Archive for the ‘Strategy’ Category

« Older Entries
Newer Entries »

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 »

Vertical integration revisited

March 30, 2009

This weekend The Economist published a piece entitled Moving on up where they (partially at least) championed a return to Henry Fords vertically integrated supply chain model. Concluding, they offer, that though there are risks involved (in either approach), “Recalling the days when Henry Ford ruled, vertical integration—in adapted form at least—may emerge from disgrace as an innovative solution in an era when innovation is sorely required.”

One company that recently has started to revisit a more vertically integrated supply chain is Sandvik – one of Sweden’s leading high technology groups, represented in 130 countries world wide with market leadership in stainless and high-alloy steels and special metals. In mid-February Sandvik acquired Wolfram Bergbau- und Hütten-GmbH Nfg. KG (WBH), an Austrian producer and supplier of tungsten products. In the press release that announced the acquisition Anders Thelin, President of Sandvik Tooling is quoted saying:

“It [WBH] provides us with resources to manage the entire production process, from ore to finished cemented carbide powder. In this way we will be able to further strengthen our raw material supply and develop our business and customer offering.”

Given the volatility of the current commodity markets, carefully choosing your supply chain integration strategies is becoming more and more important.

Posted in Risk Management, Strategy, Supplier Management, Supply Chain Management | Leave a Comment »

Savings targets for 2009 in many cases over 5 percent (and for Deutsche Post DHL that’s not enough)

March 20, 2009

Last week Deutsche Post DHL revealed their strategy for 2015 and one of the key components in the strategy is a program called IndEx which aims to take at least 1 billion euros out of 7 billion euros in indirect costs at the corporate functions and the Corporate Divisions. According to DP-DHL more than 150 initiatives totalling more than 800 million euros have been identified to contribute to the overall goal; while some are strictly process centric, others are clearly tied to purchasing activities including the outsourcing of the European telecommunications services to Telefónica and reduction in travel and entertainment costs.

The IndEx program aim is to save 15 percent annually which by any means is an ambitious target; but fact is that many purchasing functions are pressured with delivering savings not far from this range.

During our recent Sourcing in a Downturn webinar we asked the participants about their savings targets; and how these had changed vs. the targets set for 2008.

  • 48 percent had savings targets that exceeded 5 percent
  • 36 percent had savings targets between 0 to 5 percent
  • 13 percent had no change in 2009 vs. 2008
  • 3 percent had decreased for 2009

With many companies downsizing across the board; these numbers are quite challenging. One way to actually come around with these numbers can be to see if there are internal resources that can support the purchasing function in delivering the savings. Recently we’ve seen organizations that have decreased their product introduction pace in order to free up resources that can be handed over to the sourcing department. These additional resources are then used to support in capture saving; approving new suppliers, changing and easing up specifications and focusing on new sourcing areas.

Posted in Sourcing, Strategy, Supply Chain Management | 1 Comment »

Protectionism starts to factor into supply risk management

March 16, 2009

A few weeks ago BDO Seidman, LLP released the results of their annual BDO Seidman Technology Outlook Survey and some of the results were quite startling (worrying even, if you see it from a free trade vs. protectionism angle).
According to the survey; 62 percent of the responding US companies outsource services or manufacturing. A pretty typical number according to our experiences from the European perspective; the startling results come when the respondents were asked where they will go to find the market for this outsourcing:

  • 22 percent answered the US
  • 16 percent answered China
  • 13 percent answered India

Douglas Sirotta, a Partner in BDO Seidman’s Technology Practice explained the numbers by saying the following:

“This year we are seeing three global factors that are causing U.S. technology companies to pull back from traditional outsourcing locations, led by the recent boom and bust of the worldwide economy. Satyam’s fraud case and the terrorist attacks in Mumbai are causing a lot of companies to reconsider operating in India. And supply chain and shipping cost issues in China are negatively impacting the attractiveness of outsourcing technology operations to the Far East.”

But that’s not the only reasons for the backshoring; Business Week reported that the Indian government is worried that protectionism and the regulations that rule the US stimulus package (as well as tax-reforms) are also part of the equation.

Whilst I can agree with the worries expressed by the respondents of the BDO survey; supply chain risk must be part of the equation when one seeks to outsource even non-core categories; the worries of the Indian government is of even greater importance. Protectionism should not have to be a factor that has to be considered when managing a global supply chain.

