Social and environmental standards in procurement
Brugger Magnetsysteme GmbH are a family business and one of the larger employers of Hardt in the Black Forest. Managing Director Thomas Brugger looks at his company’s supply chains with some concern.
With forward-thinking inventory management and a commitment to new sources of raw materials, Brugger Magnetsysteme is meeting supply chain challenges.
Mr. Brugger, let’s first talk about supply chains. What is the situation like for you at the moment?
We are a manufacturer of permanent magnet systems and what we source are magnets. We don’t manufacture them ourselves, but source them, either directly or indirectly from China. That is the only manufacturing country in the industry. Other products that we need are, for example, steel strip, turned parts and plastics, to name just the four big ones. The situation is indeed tense. Since the fall of 2021, price increases and supply disruptions have affected us. When ships cannot be loaded and unloaded in the port of Shanghai, we feel this impact directly. The zero-covid policy is also having an impact. Steel was also tighter at one time, but is now easing somewhat. Plastic was difficult over the turn of the year, but is now easing again from my point of view.
Can you counter this with smart inventory management? Do you already have your own extended delivery times?
We are relatively good at this and are praised by our customers because we have good delivery reliability. A large shipment of magnets has just arrived, which we are stockpiling simply for safety reasons. Until 2021, the rule was: keep your inventories small and reduce working capital. That is no longer working right now. Security of supply for customers is currently more important than price. To that extent, we have built up our inventories where we have seen that the supply chains are uncertain.
With 100 percent dependence on China, doesn’t that make you queasy when you think about geopolitics?
Yes, it does make me queasy. We have the risks on our radar. We have looked at which products we supply and we have tried to secure 50 percent of the deliveries with inventories, at least for a year. That means the sales we generate now are secured with the deliveries. If these fail to materialize, Brugger will also fail to materialize. We are a member of the Rare Earth Industry Association. That was also my approach: we see rare earths as a critical raw material. We are only a small player in this game, and yet I think it is important to be on the road here. Rare earths are a strategic element for China in shaping its economy. It’s important for the rest of the world to try to break this quasi-monopoly. There’s a lot going on, but it just takes time from exploration of a mine to the finished metal. It takes five years easily.
“Keep your inventories small and lower your working capital. That’s not working right now. Security of supply for customers is more important than price right now.”
Does that make transparency in the procurement market an absolute top priority?
Perhaps a bit of history. We have been sourcing magnets directly from China since 1997, but only went there in 2014 to make direct contact with the local supplier. That’s when we started to take a direct look at the supply chain. In a project we did together with partners, we developed a procure and audit system for our suppliers. This was done by Nanjing University; we then also created certificates. So we looked very closely at our suppliers. However, they source from the refineries and they in turn source from the mines – and it’s all state-owned. I always describe this as a black box; it’s still relatively non-transparent.
What role do social and also environmental standards play in this?
It has to be said that the visits showed that the companies are doing very well. The impulses we provide are also well received and implemented. The Chinese are doing relatively well in the area of environmental and social standards. In this respect, we have opened an open door.
Turning to sales, how have foreign markets developed for you?
We started relatively small. The markets were not good at the beginning as far as our systems were concerned. We started with three customers and then developed accordingly over the years. Today, we sell 75 percent in Germany and 25 percent in Europe. We are also represented worldwide through dealer customers. Trade and direct sales are in a ratio of 60 to 40, and the markets in which we are active in Europe are mainly France, Switzerland, Austria, Italy and Spain. Regarding our sales structure: we have the office sales force and we have three technical sales representatives, one of whom is based in France. So it’s a relatively narrow structure.
Despite all the challenges at the moment, where do you see growth potential?
At the moment, we are trying to grow more strongly in Austria, Switzerland and Italy. We see relatively great potential there. Of course, the operating costs increase with more languages, greater distances and perhaps a different mentality. In terms of industries, we see wind energy in particular as an area that we can serve well with our magnets.
“The sales we generate now are covered with deliveries. If those don’t come in, the company will not come in.”
Where in energy production do magnets sit?
In the wind turbines, the cables are run in the tower and the cable routes are held in place with magnets, because you shouldn’t drill anything in these steel towers, welding isn’t so clever either, and then lighting is still an issue. In other words, the wind turbines had to be equipped with lighting so that they would be visible to air traffic. So we approached the major manufacturers, either directly or through the trade.
How does the shortage of skilled workers affect you in the Black Forest?
The shortage is there. We feel it, but we manage to a certain extent in our company. When we publish job ads, we get applications and usually find someone. But it’s an incredibly tight market, so it’s been easier for us. We have done a lot in the past to strengthen our employer attractiveness. There are simply a number of topics that we address, such as sustainability and social interaction. On the other hand, we consider leadership topics and the appreciation and development of employees to be almost more important. How can you bring employees into your own development so that it serves the company. Of course, the shortage of labor also leads to a wage-price spiral here in the region, because you can’t really get people here from outside. We need to be a little more attractive as a municipality and region.
“When it comes to environmental standards, impulses from suppliers are accepted. We’ve kicked open doors there.”
Magnets for consumers and industry
Almost 100 percent of the magnets that the employees of Brugger Magnetsysteme process and supply to trade and industry worldwide come from China.