Archive for April, 2009

Schaeffler Group and Continental in purchasing co-operation to fight the downturn

April 24, 2009

In the light of all the recent automotive news; least not WSJs report on Chrysler’s plans for bancrupsy or Roland Bergers gloomy outlook for automotive suppliers who are unable to compensate for cash shortages, little new money available from owners of capital markets, withdrawn credit coverage and have no customer support to count on what so ever – this press release from Schaeffler Group sheds light on what some suppliers are doing to negate the impact of the downturn.

The purchasing cooperation [between Shaeffler and Continental]… …is to optimize cost of materials and achieve an annual triple-digit million benefit through access to the steel markets and component suppliers as well as investments and non-manufacturing materials.

With a combined purchasing volume of €20 billion, Continetal and Shaeffler predict they will benefit about $6,6 billion in synergy effects resulting in a savings potential of €350-400 million over the next two years. Most of the synergy effects are expected to come from the complimentary purchasing focus that each company has.

While Schaeffler’s annual purchasing volume of as much as 1 million tons of steel brings it direct access to steel producers, a high level of competence in this segment and also very good purchasing conditions, Continental’s strength lies in the purchase of mechanical and electronic components. Both companies have a well established portfolio of suppliers. The joint access to the partner’s purchasing expertise makes it possible for both companies to benefit from the improved purchasing conditions.

And what is more, Continental’s suppliers will obtain far better access to global steel markets than they presently have separately. In return, the Schaeffler Group will benefit from Continental’s large supplier portfolio which will now also be available to that company.

In addition the two companies see a high potential in bringing home savings for non-manufacturing materials as well. Tough times bring out the best of us, and it’s going to be interesting to see where this co-operation will go in the future.

Posted in Best Cost Country Sourcing, Organization, Spend management, Supply Chain | Leave a Comment »

Supply chain fit key to performance excellence

April 22, 2009

That efficent supply chain management can provide a factual competitive edge has been one of the key components of the spend management marketing toolkit but there have been few studies that empirically nail down the reasoning.

Fortunately, Roland Berger’s (in co-operation with WHU, Stanford University and ETH Zürich) recent Global SCM Excellence Study takes the factual approach and offers numbers to convert any disbelievers out there.

The main objective of the study was to analyze the impact of strategic supply chain fit on actual company performance (Roland Berger used ROCE to measure the performance) and what they found was that the companies with a supply chain fit outperformed their competitors by 15,5 percent on average.

Furthermore, the study claims that companies with a supply chain fit also outperform their non-fit competitors on ROA (Return On Assets), sales growth and EBIT margin.

  • ROA: Outperformed by 5 percent
  • Sales growth: Outperformed by 6,5 percent
  • EBIT Margin: Outperformed by 3 percent

All in all, the report is good news for anyone struggling to convince skeptics of just how powerful supply chain management can be in achieving operational and financial excellence.

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

How far should one go to implement full procure to pay automation

April 15, 2009

As I rode my bike (a deep red metallic Pinarello Treviso from 1984 with the group set removed and replaced by a pair of Campagnolo track hubs) to work this morning I passed a queue of cars slowly making their way along Strandvägen being held up by one of the royal horse carriages. Marveling at the historic advances of transportation – horse, bicycle, automobile – it got me thinking about how far one can take automation.

Many have championed the full automation of the procure-to-pay cycle; yet few have actually been able to show any real and substantial benchmarks that go beyond the pre-implementation business case.

Last year, I had the privilege of working alongside some of the senior purchasing executives as they prepared their presentations for the IBX Purchasing Executive Summit. One interesting findings that was presented was that it was very hard to create a business case for full automation of the procure-to-pay cycle. Instead, a hybrid model that included scanning, workflows, automated matching as well as a shared service center in a low cost location to process some of the invoices manually was presented as the best cost alternative. The streamlined process cost was in the low double digits with retained quality and while expanding on the subject in the presentation, the switching costs were ruled to high to go further into full automation even though it was technologically possible.

I think there is a great lesson to be learned from this; while technology might dazzle us with its might, one should not forget the human alternative as it may still be able to do the job faster and at a lower cost (be it to process invoices or as in my case – get me to work quickly and in style).