Posted in Best Cost Country Sourcing, Business, Global trade, News, Outsourcing, Strategy | 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 »

The Concerns of the CEO are the Concerns of the CPO

January 27, 2009

It’s been lying on my desk for quite a while now, but it wasn’t until recently that I actually took the time to dig into IBMs The Enterprise of the Future report. It’s an eighty page global CEO study that IBM performs bi-annually and it compiles answers from 1 130 CEO worldwide; and – from my northern European perspective – the best thing is that respondents are almost perfectly split in three – 33 percent being from Europe, 32 percent being from Asia and the remaining 34 percent from North and South America; so in contrast with many other so-called global reports, this one truly reflects the global CEO and the challenges global corporations are facing. One only needs to remember is that the answers were compiled during the first half of 2008 so the full pressure of the (down)fall of the global economy is probably not in the report.

Still, there are quite a few insights worth sharing.

I’m quite sure that we all agree that we are living in volatile times (in a “white-water world” as one of the respondents is quoted as saying) and topping the list of external/internal forces that keep the CEOs awake at night are:

  • Market Factors
  • People Skills
  • Technology Factors

While Market Factors and People Skills have been top priorities the last 4 years, Technology Factors have passed both Globalization and Regulatory Concerns in the CEO rating according to the report.

This should only come as good news to any CPO; managing a dynamic global market has put emphasis on two things for the purchasing function: success global sourcing is dependant on the proactive  purchasers with an analytical/collaborative bent (as opposed to the more traditional reactive/negotiation focus of yore) and tools that support cross-functional and increase the spend visibility across the enterprise. The concerns of the CEO are the concerns of the CPO, making it easier to align purchasing strategy to overall corporate strategy.

Posted in Business, Change Management, Global trade, Strategy | Leave a Comment »

Sourcing marketing services as the window of opportunities close

January 15, 2009

A few months back, we highlighted some of the categories that were well suited for additional sourcing initiatives due to the financial downturn; one of the categories that we highlighted was marketing but as we all know nothing lasts forever.

Although marketing spend is down across the board; many marketing suppliers have been on their toes and adjusted their operations accordingly. Wise from the dot-com boom (crash) many advertising agencies have quickly adapted to the new era and are looking to the maturing internet marketing space to keep their revenues intact.

In a recent interview in Svenska Dagbladet (in Swedish); Göran Åkestam, founder and CEO of Åkestam Holst, one of Swedens largest advertising agencies is quoted saying:

“The (advertising) industry has become more cost aware. Rates have been lowered and we all had to get used to a different cost level. At the same time, many marketing functions have become more skilled, they are careful when cutting in marketing budgets since they know how fatal lack of sales are to their business.“

It goes to show that all categories have windows of opportunity that can be closed rather quickly. Whilst sourcing for marketing services still is viable; the quick feet of the (Swedish, in this case) advertising agencies have lessened the possibilities for easy savings. Acting now is hence of the essence.

Posted in Negotiation, Sourcing, Strategy | 1 Comment »

Ways to raise the status of purchasing

December 10, 2008

For the past few years there’s been a constant buzz regarding the increased status of purchasing professionals. Yet with all the talk about CPOs taking on new challenges in corporate management and purchasing becoming a hotbed for talent recruitment little actually trickles out when it comes to the actual practicalities of raising the status of purchasing.

Take this case story from the recent issue of Efficient Purchasing magazine regarding purchasing at GEA Group. Some background info: GEA Group is a global technology group with more than 250 companies in 50 countries focused on specialty mechanical engineering. Due to the geographically diversified organization the company established a corporate supply management team in 2005 with direct orders to introduce company-wide purchasing processes and tools.

For years, GEA Group has held an internal process and production innovation contest, where all companies/divisions in the group were eligible to participate. In the innovation-driven GEA culture, winning the award is highly valued; in 2006 supply management won the process innovation contest.

“Ten years back, no one would have expected purchasing to participate, much less to win the yearly process innovation contest”, says Charles Bloch, corporate coordinator of supply management in the Efficient Purchasing article.

GEA Group also runs an internal development program called GEA Academy which now also features programs for staff in purchasing and supply management. With the increased visibility of purchasing due to participation in programs such as the GEA Academy the raise of profile of the purchasing profession has increased within the GEA Group.

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

It’s the time of the (sourcing) season

December 4, 2008

Over on Supply Excellence, Ed Bockman has authored a definitly worthwile post discussing the paradox of a buyers market where buyers are scared to act. He writes:

In my observations from the trenches, I think you can chalk up the hesitation of many organizations to a mix of once-bitten-twice-shy jitters, patiently waiting for “the bottom”, overstocked inventory of direct materials and a lack of demand for their finished products.

