Archive for March, 2010

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Can one engage the supplier base to lower supply chain risks

March 31, 2010

With many car manufacturers struggling with recalls and pointing the blame at their ailing supply chains this recent piece by Peter Hunter of HumanResourcesIQ (Root Cause of Toyota’s Failure: Employee Engagement) opened up the matter from a completely different perspective.  Hunter argues that engagement is the real differentiator between East and West Toyota production lines.

Is it possible that the faults that caused the recalls did not occur in vehicles produced in the East because they were spotted and rectified by an “engaged” workforce, while in the West the “disengaged” workforce knew of the problems but never reported them to Toyota because Western managers do not know how to engage their workforces.

I shared similar sentiments in a post relating to Bianchi bicycles a while back (One Supplier Audit Question You Probably Never Asked); “…In a world where cost and volume seem to be the rule of the day; passionate businesses can surely find a niche market and exploit it to the fullest, but it also means that the business must share the same passion as the consumers…”. Passion and engagement are related emotions. And both have been out of focus in sourcing recently.

Understanding why an end-customer buys the product should be essential for procurement.

If you’re solely focused on up-stream cost reduction, chances are that you are missing the real reasons why your product is unique and why customers are attracted. In many cases it’s more than just marketing gimmicks that have driven them to the stores. It’s the pride of owning something that they can identify themselves with.

I had the chance of meeting one of the marketing and sales executives of Scania last year, and during our discussion we touched upon the subject of events where she mentioned that Scania once had put a tattoo artist in their exhibition booth. And people were queuing to have the Scania logo permanently fixated on their skin.

With that amount of customer dedication to your brand, can procurement afford to chose suppliers who are not as – or more – engaged/passionate about their job.   I would say no.

Posted in Business, Change Management, Marketing, Risk Management, Strategy, Supply Chain Management | 2 Comments »

Is procurement to blame for corruption business practices in low cost countries?

March 30, 2010

The Rio Tinto bribes-for-secrets case has become a landmark for corruption and risk management; exposing business practices many of us consider highly unethical.

Commenting the story for CNN (Wake-up call for foreign firms in China);  risk management consultant Peter Humphrey points out several lessons that can be learned from the case:

  • First, corrupt practices must be strictly monitored and curbed in order to avoid trouble both with Chinese law and home-country anti-bribery law.
  • Second, companies clearly need to gather business intelligence and competitor intelligence but they must do so through legal and ethical means and not through bribes.
  • A closely-related lesson for multinationals is what we have learned about the interests that China considers “strategic”.

Now, we’re all aware that corruption is wide-spread in China (as it unfortunately is in many parts of the developing world) the question is how we should deal with the fact. SIDA – the Swedish International Development Cooperation Agency recently announced that they are funding a center for CSR-issues in Beijing (in Swedish) but although training and cooperation centers such as this are one way of instigating change one wonders if it is enough. My belief is that CSR-practices must become the focal point for low cost country sourcing because unless procurement as buyers do not stand up for ethical procedures one cannot expect developing country suppliers to live up to western European cultural  ideals in a cut throat business environment.

Posted in Best Cost Country Sourcing, CSR, Global trade, Low Cost Country Sourcing, Risk Management, Supplier Management | Leave a Comment »

Public procurement: What can happen when there’s no call-off, no control and no invoice matching

March 25, 2010

For the past few months, the press in Sweden has reported about how Busslink – a public transportation contractor – has over invoiced SL for 733 extra busses. Busses that somehow have been lost on the road. A recent audit shows that “at least 733 busses lack traceable documentation”. No-one seems to know if they ever made it out on the roads, yet they have been invoiced all the less.

Now, one can suspect that no-one ever called off these busses from the contract and given the circumstances that usually call for extra busses to be on the roads in the first place: break downs, weather, traffic situations etc there might not be a simple solution to be able to manage this type of ad hoc situations.

Still, in theory, even the simplest call-off to create a PO solution would have done the trick. 20 years of e-procurement seems to have little impression on SLs view of public procurement.

Posted in E-invoice, eprocurement, Governance, Public procurement | Leave a Comment »

Procurement Leaders Forum in Chicago

March 24, 2010

Just a quick heads-up for those – like me – who can’t attend the now ongoing Procurement Leaders Forum in Chicago. It’s got a quite stunning line-up of procurement executives who are sharing best practice but the best of all is that Procurement Leaders David Rae and Mark Perera are live-tweeting about the action on Twitter as well as posting great write-ups of the presentations on the Procurement Leaders blog.

Posted in Business, Conference | Leave a Comment »

Procurement function focus: Go broad or go deep

March 16, 2010

The past few weeks I’ve been going through the ever-growing pile of reports that amass on my digital desktop and one thing that strikes me when comparing different best practices is that one re-occurring theme is focus; be it for supplier base consolidation or central co-ordination.

