Purchasing Transformation

How the Irish dioxin scandal exposes some of the difficulties of public procurement

December 18, 2008 by Torbjörn Thorsen, IBX Group AB

In Sweden, traditional Christmas ham is one of the main dishes on the Swedish Christmas table; approximately 7 000 tons of Christmas ham is sold in Sweden each Christmas. Yet recently, the Irish dioxin scandal – which resulted in nearly 100 000 Irish pigs to be culled due to farmers using cheap animal feed – almost upset this tradition.

In Sweden, the dioxin scare was very real and very close to home since food produced with the polluted meat was sold to municipal operations such as schools and elderly care.

Seen from a procurement angle this significantly exposes one of the key challenges for public procurement: what is really the total cost?

Municipal governments in Sweden span over a large range of public offices, where procurement is one, another is health. In this case, the procurement functions had sourced food for municipal operations from large well known firms, yet their eyes were probably firmly locked on the cost per meal. On the other side of the hall (in our factual municipality building) sits the health inspectors, they spend some of their time banning practices which they see as unhealthy, unethical and plain wrong. Sweden has rather strict laws when it comes to keeping animals – whether this is good or bad is another question, for now this is the playing field – resulting in banning standard practices of foreign farmers for the sake of animal safety.

Simply put; procurement has bought goods – perfectly legal – from sources (further down the supply chain) which the health inspectors would have closed down. And these are people that probably know each other quite well; and they are both just trying to do their jobs best they can.

When we say that public procurement is lagging behind procurement practices in general, we often fail to see the vast differences in responsibility between the public and private sector.

Posted in Business, Organization, Procurement, Public procurement, Supply Chain Management | No Comments »

DHL UK opens first carbon neutral warehouse

December 17, 2008 by Abdülkadir Tekin - IBX Consulting

Some weeks ago I have reported about DPWNs GoGreen Program (http://www.dpwn-gogreen.com/go/) and how it would potentially effect its own operations and the operations of its suppliers. Now I tumbled across an interesting project that proves how serious DPWN is taking their previous announcement.

DHL announced end of November the completion of its first carbon neutral warehouse globally, and the first of its kind in the UK. The 6,500 square foot site near Wakefield West Yorkshire is the location for the main distribution centre of U.K. communication company O2. The project was implemented by DHL through its in-house carbon consultancy, DHL Neutral Services, as part of the company’s industry leading

GoGreen Program, which includes a commitment to reduce its carbon by 30 percent by 2020.

It seems to me that DPWN actually walks the talk here. Not that I did have a doubt about that - having worked closely together with this company for nearly half a decade - but I am impressed about this speed and determination. Looking on this I would recommend to all DPWN Suppliers to already think about their contribution to these ambituous goals.

As said previously: As a supplier of DPWN sooner or later you will have to decide if you want to jump on this train or not…!

Posted in Business, green procurement | No Comments »

Boosting your purchasing organization in times of turmoil

December 16, 2008 by Torbjörn Thorsen, IBX Group AB

According to a recent survey performed by Svensk Näringsliv (in Swedish) 75 percent of the respondents (2195 companies in total) were expecting to face problems with competence retainment due to the layoffs caused by the current financial situation. Partly, this is due to the employment regulations in Sweden which force companies to layoff workers based on length of employment.

So how can competence be retained, or reinforced in a period of severe staff layoffs.

In IBX book Purchasing Transformation, Björn Stenecker drew up a model for mapping necessary skill sets with the skills of the current staff to visualize where there are gaps and who could fill which role in a transforming purchasing organization. Björn’s model included twenty or so skills spread across a set of four major competence areas; education, general competence, specific competence and personal skills.

While finding the perfect replacement for a lost employee might be futile; I’d like to propose another perspective to this model. While model visualizes gaps and development potential, one can also use it to expose the most significant skill and then try to replace this single vital skill instead of the full skill set. In other words, it allows you to become the Billy Beane of purchasing.

For those of you who don’t have a clue of who Billy Beane is; Billy Beane almost single handedly reshaped baseball as we know it – and is chronicled in the book Moneyball: The Art of Winning an Unfair Game by Michael M. Lewis, published in 2003. Moneyball is a book that focuses on how Billy Beane took a modernized, analytical approach to assembling a competitive baseball team despite a disadvantaged revenue situation and its well worth your while; even if you don’t even have the slightest interest in baseball.

Posted in Change Management, Organization | No Comments »

Getting more value out of your e-sourcing investments

December 12, 2008 by Torbjörn Thorsen, IBX Group AB

During the past year, shoes have been a topic that has been on the agenda both here at Purchasing Transformation and on Spend Matters. While both of these posts have dealt with the TCO and lack of (personal) sourcing, today media in Sweden has reported another aspect of the TCO of shoes (in Swedish) that can be used as an analogy on the business climate of today.

While shoe sales in Sweden are down (about 3 percent according to Handelns utredningsintitut), business for cobblers (who repair shoes) are up by nearly 20 percent according to some cobblers that Dagens Nyheter has spoken to. Instead of buying new shoes, it seems that people on the street are doing their utmost to get greater mileage out of their current footwear.

