Archive for February, 2009

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Great times to recruit Purchasing top talent

February 26, 2009

For a long time the availability of talent has been a limiting factor for achieving purchasing excellence in many companies. Now, in the downturn, the availability of skilled staff is obviously higher in basically all professions. But there are reasons to believe that the current availability of top talent purchasing professionals is greater than for other professions.

Why? The reason is simple. The best purchasers have always been found in industries that A) has a high purchasing spend as a share of their turnover and B) are highly competitive. For example,  the automotive industry has a purchasing share of some 80% and is extremely competitive. They have always been the forerunners in developing purchasing excellence. On the other extreme we have utilities: Low purchasing spend and low competition ( the latter mainly due to state regulations or even monopolies). And it is clear that the companies in the thoughest markets are hit the hardest by the downturn. No wonder that GM and Saab (both great companies in purchasing) are about to go bust while the Swedish state monopoly Vattenfall slashes out some 8 Bn Euros (!) when buying a Dutch utility.

So if you are the CPO in a company that is still standing up: this is your chance to drastically improve your organisations performance.

Posted in Uncategorized | Leave a Comment »

Supply chain rumors stall production at SAAB

February 26, 2009

As more and more information slips out regarding the Detroit/GM crisis; the different divisions are running into (un)expected supply chain issues due to the massive restructuring programs that are taking place.

As part of the restructuring, SAAB filed for reorganization in Sweden last week and as a result the SAAB plant in Trollhättan faced production disruptions relating to suppliers threatening to stop deliveries. And if that wasn’t bad enough, Swedish media  claimed that the Swedish Customs had stopped SAAB from using certain parts (as SAAB had not paid customs for these) due to SAAB’s credit rating. Media also reported that Schenker logistics had stopped all current deliveries while renegotiating contracts with the ailing car maker. While some of these claims were played down by all parties as time passed; the damage to the brand has already been done.

The whole thing is turning into a supply chain nightmare as media, suppliers, regulators and logistics providers all pour extra pressure on an industry in a state of meltdown. In this extraordinary state; managing the media adds further complexity to managing the supply chain.

Posted in Business, Supply Chain | 2 Comments »

Turning a sourcing event into a sourcing event

February 25, 2009

Getting people to buy into new ways of working may be one of the trickier transitions one has to manage. Most people are armed with an instinctive resistance against change; which often turns new process adoption into a trench war of old versus new. I’ve seen a multitude of seemingly simple transformation programs grind themselves slowly into the ground by the most illogical reasons.

Take e-auctions for instance; from an outsiders perspective they seem like the perfect tool for any purchaser; yet e-auction usage can still be a hot potato.

To overcome this resistance; some of IBXs senior category managers have introduced a concept where the negotiation really turns into a place to be (sourcing) event. All you need is a (LCD) projector, a conference room and some snacks. And to top it off; a well prepared e-auction that is shown live in real time on the big screen.

The snacks bring in the folks who may at first reject the new process yet still enjoy the company of their colleagues, the projector allows everyone to see the action – and anyone who’s ever been monitoring an e-auction knows the rush of adrenaline that comes as the bids start dropping in – and if you’ve chosen and prepared your event well enough (a select group of bidders who are familiar with e-auctions and really want the contract), the bidding and results will win over even the most stubborn of e-auction opponents.

At a recent event; an incumbent supplier was set against a very aggressive opponent who dearly wanted to gain market share, so the dynamics (and the drama) was apparent from the start. Over popcorn and soft drinks the staff followed the negotiation in real time and as the negotiation was finalized, the winning bid was more than 50 percent lower than the price paid according to the previous contract – and the difference between the two lowest bids was just about 0,5 percent, calming everyone who might be worried about switching costs or quality differentiation.

Though it may seem like a cheap trick; fact is that this cheap trick has worked time and time again and accelerated e-sourcing adoption at many companies.

