November 6, 2009 by Torbjörn Thorsen, IBX Group AB
Jason Busch recently posted a note worthy piece on collaboration (Supplier Collaboration – How Sweet It Is) where he recounted how Hershey Foods and Kmart had developed and executed very successful programs for the Kmart chain.
I was further reminded on how these types of relationships work at lunch yesterday when I ran into an old friend and he mentioned that he was waiting for the response from one of his customers to whom he had delivered material earlier that week. My friend is a songwriter and he’s is contracted as a supplier to one of the major record labels. It’s a buyer/supplier relationship built purely on trust (and past performance).
Now I understand that this might seem a bit farfetched for some, but remember that the recording industry is an 18 billion dollar industry that has experienced a nearly 15% drop in sales annually over the past few years. It’s a business that more and more has become dependent on external suppliers to deliver songs, the changes to the industry that were caused by The Beatles in the sixties have become obsolete and they are more and more resembling the industry demography of the fifties with freelancing songwriters providing songs to labels. But in order for this to work:
- The buyer needs to trust the songwriter to be able to deliver what they (and their artists) need in order to become more successful.
- The suppliers need to build a relationship that enabled them to deeply understand what both the record label and the artist was looking for. And unless this is delivered, there is no money coming in. So the depth of the relationship and common understanding is essential.
Now this type of supplier relationship might only be fruitful for a few select categories, but I believe that if we are to be able to exploit the potential for innovation in the supply chain – relationships like this will surely be integral in attaining that goal.
As for my friend in the example mentioned above, I don’t know the outcome yet, but if my friend has understood exactly what the stakeholders were looking for his material will end up on the next Kylie Minogue album.
Posted in Business, Supplier Management, Supplier Performance | Leave a Comment »
November 3, 2009 by Torbjörn Thorsen, IBX Group AB
Despite some of the headlines (true or not) regarding the practices of IBM’s executive management, there are still some interestion material emerging from the big blue.
In IBM Global Business Service’s recent ”Sourcing in a demanding economic environment” white paper the men in blue offer up a wide range of tactics and ideas for how purchasing departments can excel in even a harsh business climate. Though not much is new, and I personally would have emphasized exactly which skills are core when interacting with other parts of the business and taking on a leadership role in the value creation process, the authors have managed to collect a very comprehensive set of questions that purchasing managers should ask themselves when considering how to go forward with key purchasing challenges.
- Supply base: Who are the right suppliers?
- Commodities: What are the strengths and weaknesses in commodity coverage across growth countries?
- TCO: How can I help ensure sustainable TCO savings? How do I build a reliable business case and estimate risks?
- Quality and skills: How can I maintain quality levels? How do I attract and retain top-quality staff?
- Supply chain integration: How can I most effectively manage an extended supply chain? How can I help ensure competitive lead times and flexibility?
- Contracts and legal: What contractual and licensing issues should I be aware of? What are the import and export regulation requirements?
- Taxation: What are the benefits or pitfalls regarding local taxation? Should I buy in local or foreign currency?
- Language and local culture: How can I manage the local language and cultural challenges? How can I protect mu intellectual property and prevent fraud?
Though most of these questions may seem basic to more advanced purchasing professionals, I’d suggest you go through them in your next purchasing council (or board). Chance are that you will unveil unknown weaknesses in your supply chain that can be bettered.
Posted in Change Management, Governance, Organization, Procurement, Sourcing, Supplier Management, Supply Chain Management | Leave a Comment »
October 27, 2009 by Torbjörn Thorsen, IBX Group AB
Now anyone with even the smallest grasp of procurement knows that in most cases standardization is good, but one has to wonder how far this decree should be taken.
This coming Monday, McDonalds will close their three Icelandic restaurants turning Iceland into one of few McDonalds free zones in Europe (the others being Albania and Bosnia and Herzegovina). In a Reuters interview, Jon Ogmundsson, managing director of Lyst, holder of the McDonald’s franchise in Iceland, blame rising cost of supplies as the main reason for the closure. With McDonalds famed for their comparability across the globe – taste wise, if not cost wise – changing the ingredients seemed out of the question.
“For a kilo of onion, imported from Germany, I’m paying the equivalent of a bottle of good whiskey.” Now, the
Icelandic economy is still in a freefall so there are of course other aspects that play into this equation as well, but one might wonder what could have happened if the purchasing professionals at McDonalds in Iceland had stayed a little more on their toes when it came to sourcing their ingredients for 2009.