This trend can be analyzed from two angles; first, as one business (new shoes) falter another will step into it’s place (cobblery); and second, getting more from what you already have might be a better strategy than trying to replace or re-launch failing initiatives.

We discussed the first angle a few days ago so let’s take a closer look at the second angle. Getting more mileage from your investment.

Revitalizing your e-sourcing initiative

Many e-sourcing initiatives (well most initiatives to be frank) tend to slump after a few good years, and there are numerous reasons for this. To get a stumbling initiative back on track, one can take this four-fold approach:

Benchmark and best practice
Training
Revitalization
Target projects

While the first two are rather self-explanatory and used by many high performing organizations on a regular basis, the latter two are more interesting and are the real organization boosters.

Revitalization can be a way to challenge current methods and models by analyzing new business dynamics to establish a redefined e-sourcing roadmap. In many cases this re-charges the batteries of staff that find it harder and harder to deliver savings that are experienced to be as high and mighty as the initial results (which were often based on new approaches which increased competition tremendously thus generating savings previously unheard of – pre-e-sourcing). The re-defined e-sourcing roadmap feeds into targeted e-sourcing projects which are used to accelerate and invigorate the entire e-sourcing initiative.

Posted in Change Management, Organization, Sourcing | No Comments »

Ways to raise the status of purchasing

December 10, 2008 by Torbjörn Thorsen, IBX Group AB

For the past few years there’s been a constant buzz regarding the increased status of purchasing professionals. Yet with all the talk about CPOs taking on new challenges in corporate management and purchasing becoming a hotbed for talent recruitment little actually trickles out when it comes to the actual practicalities of raising the status of purchasing.

Take this case story from the recent issue of Efficient Purchasing magazine regarding purchasing at GEA Group. Some background info: GEA Group is a global technology group with more than 250 companies in 50 countries focused on specialty mechanical engineering. Due to the geographically diversified organization the company established a corporate supply management team in 2005 with direct orders to introduce company-wide purchasing processes and tools.

For years, GEA Group has held an internal process and production innovation contest, where all companies/divisions in the group were eligible to participate. In the innovation-driven GEA culture, winning the award is highly valued; in 2006 supply management won the process innovation contest.

“Ten years back, no one would have expected purchasing to participate, much less to win the yearly process innovation contest”, says Charles Bloch, corporate coordinator of supply management in the Efficient Purchasing article.

GEA Group also runs an internal development program called GEA Academy which now also features programs for staff in purchasing and supply management. With the increased visibility of purchasing due to participation in programs such as the GEA Academy the raise of profile of the purchasing profession has increased within the GEA Group.

Posted in Change Management, Organization, Strategy | No Comments »

Tools for managing supplier risk (of the natural kind)

December 8, 2008 by Torbjörn Thorsen, IBX Group AB

With the current financial situation; risk management has almost intuitively taken the prefix financial (risk management); yet although the financial risks have increased exponentially as of late this does not mean that you can rest easy if you’ve got your financial bases covered. Regardless of our self-inflicted catastrophes, mother earth does not plan to rest.

As we’ve seen on numerous occasions this year alone, natural disasters such as earthquakes, fires, storms, floods etc have wrecked havoc in many industrialized regions across the globe.

We’ve previously dealt with the subject of risk management and there are plenty of tips and tricks available in the blogsphere (Sourcing Innovation quickly comes to mind but most of the tools available are methodologies. And as we all know methodologies are a great starting place but unless you have data on which to act, chances are that you’re not going anywhere.

So, where does one go to find the latest news about natural disasters?

Based in Budapest, Hungary, the National Association of Radio-Distress Signalling and Infocommunications provide a clickable, real time map service of natural disasters worldwide. If nothing else, it’s a fascinating view of the world and how we are all affected by the forces of nature. For a purchaser buying goods or services from affected areas it’s a great tool for up to date information allowing for on your toes risk mitigation.

Posted in Risk Management, Supply Chain Management | No Comments »

It’s the time of the (sourcing) season

December 4, 2008 by Torbjörn Thorsen, IBX Group AB

Over on Supply Excellence, Ed Bockman has authored a definitly worthwile post discussing the paradox of a buyers market where buyers are scared to act. He writes:

In my observations from the trenches, I think you can chalk up the hesitation of many organizations to a mix of once-bitten-twice-shy jitters, patiently waiting for “the bottom”, overstocked inventory of direct materials and a lack of demand for their finished products.

In times like these it might be useful to recall that the downturn that we are seeing now is not only due to an extrordinary financial situation but owes much of it’s depth to a significant structural shift. Old ways of doing business are on it’s way out the door and this is in fact adding fuel to the fire.

The good thing about changes such as this is that new markets will replace the old. The bad part is that change hurts; and as humans we strive to resist change (and many of us do this until no other opportunity is available). If we don’t see major rewards on the other side; chances are that we’d rather stay put instead of getting our feet wet.