Posted in Change Management, E-Auction, Negotiation, Sourcing | 3 Comments »

To kill a maverick bird

February 24, 2009

A German purchasing newsletter (einkaufs-manager –  in German) recently had a few hot tips for preventing maverick buying in the company. Could be so simple – just propagate a new policy: No order leaves the company without sign-off from the purchasing department.

While this certainly is a very hands-on approach which in itself does stop maverick buying dead in its tracks, one question remains: Does a purchaser really need to see and sign off every order? We are talking about signing off orders on everything here – everything from material to furniture to pens to post-it notes. One could imagine a professional purchaser can use his or her time in more valuable and strategic ways for the company than by signing off an order for another pack of pens or paperclips.

Instead standardized products and even non-standardized services and products can and should be called-off by the requisitioner in a spend-centric purchasing system. Either from purchaser-approved (and negotiated) catalogues or via vendor forms from purchaser-approved vendors. The purchaser can use the saved time to do actual strategic work such as vendor development and frame contract negotiations. The operative work should be limited to handling the raw purchase requisitions (which are usually without vendor assignment).

The newsletter had another tip, which was a variant of what has become known as the “No PO – No Pay” doctrine: Simply tell all your vendors that any invoice based on an order which has not been signed off by a purchaser (see above) will be rejected. The tip closes with the rather up-beat remark that the vendor then can go and altercate with the requisitioner about the issue. While this, again, certainly kills maverick buying to a certain degree it may have some unwanted side-effects such as driving your vendors mad at you (as they usually have delivered already). It may even be a new vendor which had no knowledge about this policy in the first place. In addition the company loses valuable time since the requisitioner needs to send the ordered items back, haggle with the vendor and generally clean up the mess. It’s also open to debate if the purchaser actually wants the vendors to talk directly to individual requisitioners in the company. And last but not least it’s probably not what a good vendor-buyer relationship needs in times like these.

Instead the rule should be altered slightly so that every invoice needs to be based upon an order from the aforementioned spend-centric purchasing system (the PO would be easily identifiable by an order number). Since all the catalogues and vendors in the system are pre-approved by the purchaser and even the purchaser requisitions result in an order from the system the maverick buying is practically eliminated without the rather harsh side-effects mentioned above.

Posted in Change Management, Organization, Procurement, eprocurement | 3 Comments »

If outsourcing doesn’t work, can one sell the procurement function?

February 23, 2009

This weekend, while flipping through the pages of the Sunday paper (and lazily watching the Swedish winter athletes excel at various world championships), I ran across a most curious advertisement; at the bottom of the front page of the business section there was an ad that read: Sell your IT department.

Not outsourcing the IT department, sell it. Now, I have little knowledge about the price of an IT department, and even less knowledge if there are any potential sellers out there. The one thing I know is that there is – in fact – a potential buyer of IT departments.

This led me to thinking if there is actually a market of selling other departments as well. Outsourcing has been flourishing in various sectors for decades; IT being one of the most prominent examples. While outsourcing of procurement has yet to catch on, the ad about selling your IT department posed two questions:

  1. Can one sell the purchasing department?
  2. And if so, what would it be worth?

Just for the record, I’m not a even strong advocate for purchasing outsourcing due to the strategic importance of direct material purchasing and the often very complicated matter of indirect materials and services, but that shouldn’t stop someone from actually considering what may – at first – seem like an undoable thing.

Consider for instance the following scenario; Manufacturing Company A has a low indirect/direct materials ratio, so low that they’ve made the strategic decision not to bother with their indirect spend at all. Now, most purchasing theorists may argue that even the smallest amount of spend makes a difference; and in theory they’re right; but considering the amount of effort required and the minimal benefits someone with their feet firmly planted in the mud will probably come to the decision that it’s to little bang for the buck.

That’s definitely not the case for Service Company B; they have nearly no direct material costs at all – their cost structure is based on personnel and indirect materials. Now ponder the scenario where they want to boost volumes. Most companies look themselves in the mirror and try to do the best with what they’ve got; minimize maverick spend, increase e-procurement coverage, train staff, increase contract coverage etc.

