Archive for May, 2008

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eProcure & Supply 2008

May 14, 2008

Last week the eProcure & Supply 2008 took place in the lovely town of Nürnberg. Over 115 companies in the Source-to-Procure-to-Pay area showed their products and service offerings, over 3000 Top Purchasing Professionals from mainly Germany, Austria and Switzerland visited the fair which was accompanied by a purchasing congress with over 400 participants. So this event can be considered as one of the major ones in the so called DACH region and therefore very much qualifies as a trend indicator.

As this is now the third time that I have been at this fair as an exhibitor and the fifth time in total I feel to be legitimated to give away some thoughts around this event.

Apart from the normal fluctuation of exhibitors – some old names vanished and gone, some new players emerged – it was obvious that the eProcure & Supply 2008 was smaller on the supplier side than the ones in the past two years. This can also be verified by the numbers. In 2006 168 companies have been present, in 2007 it was 143 and it dropped to 115 now in 2008.

So is this reflecting a market consolidation – the inescapable shake out? Or is it just a dropping importance of this specific fair?

As the number of visitors stayed nearly the same – at around 3000 – I wouldn’t say that it is a decreasing interest in purchasing topics. On contrary I have noticed some maturity at all market players – supply and demand…!

On supply side more and more players are moving away from their niche existence towards a full purchasing service offering. It seems that they have finally understood that implementing the 56th technological feature of their source, procure or pay software will not bring much additional value to their customers. You should be able to help the purchasing organizations comprehensively with your tools, services and expertise in all relevant areas: Source, Procure, Pay and Consulting. Sure, being in Germany means that a majority of projects and initiatives still are very technological and still too many of these purchasing projects are steered by IT or finance departments instead of the purchasing departments. But I have never before talked to that many buyers at this fair than this year – which is a very good sign.

On demand side another clear trend is that the big corporations that have completed a long e-purchasing journey in the past years now find themselves standing at a crossroad again. They have to ask themselves: Shall they invest in the above mentioned 56th feature on their solutions or should they assess their current situation thoroughly and then broaden and connect their various activities instead? In other words these companies are now focusing on Purchasing Transformation rather than pure technology roll-outs. From the interesting talks that I had with numerous customers and prospects it is clear, that the trend clearly indicates in the Purchasing Transformation direction. Before you decide on one of the ways at a crossroad you should have a look on the map. And such kind of a map is what we call a Value Assessment. Within this concept we recommend not to focus only on technology or only one of the major purchasing processes. You should perform a comprehensive analysis in all relevant aspects instead: Strategy, Processes, HR & Organization, Performance Measurement and – only as one part of it – Technology.

The discussions at the eProcure & Supply 2008 showed me clearly the growing interest in this way of thinking. Let’s see what the next eProcure & Supply event will bring in spring 2009 and if we will see some successful projects and initiatives!

On a personal note: On Tuesday I had to cover for my dear colleague Regine Böhm-Gams who was supposed to present our Purchasing Transformation approach at the exhibitor forum but then was unavailable on short notice. Grabbing that opportunity I took that speech and of course also proudly introduced our book “Purchasing Transformation”. As a co-author I promised to sign copies of the book after the speech if anyone would be interested in it. To be honest: I was quite nervous and very happy and relieved that I was asked to sign some five copies.

So as you can see the eProcure & Supply 2008 also bore a great moment for me ;-)

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Posted in Conference, Supply Chain Management | Leave a Comment »

Have you geared up your strategies for green and social purchasing?

May 14, 2008

A recent survey done by A.T. Kearney and the Institute for Supply Management (ISM) out of 25 North American Fortune 100 companies displayed some interesting findings.

One of the trends identified was “being green and ethical will no longer be an option”. Another finding was that “most firms lack both the formal direction and processes to fulfill sustainability commitments” and “within the coming year most companies will significantly change how they engage with suppliers on these issues”.

It turned out that of all the companies in the survey only:

  • 38% had a supply management sustainability strategy in place
  • 50% had written guidelines and policies
  • 41% had sustainability training 
  • 32% had sustainability criteria included in their sourcing tools
  • 9% had public awards/recognition for staff

And in regards of supplier metrics used only:

  • 54% evaluated supplier labor metrics
  • 54% evaluated usage of recycled materials
  • 50% evaluated impact of material waste
  • 50% evaluated material toxicity
  • 37% evaluated sustainable sources 
  • 32% evaluated suppliers wages
  • 27% evaluated energy usage
  • 14% evaluated Green House Gas (GHG) emissions

As you can see the majority of the companies are very badly prepared for the trends to come. I have found no report covering European companies on this matter yet, but I suspect the picture to be similar or even worse.