So as a reminder I’d like to offer some success stories from past structural shifts:

In the mid eighties Cisco Systems completely changed the telecom industry and in doing so put a high number of telecom developers, manufactures and works out of business.
General Electric was founded and started to flourish during the Long Depression of 1893-97.
Kellogg’s became a household staple during the Great Depression of the 1930s. An era that also saw the Golden Age of Hollywood.

So this is indeed magnificent times for two reasons. From a business perspective those that can exploit the structural shift are in a golden position. From a purchasing perspective; those that exploit the current situation can deliver great value to their corporations. I recently co-authored a perspective on this subject entitled “Sourcing in a Downturn” which discusses ways to identify tactics to exploit the effects of the current situation when sourcing IM&S. Hardcopies of the perspective is available free of charge from www.ibxgroup.com.

Posted in Business, Strategy, Supply Chain Management | 4 Comments »

Purchasing ExpertPage

December 4, 2008 by Torbjörn Thorsen, IBX Group AB

With the Spend Matters navigator somewhat offline it’s great to see some other projects picking up where Jason Busch’ rather ambitious project left off.

Purchasing Transformation contributor Robin Titus has been devoting some late nights to The Purchasing ExpertPage; a stylish and very smooth rss-style aggregator picking up news from all the leading sector blogs and news sources.

The Purchasing Expertpage aggregates news and information about Purchasing from different sources. Expertpage is a private project with the main target to make daily blog research easier and faster.

Posted in News | 2 Comments »

Time to spot source hotels

December 2, 2008 by Torbjörn Thorsen, IBX Group AB

With the financial downturn in full swing; most of us are clinging to the seat of our chair as winter approaches. But as we’ve stated before; these are actually good times for the purchasing profession.

Your CEO might be sending out memos left and right calling for cost cuts; and the great thing is that there are savings everywhere. For many categories we’re truly looking at a buyers market.

Take hotels for instance; the latest index published by hotels.com shows a price fall of nearly 25 percent across the board.

NYC: - 25 percent
Rome: - 27 percent
Barcelona: - 27 percent
London: - 30 percent

But it’s important to note that this is not a global trend yet. Hotels in the Middle East and South America seem to be holding up better. According to Hotels.com CEO Nigel Pocklington this is attributed to a stronger local market.

If there ever was a time to start looking over your companies travel costs it’s now. Chances are you can spot source a deal for those winter business trips.

Posted in Sourcing | No Comments »

Give a Little Bit by Going Red

November 28, 2008 by Per Wendelboe Nielsen, IBX Consulting

With the holiday season approaching I thought it would make sense to promote the spirit of giving, even though giving is not something that is usually associated with purchasing in a positive way.

I recently went to market to acquire a new shirt. A seemingly simple purchase - but also one where personal preference and quality (TCO) plays a big role (not unlike buying a pair of shoes). With a professional background in purchasing I consider myself a rational agent and based on previous experience I had the specifications ready:

100% Cotton, 2-ply
Business-friendly color (no extremes)
Figure sewn
Straight collar (suits the four-in-hand knot best)
French cuffs

Prior to the industrial revolution the choice of supplier would have been reasonably simple: The local tailor. In the 21st century however, its a completely different market. Of course there is still the possibility of approaching the (perhaps now only somewhat local) tailor - but with a self-imposed spending limit of around 50 euro that is not really an option.

Although not contractually bound I do have a list of preferred local suppliers so I started my search there. This was perhaps the first non-rational (albeit comfortable) choice as a more thorough analysis might have shown that e.g. quite a few excellent online suppliers exist.

Reasonably well-prepared though, I now faced the oldest enemy of purchasing: The sales person. Retail is usually a fixed-price environment but that advantage is quickly lost to accessory bundling, volume aggregation offerings and specification obfuscation or override (I was on my own - if you bring your special someone you can add buying authority bypass to the list).

The purchase itself went rather smooth actually - an inexperienced sales person was no match for my mitigation by budget strategy. However, while closing the deal I was caught off guard by what I now realize was the equivalent of the ‘candy near the counter’ technique - A stand with Red Cross logo-shaped cuff links and the slogan: Give a little bit. Non-rational choice #2 but it felt great.

I got my shirt and I gave a little bit to a good cause in the process. The cuff links are surprisingly good as well - It is not Sterling silver but they are functional and anything else really does not matter or change the statement wearing them makes. I think it is a well-executed campaign (a brooch alternative exist for women) - priced at around 5 euro it is also an offer that is very hard to refuse:

Red Cross - Give a Little Bit Campaign

So, with the holiday season closing in - move focus from the current recession for a bit and consider replacing (or re-instating?) your holiday presents for employees, clients or key suppliers with charity donations. Most charities will help you make a statement as well, by providing gift cards that describe the charity or cause you can distribute in a holiday season equivalent of ‘Going Green’ - let us call it ‘‘Going Red’.

To help promote the Going Red initiative I will pick the 3 best comments with suggestions for similar initiatives or references to this post on other blogs and send the author a pair of above mentioned cuff links (or brooch, your choice). I will announce the winners here in an update within a few days.

Posted in Personal, Sourcing, Strategy | No Comments »