Posted in Best Cost Country Sourcing, Business, Low Cost Country Sourcing, Marketing | Leave a Comment »
October 26, 2009 by Torbjörn Thorsen, IBX Group AB
I recently came face to face with one of the major hurdles (and misunderstandings) of purchasing marketing spend; namely the definition of quality fulfillment.
Now, in most cases, marketers want superior quality – it is one of the real drivers of marketing effect – but when purchasing professionals attempt to support marketing in procuring say photography services the definition of quality fulfillment quickly becomes somewhat blurred.
- The professional purchaser wants to buy images.
- The marketer wants to buy superior images.
The problem is that who is to judge when an image goes from useful (it clearly displays whatever object was photographed) to superior (it displays not only the object, but also projects emotions or feelings).
The images that I purchased definitely passed any criteria set by the purchasing department (great focus, clearly displaying the object) yet I was devastated since the images were unusable due to the lack of correctly projected emotions. So what did I do?
Did I blame purchasing for supplying an inferior photographer? Well, no, on paper he was perfectly capable of doing the job (and he did, only I wasn’t satisfied with the superiority of his work) so I bit the sour apple. But next time, I’m going provide a longer list of suitable suppliers – suppliers that I as stakeholder know can bring me the superior quality I demand – and then purchasing will get to support me in the negotiations.
Posted in Business, Change Management, Procurement | Leave a Comment »
October 22, 2009 by Torbjörn Thorsen, IBX Group AB
Over the past few years many of my colleagues and I have been on a mission bolster the notion that mindset is the key issue that separates the laggards from the top performers in the purchasing field. And this is particularly evident when it comes to understanding why public procurement so often lags behind its private counterparts.
In a recent McKinsey Quarterly article; McKinsey on Government; the gaps in performance is significantly larger in the softer dimensions – mindset, talent management and aspirations – than in the areas most often promoted by purchasing solution vendors – tools, processes and strategy. While many research organizations often stop when they’ve realized their findings, McKinsey in this instance offers a rather pragmatic explanation of why public and private procurement professionals differ in these key areas:
Two important reasons [for these differences] are that, first, the members of the [public sector] purchasing staff are typically not on a career track as attractive as that of civil servants, which makes it difficult to attract and retain the best people. Second, a culture that rewards zero errors—for instance, one dedicated to “protecting the minister”—tends to favor preserving existing processes and mandates and offers limited incentives to aim for anything more ambitious.
Unfortunately, McKinsey leaves the subject of mindset and aspirations and returns to the more familiar hunting grounds of tools implementation and purchasing process streamlining; a track that is already being centrally driven in the EU through the PEPPOL initiative. And although better processes and widespread tools adoption surely will close some of the gaps between public and private sector procurement, these gaps will always remain if the softer dimensions mentioned above are not properly dealt with.
Posted in Change Management, Procurement, Public procurement, Strategy, eprocurement | 1 Comment »
September 30, 2009 by Torbjörn Thorsen, IBX Group AB
One topic that kept popping up at the recent IBX Purchasing Executive Summit was the transition of goods to services and the implications this has on purchasing. Take cloud computing for instance; it’s the IT hype bar none of 2009, yet few purchasing functions have experience in sourcing the service let alone managing contracts.
Given the circumstances, the benefits of cloud computing are quite obvious:
- Financial savings – CAPEX is reduced to a minimum
- Pay for actual usage – no need to own excess capacity to deal with peaks
- Shared cost – overhead is shared among all cloud customers
If the evangelists have their way, it’s a no brainer. A recent Gartner report stated that in 2011 early technology adopters will forgo capital expenditures and instead purchase 40 percent of their IT infrastructure as a service. Other industry analysts have compared the advent of cloud computing to the establishment of utility providers.
In the early stages of industrialism, any one investing in a factory by default had to invest in their own power plants. A few years later a utility sales man – figuratively speaking – showed up with a power cord and rendered the factory owned power plant useless.
So what is cloud computing: frankly put, it’s outsourcing with a twist: not only has your staff (and their computers) left the building, so has your data.
This of course has severe legal implications, the roots of which need to be understood and scrutinized during the sourcing process. In particular sourcing professionals need to ensure that contracts cover the following key issues:
- Data security and data regulation – not only need cloud computing supplier adhere to customer policies but they also need to be able to uphold legal obligations relating to where the customer is based.
- Performance issues – SLA:s are essential and these need to include all aspects of business continuity.
- Contract closure and exit – what happens to your data once the contract is annulled and how will the cloud computing supplier deliver the data?
- Supplier risk – supplier stability is essential; if possible perform a due diligence before entering into the contract to uncover unwanted scenarios.