Are you and your company prepared for the green and social purchasing trends to come?

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The projected volume discussion – the importance of including quantities in a strategic sourcing effort

May 13, 2008

For sure, you may be presented with arguments such as:

  • We are not able to retrieve and aggregate the quantities.
  • We do not have the time to do it.
  • We do not see the value of doing it.

However, the problem is how will you do a proper bid analysis without projected volumes? If not including projected volumes it will be a pure price list comparison which could be analytical correct but even worse; business wise completely misleading.

Usually, I compare this with a similar discussion of how to evaluate an RFI. Here, more commonly, there is a better understanding that we need to apply weights at questionnaire and question level in order to calculate a weighted total score of the responses. Because otherwise, what would a score say without the individual weights?

In the exact same manner projected volumes should be viewed as weights on individual items and where high runner items consequently are being priced as such. For low volume items, the price is more or less unimportant from a bid analysis perspective. So in essence, projected quantities are vital:

  • To enable a proper bid analysis .
  • To convey the “weights” for individual items that tend to run in high quantities, thus ensuring that the most competitive prices are given to these items specifically.
  • To avoid a misleading result out of the bid analysis.

A final piece of advice, yes it is true that you probably have to work a bit to retrieve a quantity projection of the items. But be pragmatic and it does not necessarily mean that you have to be very specific in the estimated numbers. Start with an overview and make a percentage distribution between the items. Make a sanity check of the volume distribution together with the historical cost, check the calculated spend vs. historical data. A good guestimate is good enough and the importance is that you can identify the high and low runners.

Posted in Best Cost Country Sourcing, Sourcing, Supply Chain Management | Leave a Comment »

What SRM Can Gain From Social Networking

May 12, 2008

Private Social Networks like Facebook and MySpace have seen a tremendous development in the last two years and the concept of social networking has spread to almost any area of private life. Also some corporations are slowly starting to leverage the power of social networking to interact and collaborate with their customers and employees.

So how can Supplier Relationship Management leverage this new way of communicating and sharing information?

When searching for “Social Networking” in relation with “SRM” I only found one article on Supply Chain Management Review which really tackles the topic. Here is a quote which I think summarizes the benefits quite well:

Consider several of the main advantages MySpace and similar technologies bring: communication (instant, structured, unstructured, and syndicated), globalization, and on-demand collaboration. These technologies provide a powerful means for exchanging information between and within enterprises. And, they have the added benefits of being inexpensive, innovative, and fast. Embracing some of these technologies in the same way teenagers have welcomed social software like MySpace and Facebook, could go a long way in overcoming some longstanding supply management challenges. From Joe Raudabaugh – full article http://www.scmr.com/article/CA6492754.html

If you have an account on Facebook (or on any other big social network) you will realize how easy it is to get and to stay in touch with someone. By linking up with a person (which usually takes not more than a mouse click) you will instantly gain access to a great amount of information about this person and to information about other people connected to this person. The network enables you to share files with a group of people, run discussions and collaborate globally. Now just imagine doing this with your suppliers – sounds good to me! I will definitely dig deeper!

Posted in Business, Organization, Personal, Technology | 3 Comments »

Time to Move On?

May 9, 2008

As reported by Financial Times increasing raw material prices and labor costs in China will increase lap top prices. The world’s three leading contract manufacturers of Laptops – Quanta, Compal and Wistron -are now in talks with HP, Dell and Acer on how to move on the price increases to the consumers.

The first reflection on this is that this is all great news. Over the last 10 years we have seen the most dramatic reduction in world poverty ever. Hundreds of million of Chinese people have climbed over the line for extreme poverty (1 USD per day at PPP). World trade is driving increased salaries and the wealth in China is consuming a lot of raw materials making raw material prices to rocket. The rich and the middle income countries are now paying for the poverty reduction by adding some 100€ per laptop. We can afford it!

