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.

Brugger Magnetsysteme is successfully addressing supply chain challenges by implementing innovative inventory management strategies and actively seeking out alternative raw material suppliers.

Mr. Brugger, could you please provide an overview of the current situation regarding your supply chains?

As a manufacturer specializing in permanent magnet systems, our primary sourcing concern revolves around magnets, which we do not produce internally but rather acquire from suppliers, either directly or indirectly from China, the predominant manufacturing country in the industry. Additionally, we require other crucial materials such as steel strip, turned parts, and plastics. Currently, the situation is quite challenging for us. Since the autumn of 2021, we have been facing price hikes and disruptions in the supply chain. When there are difficulties in loading and unloading ships at the port of Shanghai, we experience a direct impact. Moreover, the zero-covid policy has also affected us. Although there was a period of tightness in the steel supply, it seems to be improving somewhat now. Plastic was problematic during the turn of the year but appears to be easing from my perspective.

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.

Doesn’t your complete reliance on China as a source of materials make you concerned about the potential impact of geopolitics?

Certainly, the heavy reliance on China does cause me concern. We are fully aware of the risks involved, and we have taken proactive measures to mitigate them. We have analyzed our product portfolio and made efforts to secure at least 50 percent of our deliveries through inventory, ensuring that our current sales are backed by available supplies. If these deliveries fail to materialize, it would directly impact Brugger’s operations. To address these challenges, we have joined the Rare Earth Industry Association, recognizing the criticality of rare earths as essential raw materials. Despite being a relatively small player in this field, I believe it is crucial to be actively engaged. Rare earths play a strategic role in China’s economic development, and it is vital for the rest of the world to strive for diversification and break away from this quasi-monopoly. While progress is being made, it is essential to understand that the entire process, from mine exploration to the production of finished metal, can take up to five years due to various factors.

“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.”

Is ensuring transparency in the procurement market an absolute top priority for you considering the mentioned concerns and risks?

Allow me to provide some historical context. We have been sourcing magnets directly from China since 1997, but it was only in 2014 that we personally visited the country to establish direct contact with our local supplier. This visit marked the beginning of our efforts to closely examine the supply chain. In collaboration with our partners, we embarked on a project to develop a procure and audit system for our suppliers, which was conducted by Nanjing University. As part of this process, we also implemented certification procedures. We scrutinized our suppliers meticulously. However, it’s important to note that our suppliers themselves source materials from refineries, which in turn acquire them from state-owned mines. This entire process can be likened to a black box, as it remains relatively non-transparent.

How significant are social and environmental standards in relation to this matter?

During our visits, it became evident that the companies we interacted with are performing admirably. The ideas and suggestions we offer are also warmly received and effectively implemented. It is worth noting that the Chinese have made significant progress in terms of environmental and social standards. In this regard, we have encountered an open and receptive environment.

How have your sales in foreign markets progressed?

We started small with just three customers, and the initial market conditions for our systems were challenging. However, over the years, we have gradually grown and expanded. Currently, 75 percent of our sales are in Germany, while the remaining 25 percent are in various European countries. We have a global presence through our dealer customers. Our sales are divided between trade and direct sales, with a ratio of 60 to 40. The key European markets we focus on include France, Switzerland, Austria, Italy, and Spain. Our sales team consists of an office sales force and three technical sales representatives, one of whom is based in France. Overall, our sales structure is relatively streamlined and focused.

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 do magnets come into play in energy production?

In the case of wind turbines, magnets are used to hold cable routes in place within the tower. This is a preferred alternative to drilling or welding in steel towers, which can be challenging. Additionally, magnets are utilized for lighting purposes to ensure the visibility of wind turbines to air traffic. We have approached major manufacturers, either directly or through trade channels, to offer suitable magnetic solutions for these applications.

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.

“Suppliers have shown a willingness to accept and implement our suggestions regarding environmental standards. We have encountered open doors in this regard.”

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.