Would they get a better deal if they actually bought the potential IM&S spend volume from Manufacturing Company A? My gut reaction is that it probably wouldn’t work, but that does not say it’s undoable. So the real just might be; who will be the first to take the plunge into the unknown?

Posted in Business, Organization, Outsourcing | 1 Comment »

The Undercover Purchaser

February 20, 2009

I recently finished reading The Undercover Economist by Tim Harford (You might recognise the name from his always humerous columns in The Financial Times). In my opinion this is one of the best business books published in years and a highly recommended read.

The book is basically a view on everyday life seen through the keen eyes of an economist. It is a well-written summary of all the things you (most likely) forgot from the dull text books on macro (and micro) economics or rather all the things you should remember, or know about if you never studied economics.

Mr. Harford starts out by providing the foundations in terms of basic supply and demand relationships and their implications. Through a series of both funny and relevant real life case studies the reader is then guided deeper and deeper into the layers of modern economic theory where quite a few of them are highly related to purchasing (like how to not get duped in an auction through amongst other things the application of game theory as an example).

I think it is becoming increasingly important to remember the impact of modern economics on the realm of purchasing and the ‘deductive reasoning’ argumentation style that often holds such a big part in it.

I do not want to take anything out of the experience of reading this excellent book so I will opt for a quote from the introduction and hope it inspires you to learn more:

This is a book about how economists view the world. In fact, there might be an economist sitting near you right now. You might not spot him – a normal person looking at an economist wouldn’t notice anything remarkable. But normal people look remarkable in the eyes of economists. What is the economist seeing? What would he tell you, if you cared to ask? And why should you care?

You may think you’re enjoying a frothy cappuccino, but the economist sees you – and the cappuccino – as players in an intricate game of signals and negotiations, contests of strength and battles of wits.

The quote above triggers the obvious question in the context of this blog: How do you know when you are sitting next to a purchaser procurement professional?

Posted in Business, Global trade, Procurement | Leave a Comment »

Service spend: IT consultants expect a 10 percent price cut

February 19, 2009

According to a report (in Swedish) published today by Arbetsförmedlingen – the Swedish Public Employment Service, the official government office for employment – jobs in the IT sector is expected to rise by 1,2 percent in 2009, the only sector to show positive numbers (manufacturing being the big loser, backing an estimated 3,8 percent).

So what does this tell us about IT service spend.

Bloggers and analysts  alike are busy debating; and the general consensus is that it is indeed a buyers market, but many raise a finger of warning as companies are balancing the need for external consultants against the need for cutting costs.

In a recent interview with Dagens Nyheter; Cybercom CEO Patrik Boman is quoted:

- We will see a continued price fall reaching nearly 10 percent. And I believe many IT consultancies will have to adapt to a new level of revenues in the near future.

Straight shooting from one of the suppliers; purchasers take note.

Yet demand for specialists will always play a big part in the success or failure of any business; and the size of the talent pool will in the end determine the cost of specialist services. So purchasing (and the buyers) needs to be able to differentiate bad spend from good spend; and then use the overall market trends as leverage to ensure potential savings. And don’t forget that even IT consultancy services can be sourced globally.

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

BMW and Daimler in purchasing cooperation

February 18, 2009

Amidst all the rumors and press regarding the state of GM and the american automotive industry, BMW and Daimler has quietly leaked information regarding plans to cooperate in purchasing. The two German luxury brands have been cooperating in the past so this might not be as strange as it may seem at first, but the move clearly indicates that there is increased activity in the European auto sector to manage future threats.

Though the two companies still keep a tight lip on the extent of the cooperation – Sueddeutsche Zeitung reported yesterday that the cooperation was aimed at electronics; a BMW spokesperson has revealed that BWM has a cost cutting program in place targeting €6 billion by 2012

Posted in Business | Leave a Comment »

When suppliers are not (the only ones) to blame

February 17, 2009

Sometimes I wonder if the complete failure of certain supply chains isn’t for the better.