The second reflection is that the consolidation in the computer industry has now come pretty far and maybe we are starting to see some oligopolistic pricing? The numbers of both branded vendors and their contract manufactures are now much smaller than some years ago. And why are they all staying in China? Maybe they should move on to less expensive countries? In any event, there are still some vendors left and we as purchasers have to continue to keep the competition up. So here is the short list for your next RFQ: Acer, Apple, Asus, Dell, Fujitsu Siemens, HP, Lenovo, Sony and Toshiba.      

Posted in Best Cost Country Sourcing, News, Sourcing | Leave a Comment »

The »North American« Pros to Know list

May 8, 2008

Supply & Demand Chain Executive recently published the 2008 edition of their »Pros to Know« list, and the one thing that struck me when browsing through the list was the almost total lack of non-Americans present. Surely the fact that S&DCE is a North American trade journal plays a big part in this; but I’m still amazed by the fact that list of pros to know in a function as global and international as sourcing and procurement is dominated by folks from the US.

It’s even more astonishing when you look at the recent development of purchasing in general. In a 2005 interview with General Motors CPO Bo Andersson, Mr. Andersson talks about his organization and I quote: »“If you look at our organization chart, managers come from many different countries and have worked in at least two countries outside their own. «. To him, an international team was essential for succeeding in global trade.

Strangely enough, this sentiment does not resonate in the S&DCE listing. Maybe it’s time for one of the European trade rags to pick up this challenge and make a truly international list of pros to know in purchasing.

Posted in Organization, Supply Chain Management | Leave a Comment »

Measuring Savings

May 7, 2008

Some years ago I was involved in a sourcing project for PCs. Comparing the old and the new prices gave us a saving of 20%. We felt we had done a great job. But when starting to negotiate the price model we got into trouble. We argued for some kind of tagging to a price index. Everyone knows that computers drop in price from year to year so without a price model that followed the general price development, the contract would have been kind of useless. To understand the whole topic better we did some research on historical PC-price developments and found that prices had decreased with around 30% over the last years for a given model. The insight reinforced the need for a smart price model in the contract. But it also made us very confused on what kind of saving we could get credit for. 20% was equal to 8 months of price development. And the old contract was definitely older than 8 months and even more worryingly, we were about to sign a 3 year deal. How much had we saved? Any number would be as right as any other.

Calculating savings is a very complex matter. The more you get into it the trickier it gets. You have both a theoretical problem (the savings definition) and a practical problem (how to get proper data). Here is however some thoughts on what could be done (please share your thoughts and experience on the topic by adding a comment!):

First of all I think we should talk about price development instead of savings. Most industries have a positive productivity development and you can get reduced prices, but some have not. For example, plastics tend to follow the ever increasing oil price. Secondly, avoid to get into the trouble a choosing a date for a baseline. Instead, always compare the average prices for this year with the average prices of the previous year. Doing it this way, you get a number that is possible to use for people outside the purchasing department. The price development of all purchased goods and services can be compared with the price development of the stuff that you sell. To understand your performance you can then compare the numbers with published price indices or productivity measurements for different industries. One good source is the OECD productivity database. For those if you that get energized by reports with a lot of charts you may also check out the recently released Productivity compendium 2008 from the same source. But take it in pieces, there is general lack of a standard methodology when it comes to purchasing savings so there is no short cut to get the numbers right. But when done, you can have an informed discussion about the profitability of the company and what purchasing has and can do about it. My 20% savings would not have done the trick!

Posted in Best Cost Country Sourcing, Sourcing | 1 Comment »

The Art of Networking

May 6, 2008

Come May and a networking purchaser can spend weeks on end at various conferences across Europe. Kicking off with the German eProcure & supply 2008 in Nürnberg (May 7-8 @ the Nürnberg Messe), hitting Berlin with Sapphire 2008 (May 19-21 @ the Messe Berlin), and ending up in London for the Procurement Leaders Forum (May 22 @ Lords Cricket Club).

Jason Busch of Spend Matters offered some tips on how to survive and make the most of participating at conferences and highlighted Melissa Beuc’s Conference Season Tips at E-Sourcing Forum. On top of the list of to-do’s from both is networking.

In the participant survey after the last IBX Purchasing Executive Summit, we asked the delegates what the most important aspect of the conference was and the great majority responded with one word: Networking (one delegate even went as far as answering the question with “Networking, networking, networking”) so from my horizon, Jason and Melissa are right on target.

But networking is highly reliant on platforms and opportunities; delegates must be able to network; although supply chain’s are networks by default, many purchasers play their cards tightly to their chests and at least in the European purchasing sphere direct and open-hearted exchange of best practice and ideas are often preceded by hard fought battles for trust.