As an avid runner and cyclist I’m rather surprised that this still seems to be an issue for many companies. To succeed one has to specialize – your either a sprinter or a long distance runner. It’s quite simple and universal actually, yet when it comes to IM&S procurement many companies are still viewing their task as a pure support function that needs to be able to deal with any and all issues that may arise. To put things bluntly:

How many category managers for office supplies do we really need?

I doubt that they are viewed as strategically important in any industry sector. In a sense I can feel that any IM&S category that can easily be placed into a category tree should be viewed as un-strategic. In our era of focus, as such they should be viewed as a candidate for outsourcing so I believe it’s prime time to do some make/buy homework.

As companies downsize their supplier base – focusing on closer relationships with strategic suppliers (as leaders do for instance according to this Roland Berger report) – it’s due time that purchasing functions take a good look at IM&S outsourcing possibilities; go deep my friends and let others do the more un-strategic work.

Posted in IM&S, Organization, Outsourcing | Leave a Comment »

Is purchasing secretly premiering risk takers instead of risk avoiders

March 12, 2010

While commuting to work this week I took this year’s first real tumble. Navigating the icy conditions along Norrmälarstrand had more in common with riding the pavé of Paris – Roubaix than a regular commute but to me it came as no surprise. I knew the risks and I had taken precautions – slowing down just enough to maintain traction, helmet on, cyclo-cross style gloves, both eyes on the road. I was also very aware of the risks I factually was taking – commuting in icy conditions on a fixed gear set-up with no breaks.

Nevertheless, I still crashed. No major harm done, but still.

One of the classic cycling anecdotes is that you’re not a real cyclist unless you’ve broken your clavicle. When Lance Armstrong broke during the Castilla y León last year twitter was alive with commentators joking about how the seventeen year pro and seven time Tour de France champion was finally a cyclist.

Why am I telling you this; well crashes, accidents and risk-taking are significant attributes in our culture – and that includes purchasing. On many occasions I’ve had the pleasure of listening to procurement pro’s swapping war stories; bailing out suppliers in far off countries, manipulation, bribery, you name it. And although the stories are both compelling and at times quite exciting one wonders why we pay so much attention to (and show so much appreciation for) what could be seen as risk management failures.

I’ve got six words for it: scars impress in the male world.

It makes one wonder what would be premiered had there been more Barbara Kux’ out there.

Posted in Risk Management | Leave a Comment »

Key success factors for public procurement

March 10, 2010

Public service procurement has taken some intense flack in the past few years – and not without due reason – but I think it’s time to acknowledge some of the great stuff that actually is happening in the area at the moment. Because it’s there, it’s just that it’s hidden under an enormous pile of bad reputation, fraud cases, contracts being overturned, administration and god knows what.

This morning I ran into Mark Masterson – the head of IBX UK – who was in town on a public procurement mission. While chatting near the coffee machine (ristretto for me, white tea for him) he mentioned an article that he had written for Supply Chain Europe recently highlighting some of the breakthrough in public sector procurement as well as proving some pointers for those who want to get on the band wagon.

With Norway and Scotland leading the way in Europe Mark points out that Norwegian users have seen “a 20-40 percent reduction in the time it takes to handle orders, goods receipts and invoices”. The Norwegian government has also made it mandatory for all public bodies to use e-invoices by 2011. Apart from these process savings the Norwegian public sector has also achieved more far reaching effects:

“A prime example is the health sector in Norway, which is going to be running a pilot scheme, as part of the PEPPOL project, where it will buy blood plasma directly from Austria, to ensure that they always have the right stocks and an optimum cost. In this case, e-procurement is literally helping to save lives.”

In the UK, results are also picking up. Since 2005, ten collaborative IT hardware e-auctions, involving 144 public sector stakeholders have led to savings of £43,8 million.

So what does the laggards in the EU have to do in order to catch up. Mark points to five keys to success:

  • There’s no time like the present – there’s no reason to wait until e-procurement becomes mandatory.
  • Keep it simple – user friendliness is the key.
  • Set clear goals – set realistic targets and timelines
  • Central funding – Scotland’s procurement success is routed in its free availability to public bodies
  • Ensure procurement and business managers work together – not only does e-procurement benefit the purchasing functions, it also helps keeping the organization financially stable

In any case, successful public procurement will be essential for the EU to regain some of its momentum especially in times when the rest of the world is betting on which country is going to be the next Greece.

Posted in Change Management, Governance, Organization, Public procurement, Strategy | Leave a Comment »

Suppliers are from Mars, buyers are from Venus

March 9, 2010

A recent IDC survey regarding the state of IT (in Sweden) in 2010 really did it’s best to expose the difference between buying and selling organizations. When asked about how they expect the IT market to develop in 2010 diametric answers were provided making one wonder where the two parties can actually meet.

