Archive for September, 2008

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Purchasing in a down turn

September 30, 2008

When financial markets are in a crisis and the rest of the economy is starting to slow down, it is good time to get prepared for the purchasing opportunities ahead. The largest prospects for better deals lies within industries that are more cyclical than others i.e. their revenues and profits have larger swings others. The things that consumers and industries cut down on first are the things that either are related to expansion of the business or that can just wait. Examples of such purchasing categories are:

  • Construction
  • Heavy equipment
  • Raw materials
  • Other process industry goods
  • Marketing
  • Temporary labour
  • Other professional services
  • Travel

So if you are not bound into long term agreements in these categories, it could be worthwhile to have a closer look on them over the next 6 months.

Posted in Uncategorized | 3 Comments »

What you are not good at, buy it from someone else!

September 27, 2008

Linus Malmberg in the sourcing blog for Computer Sweden (in Swedish) is writing about Service Oriented Business Architecture and letting “somebody else do the job for you”. He argues that if your company’s processes/services are not world class, then you should considering stop doing them yourself and buy them as a service from somebody else. Malmberg also writes, if your processes/services really are world class you can even sell them and make some money out of it, with an example on how Amazon.com is selling back-up as a service.

This translated into how to operate purchasing within your organization; I recommend you to start evaluating your performance per process/service and decide if you really are at a world class performance level. Look into sourcing, procurement, pay, follow-up, and support. For these areas, evaluate processes, systems, services and competence. If you realize that you are not world class within one or several area, you should start thinking about having someone else do the job for you.

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When to convert strategic items into competitive bidding

September 26, 2008

The business case of converting strategic items into competitive bidding needs to be thoroughly examined over a long period of time; especially when looking if the decision makes sense from a commercial perspective since decisions like this are often extremely strategic.

Fellow blogger Christer Hallqvist described this (stretched, in his words) example in the sourcing chapter of IBX book Purchasing Transformation.

One example relating to the matter of buying level comes from Saab and the purchasing challenges they faced when developing and introducing the Trionic engine management system in the early 1990s.

At the time, Saab relied on a first-tier supplier that was commercially much larger than Saab itself. Due to Saab’s diminutive size in the automotive industry, the company was in no position to influence the supplier in meeting Saab’s advanced demands for the engine management system. Yet Saab was so convinced of the power of its concept that it re-evaluated the supplier relationship.

Saab decided to develop the engine management system in-house to bridge the gap for the future, and the Trionic engine management system was born. In essence, the decision meant to substitute the first-tier supplier with Saab’s own development and use the previous first-tier supplier as a second-tier supplier, among others, for engine management components to the system. By changing the buying level to the second tier, the company increased the supplier competition and made it possible to source them by applying a competitive bidding approach.

The result of this buying level switch is that Saab is still – almost 15 years on – uniquely positioned to utilize its own technology to outperform competition in the increasing segment of alternative fuel engines. First launched in 1994 as Saab Trionic 5, Saab are now building cars using Saab Trionic 8 – dubbed Saab Biopower it’s the worlds first turbocharged bioethanol engine. Running on E85, the engine output increased by nearly 20 percent, with torque rising almost 15 percent to 280 Nm. 

The Trionic engine management system and the turbo technology takes advantage of the fact that bioethanol has a higher octane-rating than regular petrol. Saab claims it’s a win win situation; it’s environmentally- as well as driver friendly.  

One could add that it’s strategic sourcing at its finest.

Posted in Sourcing, Strategy, Supplier Management, Supply Chain, Supply Chain Management | Leave a Comment »

When cost is not enough – The need to shift supply chain strategy

September 25, 2008

“The initial global sourcing thrust was cost savings focused, but that was the 1980s-90s – that ‘story has been written’. Now the focus is on how we as a retailer – having cut out the middleman – can influence the manufacturing transaction for the benefit of the customers. We need to take customer data and insights to build better products.”

Gregg Forsberg, director, global sourcing international for Best Buy Asia Pacific (Limited) quoted in PriceWaterhouseCoopers recent Global Sourcing report.

Global sourcing has indeed come a long way, but as Gregg Forsberg points out – when everyone is sourcing globally, cost alone is no longer a competitive differentiator.

Purchasing Maturity Model

Purchasing Maturity Model

To continue to deliver value to the organization, purchasing needs to continue to transcend upwards, without losing the ability to capture margins and secure market prices. In some upcoming posts, we’re going to pin-point some strategies purchasing can use in order to secure this ascension.

Posted in Supply Chain Management | 5 Comments »

Supplier Risk Management 101

September 24, 2008

With all the supplier quality scandals rising these days it might be time to refresh everyone’s memory of supplier risk management 101.

Most of the stories that are hitting the headlines (and the bottom line results of those involved) can easily be traced back to the failure of understanding the extended supply chain risks involved or addressing these risks early enough in a constructive manner.

