Archive for the ‘Business’ Category

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Car leasing statistics show a rebound, yet cost awareness has reshaped the market

August 28, 2009

One of the more interesting effects of the downturn has been the increased cost awareness of companies of all sizes – and this cost awareness is showing itself in numerous ways. Swedens Dagens Nyheter just published some statistics regarding leasing cars and how the market finally is beginning to swing back to pre-downturn numbers. But all is not what it used to be. Dealers are beginning to feel pressure they’ve been spared from before.

  • Companies are now beginning to limit the number of brands employees can choose from in their leasing offers.
  • Cost caps are beginning to become more and more commonplace
  • Companies are steering employees towards brands and models with low emissions

Another fact that can be drawn from the statistics of the number of registered new cars is that supplier risk is also playing into the equation. The GM brands that have been on thin ice have plummeted over the last year. Saab lost 62 percent of their sales due to the GM uncertainty, while Volkswagen increased their numbers by 44 percent.

Posted in Business, Governance | Leave a Comment »

Mercedes vs. BMW go head to head on two wheels

June 15, 2009

With the recent set-back of the automotive industry it comes as no surprise that the two German automakers Mercedes and BMW attempt to tackle new markets – albeit twin-wheeled promotional products. Both automakers have recently upgraded their promotional products with new bicycle ranges and startlingly enough there’s quite a discrepancy separation two brands offers – both from a functionality aspect as well as from a brand correlation angle.

What BMWs marketing department has in mind when it decided on a standard city cruiser model (with a little bit of MTB style thrown in for good measure) is beyond me. With a brand vision of “sheer driving pleasure” it’s rather astonishing that their venture into the realm of pedal power 2009 comes through a no-name aluminum frame complemented by the low-end Shimano Alivio group set.

The sourcing staff that stand behind this low cost approach must have forgotten (or completely ignored) the ideas of aligning corporate and purchasing strategies; the resulting bicycle is the equivalent of slapping a BMW logo on a Yugo.

The Mercedes’ bicycle range on the other hand is definitely more in line with what you’d expect from something coming out of Stuttgart: the road racing bike is delivered with a SRAM Red group set (top of the line), a set of DT Swiss 1450 Mon Chasseral wheels (the lightest wheel set of the DT Swiss RR range) on top of a no-name carbon frame (rumor says it’s a Carbotec frame but that’s not confirmed).

At 5000 Euro it isn’t exactly cheap; but lest not forget that the group set alone is 1 700 Euro and the wheel set will set you back another 1000 Euro. Add pedals, a carbon fork, head set, drop bars and there isn’t even much margin for the Mercedes brand.

Posted in Business, Marketing, Sourcing | 1 Comment »

Moving from cost to value

June 11, 2009

A few days ago David Rae of Procurement Leaders highlighted a viewpoint given by Tim Williams in Advertising Age  regarding how marketing agencies should align their compensation in such a way that it actually supports instead of opposes the procurement process. Tim Williams proposes that in order to do this, advertising agencies must “make the mental leap from cost to value”.

What struck me with Tim’s reasoning was how strongly it resonates in almost all service categories. In many purchasing departments strive to lower hourly costs – since this is the one variable that is on the table – real value is lost in the fog.

As I outlined here, some old dogs go as far as to oppose the entire idea of large consulting firms (and outsourcing houses) since their experience is that it in the long run costs more than what it initially said on the price tag. By focusing on delivered value instead of purely cost and working tightly with stakeholders I truly believe that purchasing can evolve service procurement to a higher level.

And this type of paradigm shif is especially interesting in times like ours as we are approaching the tipping point leaving the fierce badlands of right side of the A.T. Kearney diamond for the more co-op pastures on the left.

Posted in Business, Negotiation, Outsourcing, Sourcing, Strategy | Leave a Comment »

Successful spend management – big and small

June 1, 2009

Booz&Co. Strategy+Business provided a set of downturn toolkits (distributed by e-mail but available online at the Booz&Co. website) to their subscribers over the weekend and for purchasing professionals Booz&Co. had packaged an leaflet-like memo to the CPOs along with a free digital download of their recent book Sourcing Reloaded: Targeting Procurement’s New Strategic Agenda. Good stuff for anyone willing to get some external input into their current struggles.

On the other end – the smaller scale if you will – let me share the recent downturn and spend management development of Lux Stockholm, one of only 14 restaurants in Sweden with Michelin stars. Lux Stockholm is just a stone’s throw away from both my apartment and office (midway to be precise) located on the diminutive Lilla Essingen in Stockholm. Now, Lux Stockholm isn’t exactly cheap – and the Michelin star does somehow explain that one shouldn’t expect it to be. As one of the leading restaurants in Scandinavia one might also suspect that they don’t cut back on spend much even in the face of recession.

So deem my surprise that as I rode my Pinarello up the street I passed a photocopied A4 poster taped to the garage elevator door (punk-rock-stylee) advertising Lux Stockholm’s waterfront grill patio. Now some might think this is below par what might be expected out of advertising from a restaurant whose dishes start at €20 and go up, but I beg to differ.

Lux Stockholm has just taken Booz&Co advise for CPOs just a tad bit further (though I suspect that the staff at Lux Stockholm have no clue about even the existance of Booz&Co. or any of their insights). Number one on the Booz&Co. CPO memo list is: Aggressively negotiate lower pricing and improved terms in nonstrategic spend categories.