The only area with a near resemblance of likeminded views was cloud computing:

  • 46 percent of the suppliers believed that cloud computing would grow in 2010…
  • …as opposed to 30 percent of the buyers

But from that point on, the gap grew larger with each asked question.

  • 57 percent of the suppliers expected that sales would grow in 2010…
  • …where-as only 27 percent of the buyers indicated that their IT budgets were growing

And when it came to outsourcing, the gap between seller and buyer expectations had grown to 37 percent as:

  • 53 percent of the suppliers expected the outsourcing market would grow…
  • …as opposed to a meager 16 percent of the buyers

Now there are probably numerous reasons that explain these variations but I dare say that sales and marketing almost by default are opportunistic by nature and set goals that are hard to reach yet in return yield great rewards. Buyers on the other hand are perceived as nay-sayers, and do their best to live up to that reputation.

So what can one learn from a quick exercise in sales to purchasing comparison.

As in real life, understanding the other side will be of great benefit to all parties.

Posted in Business, Sourcing, Strategy, Technology | Leave a Comment »

Why more women is needed in procurement – understanding the big picture, networking, communication and managing relationships are traits that define the future of procurement

March 8, 2010

Procurement Leaders big tweet chat debate on Friday focused on how procurement must change in order to attract talent got me thinking about the key traits that will define purchasing executives in the future. What we need to know, how will we conduct our work, what traits we need to pay attention to when hiring and promoting the profession. When looking at my list I admit that it is rather generic – the traits are essential for anyone in business these days and not just limited to procurement.

A broad business understanding, the ability to manage relationships, communication and using potential networks to affect and react to changes defines the modern business professional in my eyes. And it is as such that we need to look at purchasing; one of the modern business professionals.

Understanding the big picture
Purchasing is not an island unto itself. It never has been and it never will be. In our ever changing world purchasing managers must be able to understand what makes the business evolve. Business development skills should be on top of all lists.

In most cases, purchasing is the center of gravity in the full supply chain and as such it owns many of a company’s most crucial relationships. This should not be treated unlightly.

Managing relationships
As the center of gravity in the supply chain, understanding how to manage and affect all types of relationships is crucial; be it supplier-, end-user customer- or sales/marketing relationships. Purchasing managers must be able to – much like a chess player – be able to analyze the implications that may arise if and when relationships change.

Using networks
Some argue that as the internet evolves – and the power of Google increases – that using social networks will in some ways replace traditional web searching as a way to gather information. Nielsen released their findings on the subject a few months ago and found that 18 percent of all respondents used social networks as a starting point when searching for content.

Communication
As relationships evolve a multitude of grey scales replace the black and white rendering of the first impression. This stresses the importance of communication – especially across borders and when using emotion unfriendly tools such as e-mail (and in some cases social networks). Being able to speak to suppliers, c-level executives, stakeholders and end-customers alike to get their attention requires a deep understanding of the perceived value of purchasing.

When looking at the traits that define these four areas – the big picture, relationships, networks, communication – I’d argue that they are areas in which more women than men that would excel in. Yet the tradition of the profession is so male centric it is scary at times, I’ve been at purchasing events where less than five (5!!!) percent of the attendees have been female. Procurement is unfortunately – as is sales and marketing – a rather male arena.

So will the next wave of CPO:s be female?

I surely hope so.

If we manage to raise the status of procurement through whatever means – it is a fantastic opportunity for female professionals. Looking at the amount of talent that is out there (below the c-level) and the skill sets necessary for procurement excellence I’m hope that we will see a paradigm shift in the near future; off the top of my head I recall Sandra Petersen of Skanska and Christina Di Luca of BP spearheading the male confines of procurement and remember that Barbara Kux of Siemens recently made Fortunes 10 Global leaders list.

Posted in Business, Change Management, Organization | Leave a Comment »

A purchasing nightmare: The perfect storm that hit the pulp and paper industry

March 5, 2010

Dogged by the downturn, the pulp and paper industry has slowly recovered over the past months to the extent that it has been flagging for price increases to boost profitability. Now for the affected categories purchasers this was old news, but no-one was counting on the perfect storm that hit the industry in the last week.

  1. The earthquate in Chile
    News reports indicate that 7 percent of global pulp capacity is shut down.
  2. Severe weather conditions in Scandinavia
    Rail transport has been at a standstill and is still not at 100 percent capacity interrupting many supply chains. Hallsberg, the main rail hub in Sweden has been at a standstill for 12 days and Green Cargo estimates losses of 30-40 million SEK according to Dagens Nyheter.
  3. Transport workers strike in Finland
    While road transport is back to normal, dock workers went on strike this thursday effectively shutting down all finnish ports. Both Stora Enso and UPM-Kymmene has flagged for mill closure due to the strike.

With pulp costs rising higher than expected, purchasers are in a tough spot. I wonder if any risk management initiative could have seen all of this coming in a once. It also makes one wonder which category will be the next in line.

Posted in Business, Risk Management | Leave a Comment »

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