Posted in E-invoice, Outsourcing, Procurement, eprocurement, procure-to-pay cycle | Leave a Comment »

Public sector IT-procurement gone wild

April 8, 2009

No one in Sweden can have missed the headlines caused by the Swedish Social Security Agency and their recent IT disaster. As the project deteriorated, causing one headline after the other, the project was forced to be audited by the Swedish National Audit Office whose final report was released on April 6th (More here – in Swedish).

The report is a showcase of what might (and dare I say, often will) go wrong when the power balance between stakeholder, supplier and purchasing is off.

The Audit office has examined four of the Social Security Agencies recent IT-purchases (all quite large and vital to not only the agency as such but to all of their customers, i.e. the population of Sweden) and not only have the Social Security Agency bypassed all regulations regarding government contracts but the audit also found major faults in the purchasing processes as such:

  • Low RFP quality, complex yet lacking in specifications
  • Too little time give to suppliers in order for them to be able to answer the RFPs in a proper manner

This has led to suppliers declining in participation in the sourcing event.

The audit also found that the purchasing function at the Social Security Agency lacked resources and time to prepare the sourcing event of this magnitude which in turn led to poor quality analysis and reporting regarding which supplier was awarded the contract and why.

Last and not least, the audit found that the power balance between the stakeholder (the IT department) and the purchasing function was so asymmetrical that it could hardly be called a power balance at all. In two of the four projects purchasing chose to bypass all sourcing activity and just call-off consultants on hourly rates on their current frame agreements leading to cost escalation and practically no cost control what so ever. In Computer Sweden auditor Karin Lindell goes as far as saying: There was a WAR between purchasing and IT. 

Due to the fact that so few suppliers participated in the sourcing process, suppliers had their ways and in many cases dictated the terms; for instance one supplier was paid three months in advance(!!!!) and contracts were mostly drawn up to make the Social Security Agency responsible for any delays.

As one digs into the details regarding the different projects it gets really scary. For one SAP project (Customer Self Service) two suppliers submitted bids:

IBM – who bid 84 million SEK – and Logica – who offered a price interval of 25 to 46 million SEK (and someone should have pumped the breaks at that very moment).  Logica was awarded the contract with the motivation that they had submitted a bid which was substantially lower that IBM and the project was due to be delivered in March 2008.

As of today, the project has not yet been delivered and Logica has invoiced the Social Security Agency 77 million SEK and other suppliers have invoiced the agency 63 million SEK.

That puts the tab at 110 million SEK and running, public procurement has surely seen better days.

Posted in Business, Governance, Negotiation, Public procurement, Sourcing, Supplier Management, Supply Chain Management | 1 Comment »

Siemens Barbera Kux speaks out on Siemens supply chain challenges (and what she plans to do)

April 1, 2009

Frankfurter Allgemeine Zeitung ran a piece titled “Siemens trennt sich von 74.000 Lieferanten” where Siemens Head of Supply Chain Management (and Chief Sustainability Officer) Barbera Kux really spoke out about Siemens spend and what she’s got planned for the next few years (big kudos to German journalistic traditions for going so deep).

Once you get past the numbers (which are duly disclosed: total spend, DM/IM&S split, number of suppliers, reduction targets, etc it’s all there) one of the most interesting parts of the story is how Ms Kux and Siemens aim to deal with consolidating spend and exploiting the synergy effects.

Siemens have set up a Supply Chain Management board headed by Ms Kux which includes the CPOs of Siemens three largest business segments (Industry, Energy and Healthcare) as well as the Managing Directors of China and the UK and the CFO of the Industry sector. While there is little possible consolidation of DM spend between the three segments, the boards goal is to lower the complexity of the supply base and exploit the possible synergy effects to a maximum. The composition of the Supply Chain Management Board also reflects the internal policy stating that supply chain, finance and development all need to co-operate more.

Ms Kux concludes that she’s very confident that she will succeed with her targets at Siemens as she’s done it before at Philips. Bringing that amount of experience into the equation is probably one of the reasons she was appointed to the managing board of the German giant as the first woman in 160 years.

Posted in Business, Governance, Low Cost Country Sourcing, Supply Chain Management | 1 Comment »