Archive for the ‘Governance’ Category

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Consumers are like elephants – Risk management and mitigation is a long term project

April 12, 2010

Reports on konsumerbehavior and beliefs are always a great source when trying to understanding, educate and open the minds of procurement professionals (or anyone involved in development and manufacturing). Most often they expose consumers as a sort of elephant – they rarely forget and once they start moving in a direction, getting them to change can be an overwhelming task.

Recently, Konsument Föreningen Stockholm – swedens largest non-profit consumer organization – opened a social media project called “Myths about Food” whereby they sought to expose and bust many of the myths that still float around consumer circles.

One of the questions in the survey was related to the use of apples in Lingoberry jam. Now anyone who’s ever been to the nordic region will have experienced the importance of Lingonberry in Scandinavian cuisine. The fact that it’s one of IKEA’s big sellers abroad is a testament to the fact if nothing else. In it’s purest form Lingonberry jam consists of lingonberrys and sugar so when your starting to mess with the recipe you’re getting into pretty deep waters.

Evenso, about 20 years ago many producers were exposed using apple sauce in lingonberry jam to make their product cheaper.

In this years survey (swedish only) – 72 percent of the respondents still believed this to be true. Even though producers stopped the malpractice years ago.

Now that’s something to keep in mind when you’re trying to balance cost with your products consumer product.

Posted in Change Management, CSR, Governance, Risk Management, Spend 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 »

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 »

Asking the right questions – how to find weaknesses in your supply chain operations

November 3, 2009

Despite some of the headlines (true or not) regarding the practices of IBM’s executive management, there are still some interestion material emerging from the big blue.

In IBM Global Business Service’s recent ”Sourcing in a demanding economic environment” white paper the men in blue offer up a wide range of tactics and ideas for how purchasing departments can excel in even a harsh business climate. Though not much is new, and I personally would have emphasized exactly which skills are core when interacting with other parts of the business and taking on a leadership role in the value creation process, the authors have managed to collect a very comprehensive set of questions that purchasing managers should ask themselves when considering how to go forward with key purchasing challenges.

  • Supply base: Who are the right suppliers?
  • Commodities: What are the strengths and weaknesses in commodity coverage across growth countries?
  • TCO: How can I help ensure sustainable TCO savings? How do I build a reliable business case and estimate risks?
  • Quality and skills: How can I maintain quality levels? How do I attract and retain top-quality staff?
  • Supply chain integration: How can I most effectively manage an extended supply chain? How can I help ensure competitive lead times and flexibility?
  • Contracts and legal: What contractual and licensing issues should I be aware of? What are the import and export regulation requirements?
  • Taxation: What are the benefits or pitfalls regarding local taxation? Should I buy in local or foreign currency?
  • Language and local culture: How can I manage the local language and cultural challenges? How can I protect mu intellectual property and prevent fraud?

Though most of these questions may seem basic to more advanced purchasing professionals, I’d suggest you go through them in your next purchasing council (or board). Chance are that you will unveil unknown weaknesses in your supply chain that can be bettered.

Posted in Change Management, Governance, Organization, Procurement, Sourcing, Supplier Management, Supply Chain Management | 1 Comment »

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 »

Sure signs of summer: fraud invoices

May 27, 2009

A few weeks ago Ernst & Young unveiled a study entitled “Corruption or compliance: the 10th global fraud survey” in which Ernst & Young’s Fraud Investigation & Dispute Practice Service assess the level of understanding of anti-corruption practices and how these are abided by (or bypassed) in business.

Says David L. Stulb, global leader of the Fraud Investigation & Dispute Services:

“Executives in some companies today may still believe that paying bribes is good business; it “works”. But the risk of such action has certainly increased markedly in recent years.”

The report also concludes that corruptive behavior intensifies in times of turmoil – which anyone working with purchasing cannot have missed. Turmoil leads to confusion which leads to lack of transparency, which is further amplified by the effects of the downturn economy on staffing redundancies which in other cases could have been able to offload the workload to ensure full visibility into the processes.

So what measures can purchasing take to battle these unwanted behaviors?

A clearly defined and communicated purchasing policy is certainly a good start, usage of sourcing tools that ensures transparency and full visibility is also vital as are comprehensive purchasing processes.

On a more transactive level; a no PO/no pay policy in combination with widespread e-procurement adoption is a key lever that can secure that smaller corruption and fraud offenses such as fake invoices never see the light of day.

Posted in E-invoice, eprocurement, Governance, Organization, procure-to-pay cycle, Sourcing, Supply Chain Management | 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 »

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 »

The CPO dilemma – How to get more done with less

February 10, 2009

In a recent white paper, Accenture cites a survey of the world’s CPOs noting that 75 percent of those surveyed reported that the downturn has “significantly affected” their purchasing operations. More that 50 percent claim their procurement budgets had been cut, many reported that they were experiencing cut of more than 15 percent. At the same time, savings targets have increased, and nearly 20 percent report that they now need to deliver savings of 15 percent or more.

This is very much in-line with our experiences. Purchasing functions are under pressure to do more with less.

A few days ago, I touched upon this subject in a post called “Talent and competence retainment in a downsizing economy” and I’d like to expand a bit on this subject.

In times of turmoil and significant downsizing, CPOs and purchasing directors need to be very clear in they ways they lead the changes whilst manage expectations and motivation. Successful leadership can be attributed to the following three areas:

  • Visibility – Lacking information, rumours will flourish like air filling vacuum. CPOs need to keep staff informed of changes (internally and externally).
  • Engagement – Involvement in the change process is two fold. Not only does the staff see the engagement of the management first hand, they also partake in the decisions and are able to vent concerns, offer improvements and channel their energies away from distractions.
  • Value-driven – True understanding of what the real value for the company is, is vital for keeping motivation. Unfortunately, in bad times, long term goals are often obscured by the panic to save the moment, yet much research suggests that staff with an inner drive and a deeper understanding of the business model often outperforms staff whom focus on delivering the set targets.

Successful leadership is often attributed to being able to see and channel the talent of each and every individual. Everyone has the power to excel if their talent and potential can be brought into the lime light in a given situation. Being visible and transparent with relevant information, engaging staff in the process and projecting the long term goals and strategy of the business provides a foundation for bringing out this potential. Something that is vital to tap into in order to succeed with doing more with less.

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

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