Posted in Cloud computing, Software as a Service, Sourcing, Supply Chain Management, Web 2.0 | Leave a Comment »
September 29, 2009 by Torbjörn Thorsen, IBX Group AB
In a couple of days, IKEA will celebrate the 30th anniversary of their classic bookshelf Billy and to this date IKEA has sold more than 41 million Billy:s and whilst doing so continuously improved their supply chain performance in such a manner that they’ve been able to lower the price to consumer by 30 percent.
One of the lesser known reasons for this superb performance is the constant interaction between IKEA designers, purchasers and the actual end-user goods. Many IKEA purchasing staffers eat their lunch in the IKEA store food court – right there alongside consumers – and on their way to lunch they pass through the store seeing their products “in action”.
So not only do the purchasers and designers have the possibility to constantly monitor how consumers judge their products, they’re also provided ample non-formal opportunities to engage in development. And as anyone familiar with creative (and yes, I do count purchasers as creatives) work will acknowledge – the best ideas are often hatched outside of the confinement of the office.
Posted in Organization, Supply Chain | Leave a Comment »
September 22, 2009 by Torbjörn Thorsen, IBX Group AB
At the IBX Purchasing Executive Summit a few weeks ago the most exciting moments – from my perspective – was an Oxford Debate format where focal purchasing issues was debated in a formalized yet open spirited manner. One of the topics of the debates was green purchasing and where the responsibilities lie; at the purchasing department (or the company) or at government level (meaning that purchasing functions should follow rules and regulations and not go out on a limb on their own).
Now this debate is not new, yet it still significantly relevant, something which was evident by the amount of energy the participants put into their performances.
Without revealing too much of what was said and without placing my views as some sort of consensus on the issue, I’d still like to add a few pointers from the world of practical philosophy to further expand on the issue.
In a recent article in the Swedish sustainability magazine Camino a number of scholars reflected on the role of the individual in association to sustainability in general. Folke Tersman, professor of philosophy at Uppsala University; who recently published a book called “Tillsammans” called for a more collaborative approach due to the fact that broader political standpoints are necessary due to the fact that they are viewed as more solid than actions of the individual; still this does not leave room for irresponsible actions from the public. “Only if the majority of the public votes for dedicated and brave politicians are the right decisions possible” he concludes.
Michele Micheletti, professor in Political Science at Stockholm University provided similar thoughts in a Dagens Nyheter article; the responsibility lies on the individual, “the alternative is that everything is regulated on an international level, something which is highly unlikely”.
The two polarities; the government vs. the individual; have spawned a number of reactions, the most powerful being a middle route of lower level commitment – smaller collectives that work on local level that empower the individuals without waiting for the full international or governmental involvement. I believe this is a valid way forward for purchasing functions struggling with these issues – regional or industry focused coalitions that set and uphold standards; this leaves room for powerful initiatives yet retains a form of sensibility providing a fundamental market balance.
Posted in green procurement | 1 Comment »
September 14, 2009 by Torbjörn Thorsen, IBX Group AB
I know this isn’t exactly news but the fact that Orange is expanding it’s green/csr initiatives to include pre-owned and “second life” (a buy-back plan) telephones is one better than the Sony Ericsson/Samsung green cell phone plans.
Because as we all know, the best way to save money is to not spend money – and given that, as an example, adult swedes have on average 2,4 cell phones (according to el-kretsen) there is quite a lot of money to be saved using the equipment that is already on the market.
And the savings in this case is even more obvious when recycling costs are taken into account. The recycling of consumer electronics is a shady business and as supply chain management enters the era of life cycle planning, this might be one route to take to ensure that csr-initiatives are not tainted at the end of a product life cycle.
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September 11, 2009 by Torbjörn Thorsen, IBX Group AB
At the IBX Purchasing Executive Summit earlier this week many wise words were spoken, but in retrospect the words that linger I my mind and won’t go away came from Gerold Carl, the Director Strategic ePurchasing at Lufthansa.
When describing the lessons learned from the very impressive Lufthansa e-procurement initiative (more on which can be learned in this Efficient Purchasing interview) he noted that end-users were reluctant to go for e-learning often pushing for the more costly in-person training approach. When asked why he thought this might be he matter-of-factly nailed answer:
“…our end-users were expecting somthing like Amazon.com, we gave them SAP…”
It just goes to show how important user-friendliness is, and how rapid e-procurement providers need to be in adapting B2C-like user experiences. If e-procurement providers can’t deliver up to those expectations, customers are no doubt heading down a path of costly training, change managment, information and expectation management.
Posted in Change Management, Procurement, Technology | Leave a Comment »
