experiencing a renaissance as a site for produc-tion. Instead of fleeing to low-wage countries to save money, companies are working to preserve their capaci-ties in Germany; in doing so, they are reinforcing a trend seen over the last three years, a consistent decrease in the level of production outsourcing.

This is primarily due to the fact that companies were not sufficiently taking wage dynamics and the cost of sup-porting development in the outsourc-ing countries into account; their post-calculations and total cost calculations are now showing that Germany has also become more attractive in recent years in terms of cost, due to ongo-ing increases in efficiency and slow growth in Germany’s wage levels. Other considerations are quality issues and a lack of flexibility in production and supplier networks – one of Ger-many’s established strengths, defini-tively confirmed by the present study.

As mentioned above, not all of the current investigations and analyses could be mentioned in this study. Nonetheless, the selected examples show that there is broad consensus regarding Germany’s fundamental achievement potential, based on the existing and prospective production and logistics systems.

46 47Study Germany’s Economic Advantages Appendix

Legal Notice

Responsible:Germany Trade & Invest GmbHInstitut für Fabrikbetriebslehre undUnternehmensforschung (IFU) at TUBraunschweigMiebach Consulting GmbHVerein Deutscher Ingenieure e.V.

Idea, concept & implementation: Tobias Rinza, Miebach Consulting Publisher:Alexander SchenkMember of CoC Lean SCMMiebach Consulting

Dr. Johannes MandelartzManaging DirectorVDI Produktion & Logistik

Prof. Uwe DombrowskiIFU – TU Braunschweig

Sven SchürerMember of CoC Lean SCMMiebach Consulting

Isabel da Silva MatosGTAI GmbH

Sven SchulzeIFU – TU Braunschweig

Neu Isenburg, April 2010

Design:quandel design, Frankfurt / Main

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Germany´s Advantage - Integrated Logistics & Production