Let’s break this down:

  1. Aggressively negotiate lower pricing – using the company photocopier for advertising is as close to free as you’re going to get, so it’s aggressive alright. Taping the ads to public buildings using staff (I suspect, some of them live in the neighborhood) is probably the cheapest distribution method available. One out of three.
  2. and improved terms – talk about print on demand. The distribution is also taken care of. Two out of three.
  3. in nonstrategic spend categories – one can argue about the strategic nature of advertising, but since Lux Stockholm already received their star in Guide Michelin, most of the strategic advertising and brand awareness could be seen as taken care of. Strategic spend categories for Lux Stockholm is with high probability food related and by cutting down on the costs of nonstrategic categories the staff probably still use the best sources available. Three out of three.

Posting flyers on lampposts and in public places might not be what is expected from luxury restaurants but from a spend management point of view it’s spot on.

Posted in Business, Marketing, News, Personal, Strategy | Leave a Comment »

Doing better by standing by your contracts

May 25, 2009

If everyone paid on time, it would give an enormous boost to local, national and regional economies. Not only would 270 billion Euro (*) per annum in written-off receivables be saved, but Europe’s firms could also save at least 25 billion Euro by not having to chase slow payers. Chasing debtors consumes time and money. Apart from breaking a contract, bad debt also helps to drive up the price of goods and services. Research shows that if companies did not have to allocate costs to get pain or have to write off sums of money, they could lower prices, increase investments and improve margins.
* 2,4% of GDP EU27

Last week Intrum Justitia released their annual European Payment Index report where they expose some of the shadier parts of a downturn economy:

  • Delay in getting payment beyond the agreed term has stretched from 17 days in 2009 to 19 days in 2009 (on average)
  • Written-off percentage has increased from 1,9 percent in 2007 to 2 percent in 2008 to 2,4 percent in 2009

Furthermore the report notes that 7 of 10 respondents believe that settlement risks will increase further during the coming 12 months. Bad news for smaller suppliers no doubt, especially in times of hard to get credit. Still from a procurement angle the report offers some really good incentives to get initiatives rolling:

  • 1 in 3 state administrative inefficiency as a reason for late payment
  • 1 in 4 claim disputes regarding goods and services delivered

”Administrative inefficiencies” is of course just another way of saying that there is a need to automate the procure-to-pay process. And the claims dispute angle is as strong an argument internally as it is externally. Supplier want to get paid on time instead of spending time disputing what was ordered and how much it costs.

Posted in Business, eprocurement, procure-to-pay cycle, Procurement | Leave a Comment »

Using managed sourcing to tackle project based spend

May 8, 2009

A few weeks ago I listened in on a webinar where The Hackett Group explored some of their recent research relating to lost spend (Hackett: By Controlling Project-Based Indirect Spending Companies Can Net Significant Savings ). Many purchasing focused news feeds have already picked up the press release and just a few days ago both Purchasing.com  and Spend Matters added their comments on the problems of project based spend.

Jason Busch of Spend Matters neatly outlined some practical ways of dealing with this type of spend based on hand on experience:

  • First, if project-based spending categories fall outside of a core area of internal category knowledge, bring in the consultants. In fact, this is a great place to leverage either large-firm or boutique experts to achieve savings.
  • Second, focus on helping procurement serve as a bridge connecting all of the different stakeholders in the project — internal design engineers, third-party architectural/engineering/project management firms, primes, etc.
  • And third, offer to aggregate and take control of raw material and commodity spend on behalf of both internal and outside stakeholders with various management roles in the project.

I would say that this is a typical case for exploring the possibilities of Managed Sourcing since not all of the categories considered in the research is “just” project based. Take for an example Marketing Spend related to Trade Shows and Events; most companies that indulge in this type of activities do it more than once a year – and they typically want the same message to be delivered, so even if there are geographic challenges to be dealt with, the core suppliers of the event are often one and the same (or belonging to a network).

When applying the consultant/managed sourcing approach it is important to ensure that the assignment also includes implementing the contract and supplier follow-up. Often consulting assignments end with the consultant just delivering the contract to be signed – while this may be enough in some cases, for much IM&S spend the real savings are reaped after contract implementation and unless you have a strong e-procurement program in place with strict policies the savings may not materialize if the contract is not monitored and promoted and the supplier relationship not developed over time.

If the purchasing function is overloaded or lack the proper category skills in the sourcing phases, chances are that they will also be lagging when it comes to implementing and monitoring the contract. So if you’re looking into tackling these lost categories – make sure that your partners support you as deep into your purchasing process as necessary.

Posted in Business, eprocurement, Governance, Negotiation, Sourcing, Strategy | 1 Comment »

7 out of 10 CPOs feel the pressure of managing risk

May 6, 2009

Spring finally kicked in with a vengeance in Stockholm this weekend and as always it’s accompanied by a number of sure to tell spring spend management signs.

First, we’ve got the eProcure & Supply – Germany’s largest purchasing and supply management event with approximately 125 exhibitors and an expected attendance of around 3000 purchasing professionals.

Second, and from my perspective a little more interesting is the annual spring unveiling of Aberdeen’s CPO Agenda report; this year subtitled “Smart Strategies for Tough Times”. As always, Andrew Bartolini has done a solid job, yet there are few headline grabbers lodged in the 36 pages.

The one standout metric unveiled relates to 2009’s big spend management topic: supply risk.

“71 % of CPOs believe supply risk is increasing, yet 30% have a formal program in place to manage it.”

Now, that a figure that definitely will be front and center in many vendor presentations as the year rolls-on.

I for one think many more companies actually have a formal risk management program in place, it’s just that it probably did not involve the purchasing department, let alone give purchasing the responsibility to actually own and manage the process.

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

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 »

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 »

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