One problem that arises when you look at risk management is that many companies only look at the physical flow, and forget (deliberately or not) potential risks in the extended supply chain as well as financial risks. All levels need to be covered and a strategy has to be available if anything occurs and you need to execute accordingly.

Supplier Risk Management Framework

Supplier Risk Management Framework

This basic model can be used as a framework when assessing your risk management strategies, since it takes a holistic perspective on the risk management issue. At the same time it’s important to remember that no risk management strategy is final; practice makes perfect, and sometimes you might need to get a bloody nose in order to find the best-fit strategy for your operations. But with the appropriate strategies and processes in place, the impact will be minimized.

Risk management is very much on the agenda at the moment, so expect the blogosphere as well as big firm analysts to exploit and dive into this subject with vigour in the upcoming months.

Posted in Best Cost Country Sourcing, Low Cost Country Sourcing, Risk Management, Supply Chain Management | 1 Comment »

Breaking down the barriers to strategic impact for procurement

September 23, 2008

Are you gonna try to make this work,
or spend your days down in the dirt.
You see things can change,
yes and walls can come tumbling down!
Walls Come Tumbling Down, The Style Council, 1985

Although Style Council singer Paul Weller was aiming his anger at something (and someone) completely different and trying to inspire the youth of Britain to change the ways of the ailing empire the words are just as viable for the state of procurement today.

In a recent report – “Beyond Purchasing. Next Steps for the Procurement Profession” – KPMG asked a broad range of senior executives from a cross section of industries about the state of purchasing and what direction the profession is heading. The one thing that struck me when digging into the rather massive (64 pages) report was the dissention between the answers provided by those working within purchasing and the non-purchasing executives.

Answering the question of the biggest barriers to greater strategic impact for procurement, 54 percent of the purchasing executives answered; “Other functions lack interest in, or understanding of, how procurement can be used strategically”; the result from non-purchasing executives was 38 percent. On the other hand; 34 percent of the non-business executives answered; “Procurement staff lack understanding of the wider business”. The result from the purchasing executives was 20 percent.

Though metrics like this need the bigger picture to actually tell a definite truth, the trend that these two figures point at is vital; purchasing think highly of itself and points the blame at the rest of the organization for not taking purchasing seriously enough, at the same time, non-purchasers have lower expectations of purchasing since it believes that purchasing does not have the business sense necessary for partaking in the bigger decisions.

To change this misconception, purchasers need to start speaking a language that appeals, and is understood, by those traditionally on the c-level (Michael Lamoureux elaborates on this subject here). While many purchasing executives are getting more and more recognition for their work, reports such as this one shows that there is still a long way to go.

The choice is yours – are you going to make it work?

Posted in Business, Organization, Supply Chain Management | 1 Comment »

The Importance of the Choice of Communication Channels in Change Management

September 23, 2008

Today is the first day of the eWorld Purchasing & Supply, and one of the speakers at the event is Jenny Vårlid (she’s delivering a presentation on Managed Sourcing, describing how you can ensure savings from non-core categories) from IBX. When talking to her before she departed for London last night we got into the discussion of appropriate communication channels in change management projects.

Change management is a delicate subject and as we’ve discussed before, to succeed you can improve your chances by following a structured approach which includes both stakeholder analysis and the creation of a strong communications plan that includes message, concepts and choice of channels.

In recent projects that Jenny had been part of the choice of channels were not limited to classics such as newsletters, dedicated intranet sites and the use of existing inter-company magazines; the project management team had also set up a monitor displaying the project progression in the staff cafeteria.

As the organization had recently transformed using a centralized approach this meant that affected staff could check updated KPIs and purchasing statistics every time they grabbed a cup of coffee. It also meant that other functions got insight into the progression of the purchasing transformation. As the purchasing transformation program affects the entire organization, this approach has proved very successful.

When you’re setting up your change management program, make sure to spend some time looking into the communication plan; and if you don’t have the skill set required to make the necessary analysis on board get in touch with a communication expert. Most of the time, the resources are available in-house and if they’re not, don’t hesitate to look for an external partner. If you fail in the communication phase of your change management program, chances are that the entire program will falter and not yield the expected results.

Posted in Change Management, Organization | Leave a Comment »

Aldi and Lidl booming in the british retail market

September 22, 2008

The british market research institute TNS recently announced that two of Germany´s biggest discount retailers – Aldi and Lidl – have managed to grow their market share in britain by 20 and 12,3 percent respectively in the second quarter of this year. Both companies are trying to grow in the british market since quite some years – Aldi starting in 1990 and Lidl in 1994 – but their market shares couldn´t grow to more than 3 percent (Aldi) and 2,4 percent (Lidl). But it seems now that they are catching up finally.