To me this is an area where the conference hosts can greatly enhance their offer; to provide platforms for exchange, and to ensure a trusted environment where guards can be brought down. For networking is one aspect that cannot be underestimated as a source of knowledge and progress as the world around us spins faster and faster.

In the next few days; we will bring you some highlights and analysis from the eProcure & supply 2008; and if you’re on site – don’t hesitate to network.

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Wealth creation, Competition and Purchasing

May 6, 2008

There is now a consensus among scholars that humans left Africa and spread around the rest of the world as late as some 80-100 000 years ago. By passing today’s Red sea they, generation by generation, moved into Asia, Europe, America and the Pacific. Some 12 000 years ago agriculture and more advanced societies started to develop on the Eurasian continent. We got written language, viruses, management skills, weapons and trade. The next big development step came with the start of the industrialization era. Trade, science, engineering, transportation and specialization enabled an astonishing growth in wealth. And as can be seen in the graph below, the growth of the world economy is ever increasing.

Through globalization, rapid growth is now not only limited to a few western countries. Instead almost all people of the world can today benefit through longer and healthier lives and increased freedom.  As indicated in the table below, the number of people living in extreme poverty (below 1 USD/day) has declined in poor countries from 40 to 18% in only 25 years!

The biggest decline has been in the populous countries China and India. But since 1995 also the 700 million people of Africa show progress. Albeit small and fragile, the continent as a whole has a growth rate of 3% over the last 12 years.

This global economic development has meant drastic improvements in key development factors such as infant mortality rate, primary school enrolment and life expectancy. Maybe a bit less known is that the wealthier countries also have lower number of deaths due to genocide and war. The number of deaths due to war is today at its lowest point since before the Second World War. Also, studies show that citizens in wealthy countries trust each other more. So the pursuit for wealth is a greater thing than being able to afford a new flat screen TV!

We now know for sure that competition is a key factor for all development. We have learnt through history that governmental policies that curb competition (such as plan economy, corporativism, high entry barriers or trade protectionism) all have devastating impact on the wealth creation. A global study, the World Economic Freedom Report, show a strong correlation between economic freedom of a nation and its growth and wealth. (3) Where competition is allowed to flourish, lives get better.

We also know that specific industries that, for whatever reason, have weak competition, show slower productivity improvements than industries under competition.  For example, in Sweden, both the construction industry and health care services showed negative productivity developments during 1995 to 2002. The construction industry is dominated by a few large players and the health care sector is predominantly run as a governmental monopoly. Industries with high productivity development are all subject to fierce international competition: Telecom services, Agriculture, Chemicals and Automotive. (4)

Competition drives wealth creation since all companies acting under competitive pressures need either to find new ways to do the same thing to a lower cost.  Or they need do new things to get away from the competition. Hence, the peer pressure drives innovation in all areas of the companies notably within product development and supply chain management. 

So the world is getting a nicer place with high speed. And we now know that competition is one of the most important forces needed to enable this revolutionary development. So what is the connection to purchasing? Are we as purchasers doing anything more than bringing home the products and services to the company we work for? Yes we are! In fact we have reasons to be very proud. During gloomy days we shall remind ourselves that we actually contribute a big deal to creating a better world. Purchasing is all about creating and exploiting competition. While doing it in the interest for the companies we work for, we at the same time make sure that they industries we buy from continue to innovate and increase productivity. Also, by doing a good job, we increase the competitiveness of our companies which fuels further competition within the industry and drives wealth creation. So by deselecting low performing supplier in favor of high performers, we contribute to a stronger society.

1. Angus Maddison Contours of the World Economy and the Art of Macromeasurement 1500-2001 and; The World Bank

2. Chen & Ravallion 2007, World Bank 2006a

3. World Economic Freedom report 2008

4. Groningens produktivitetsdatabas; OECD

Posted in Global trade | Leave a Comment »

Introducing Gustav Hasselskog

May 6, 2008

One of the regular contributors of Purchasing Transformation is Gustav Hasselskog, SVP of Consulting for IBX Group AB. One of Sweden’s leading purchasing theorists, Gustav has more than ten years of experience from line management positions in various industries and prior to heading IBX consulting organization; he was responsible for product development and strategy at IBX.

Posted in News, Personal | Leave a Comment »

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