In times like these it might be useful to recall that the downturn that we are seeing now is not only due to an extrordinary financial situation but owes much of it’s depth to a significant structural shift. Old ways of doing business are on it’s way out the door and this is in fact adding fuel to the fire.

The good thing about changes such as this is that new markets will replace the old. The bad part is that change hurts; and as humans we strive to resist change (and many of us do this until no other opportunity is available). If we don’t see major rewards on the other side; chances are that we’d rather stay put instead of getting our feet wet.

So as a reminder I’d like to offer some success stories from past structural shifts:

  • In the mid eighties Cisco Systems completely changed the telecom industry and in doing so put a high number of telecom developers, manufactures and works out of business.
  • General Electric was founded and started to flourish during the Long Depression of 1893-97.
  • Kellogg’s became a household staple during the Great Depression of the 1930s. An era that also saw the Golden Age of Hollywood.

So this is indeed magnificent times for two reasons. From a business perspective those that can exploit the structural shift are in a golden position. From a purchasing perspective; those that exploit the current situation can deliver great value to their corporations. I recently co-authored a perspective on this subject entitled “Sourcing in a Downturn” which discusses ways to identify tactics to exploit the effects of the current situation when sourcing IM&S. Hardcopies of the perspective is available free of charge from www.ibxgroup.com.

Posted in Business, Strategy, Supply Chain Management | 4 Comments »

Give a Little Bit by Going Red

November 28, 2008

With the holiday season approaching I thought it would make sense to promote the spirit of giving, even though giving is not something that is usually associated with purchasing in a positive way.

I recently went to market to acquire a new shirt. A seemingly simple purchase – but also one where personal preference and quality (TCO) plays a big role (not unlike buying a pair of shoes). With a professional background in purchasing I consider myself a rational agent and based on previous experience I had the specifications ready:

  1. 100% Cotton, 2-ply
  2. Business-friendly color (no extremes)
  3. Figure sewn
  4. Straight collar (suits the four-in-hand knot best)
  5. French cuffs

Prior to the industrial revolution the choice of supplier would have been reasonably simple: The local tailor. In the 21st century however, its a completely different market. Of course there is still the possibility of approaching the (perhaps now only somewhat local) tailor – but with a self-imposed spending limit of around 50 euro that is not really an option.

Although not contractually bound I do have a list of preferred local suppliers so I started my search there. This was perhaps the first non-rational (albeit comfortable) choice as a more thorough analysis might have shown that e.g. quite a few excellent online suppliers exist.

Reasonably well-prepared though, I now faced the oldest enemy of purchasing: The sales person. Retail is usually a fixed-price environment but that advantage is quickly lost to accessory bundling, volume aggregation offerings and specification obfuscation or override (I was on my own – if you bring your special someone you can add buying authority bypass to the list).

The purchase itself went rather smooth actually – an inexperienced sales person was no match for my mitigation by budget strategy. However, while closing the deal I was caught off guard by what I now realize was the equivalent of the ‘candy near the counter’ technique – A stand with Red Cross logo-shaped cuff links and the slogan: Give a little bit. Non-rational choice #2 but it felt great.

I got my shirt and I gave a little bit to a good cause in the process. The cuff links are surprisingly good as well – It is not Sterling silver but they are functional and anything else really does not matter or change the statement wearing them makes. I think it is a well-executed campaign (a brooch alternative exist for women) – priced at around 5 euro it is also an offer that is very hard to refuse:

Red Cross - Give a Little Bit Campaign

Red Cross - Give a Little Bit Campaign

So, with the holiday season closing in – move focus from the current recession for a bit and consider replacing (or re-instating?) your holiday presents for employees, clients or key suppliers with charity donations. Most charities will help you make a statement as well, by providing gift cards that describe the charity or cause you can distribute in a holiday season equivalent of ‘Going Green’ – let us call it ‘‘Going Red’.

To help promote the Going Red initiative I will pick the 3 best comments with suggestions for similar initiatives or references to this post on other blogs and send the author a pair of above mentioned cuff links (or brooch, your choice). I will announce the winners here in an update within a few days.

Posted in Personal, Sourcing, Strategy | Leave a Comment »

« Older Entries
Newer Entries »
Follow

Get every new post delivered to your Inbox.