So what are the reasons for this remarkable growth rates so that even Terry Leahy – CEO of Tesco – is already speaking about an “Aldi-effect”? First of all the changing circumstances with Britains economy looking to slide into a recession, growing unemployment and a 10 percent increase in food prices in the last year did make people in britain be much more price sensitive then in the past. And secondly the discounter concept of Aldi and Lidl which is based on puristic but cost efficient stores and a rather small but still high qualitaty array of products. Especially the second element withholds a good purchasing strategy as the average british retail supermarket does hold an range of products of 30000 items whereas Aldi is concentrating on only 900 and Lidl has 1600 products in their stores. This concentration on rather small assortments means that Aldi is actually able to raise the volumes of these products and negotiate better prices – which they can pass on to their customers. With this concept the discounters did have a tremendous success in Germany where they have also totaly changed the german retail market.

Tesco might still be by far the market leader with a market share of over 30 percent but it will probably have to watch closely if this “Aldi-Effect” will continue. Especially after Paul Foley – Managing Director of Aldi UK – has now announced that Aldi to invest about a billion GBP in the coming 5 years to raise the number of stores from 430 to 1500.   

So this also shows that in every crisis there lies a chance for someone – you just have to have the right concept for it.

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Make or Buy, the Effects of Competition in the Supply Chain of Hits

September 19, 2008

Norman Whitfield and Barrett Strong
Are here to make everything right that’s wrong
Holland and Holland and Lamont Dozier too
Are here to make it all okay with you
Billy Bragg, Levi Stubbs’ Tears (1986)

Norman Whitfield supplied hits to Motown Records. He didn’t sing, he didn’t perform, he sat in the basement of Motowns Hitsville U.S.A office and supplied The Temptations, Gladys Night and Mavin Gaye with hits. He is generally acknowledged as being a key figure in the creation of the Motown Sound.

You see, Berry Gordy’s Motown Records took the “make” path to success.

Motown had an inhouse songwriting staff that included Norman Whitfield, Barret Strong, Lamont Dozier and brothers Brian and Eddie Holland. They resided in the basement of the Hitsville U.S.A studio with the so-called Funk Brothers (keyboardists Earl Van Dyke, Johnny Griffith, and Joe Hunter; guitarists Joe Messina, Robert White, and Eddie Willis; percussionists Eddie “Bongo” Brown and Jack Ashford; drummers Benny Benjamin, Uriel Jones, and Richard “Pistol” Allen; and bassists James Jamerson and Bob Babbitt).

This approach to supplying the sound of young America (such was the Motown motto) earned the label 110 top ten hits in the US alone from 1961 to 1971.

While this was going on in Detroit, out on the east coast, record producers were taking the “buy” approach to hit creation.

In 1962, 165 music businesses were crammed into the Brill Building on Broadway in New York City. It was a one-stop shop where you could match the songwriting power of Lieber and Stoller (Stand By Me/Jailhouse Rock), Goffin and King (The Loco-Motion), Greenwich and Barry (Be My Baby/(And) Then He Kissed Me), Mann and Weil (You’ve Lost That Lovin’ Feelin’) and Bacharach and Hal David (Walk On By) against one another by just walking down the halls of the office building asking for a hit record.

“Every day we squeezed into our respective cubby holes with just enough room for a piano, a bench, and maybe a chair for the lyricist if you were lucky. You’d sit there and write and you could hear someone in the next cubby hole composing a song exactly like yours. The pressure in the Brill Building was really terrific — because Donny (Kirshner) would play one songwriter against another. He’d say: ‘We need a new smash hit’ — and we’d all go back and write a song and the next day we’d each audition for Bobby Vee’s producer.”
Carol King quoted in The Sociology of Rock by Simon Frith (1978)

Competition is truly one of the great driving forces for innovation, and as purchasers, the job is to see to it that this comes to the benefit of the company. But as the example of Motown shows, this doesn’t mean that you automatically lose out by taking the “make” approach.

Sad to say, Norman Whitfield one of the creators of the Motown Sound died on September 16th 2008. I’m going to put “I Heard It Through The Grapevine” on repeat this afternoon to honor his memory.

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

Using Web 2.0 to Engage Your Audience

September 19, 2008

Here at Purchasing Transformation, the so-called Web 2.0 technologies are something we care a lot about. We wouldn’t be doing this blog if we didn’t believe that the content we create was not syndicated into someone’s RSS-feed and re-published somewhere else.

Blogs, Wiki’s and forums are highlighted in a recent issue of A.T. Kearneys “Excecutive Agenda” as the technologies that support company growth through increased employee co-operation and improved communication. By using these tools; “the invitation to engage in transformation is thrown open to the whole organization”.

To connect to one of my older posts on the subject of communication in a change (or transformation) process, don’t just look at these tools as just being technologies; see them as communication channels, and as such they must be understood in order to be effective. It’s not the technology in itself that will make the difference, it’s the understanding of the channels and how the audience use it that will prove vital.

Posted in Change Management, Organization | 1 Comment »

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