Recently the Chinese ministry of commerce announced that 922 toy exporters in Guangdong province closed shop in 2008, out of the 3,089 toy exporters in 2007. While there are many reasons for this (India recently imposed 6 month ban of Chinese toys come to mind); let me offer this particular anecdote.

My 10 month old daughter received an electronic toy penguin from a friend of the family a few days ago. It has a couple of buttons on its stomach which when pressed causes some lights to flash as it plays a random melody. All in all; it’s a pretty average example of what can be found in any Toys’R’Us across the globe. Of course, it was manufactured in China. Now to the peculiarities:

  • It can’t be turned off. To paraphrase a well known tag phrase; it’s a gift that keeps giving (parents a headache).
  • And so far, the most frequent of the random melodies played is “Take me out to the ball park”. And let’s just clarify one thing; it’s a traditional toy penguin, bearing none of the trademarks of the Pittsburg-based baseball team.

So here I am; with an electronic toy that can’t be turned off, which plays “Take me out to the ball park” if anything moves in its vicinity. And this profanity (for lack of better description) is sold in Sweden – a country with little more than 800 registered baseball players – so the potential target audience who might enjoy a penguin which can play “Take me out to the ball park” is limited, to say the least.

Yet someone, somewhere, has made a business decision that there is probably a market for this toy and set about to source a supplier who can produce it; a distributor who can distribute it; and organized a sales force to bring it to the public.

With the toy in hand; the whole set up seems like a really stupid idea to me; unfortunately I doubt that this sentiment is shared among the workers that now struggle to find work in the affected regions.

Posted in Low Cost Country Sourcing, Personal | Leave a Comment »

Getting deeper involvent in marketing spend

February 17, 2009

Getting through to the marketing spend is a tricky task. Marketing departments have run a tight ship when it comes to deciding which marketing supplier gets the biggest chunks of their marketing spend. But there is a lot of work that can be done in this area; both when it comes to controlling the spend and when it comes down to supporting marketing departments with the right tools to ensure competitive bidding for the contracts.

In many cases; marketing directors have had full control over which advertising agency a company works with. Agencies are often invited to creative pitches; where they have the chance to present their marketing ideas for a certain brand and the best presentation is often awarded the contract (when Swedish media daily Dagens Media did a survey regarding this practice in 2007 they found that the average advertising agency spent between 3 to 5 million SEK annually on pitches ). For creative purposes, this is just fine. Unfortunately, a large portion of marketing spend is disconnected from the actual creative process, yet, by tradition, the advertising agency is free to choose sub contractors for print, media placement, production agency (for tv/radio/web etc) and skims a few Euros off the top to generate some extra revenue.

While this might be rather alarming from a spend management perspective; the scariest bit is that advertising agencies rarely care about sourcing; and in bad times, they tend to keep the creative skills and send the administrators looking for a new job. So chances are the marketing buyers, i.e. the companies who actually pay for this (supply) chain is getting the worst end of the deal.

What purchasing departments need to understand is that they can support marketing departments by providing fundamental competition for parts of marketing spend; leave the purchasing of creativity to the marketing department; take control of the less cerebral side of marketing spend. Media, print, distribution etc are very suitable for e-sourcing, and there is a lot of potential savings available.

Many media providers posted record results in 2008; for instance Swedish TV4 increased revenues by 8 percent and European broadcaster MTG increased their sales by 16 percent; this during a year where TV for example lost 0,4 percent of advertising share in Sweden.

As the financial situation cuts budgets across the board, the first month of 2009 has seen a dramatic drop in advertising volume (in the range of 20-40 percent in Sweden according to Sveriges Mediebyråer); meaning that there is an overcapacity in a market which according to many media buyers long have been overpriced and with little price transparency due to discrepancies between list price and the actual prices paid by the advertisers.

Media spending is just waiting to be addressed by some real sourcing strategies.

Posted in Business, Marketing | 3 Comments »

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