Archive for the ‘Supply Chain Management’ Category

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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 »

Sourcing in a downturn webinar

March 17, 2009

Last week I moderated a webinar on the subject “Sourcing in a Downturn”. The webinar was presented by Christer Hallqvist and Björn Stenecker, two of IBX senior managers, sharing more than 30 years of purchasing experience between them. In the 45 minute webinar (webinar and presentation can be downloaded here) Christer and Björn shared their insight into how one can make the most of sourcing in the current downturn utilizing a matrix framework to structure and identify categories with high savings potential.

In addition to the downturn matrix, one of the key take aways from the presentation was the fact that one can exploit the existence of the correlation of a suppliers bidding behavior considering the industry cost structure (in which the supplier is active).

By being able to predict supplier bidding behavior; buyers can amplify the effect by clearly communicating the award strategy. As Christer Hallqvist eloquently put it while presenting the different behaviors:

You may be surprised to learn how important this really is and it could either boost or weaken the dynamics significantly. As a general rule of thumb, the more clear communication strategy you impose e.g. Winner takes it all, Single Source etc. the higher is the likelihood for a Price reduction behavior. If expressed more softly such as “we will select the top 3 suppliers” or “price is only one consideration in our evaluation”, you will probably see a Price Compression behavior.

Posted in Sourcing, Supply Chain Management | Leave a Comment »

Getting out of the supply chain basement

March 4, 2009

ISMs eSide Supply Management newsletter recently ran a piece entitled “The Road to CPO — and Beyond” in which A.T. Kearney partners John Blascovich and Mike Hales detail the evolution of the CPO and offers different paths for purchasers climbing the corporate ladder (full report is available directly from A.T. Kearney here).

The authors acknowledge two typical paths to climb; either functional or business; but the underlying sentiment is that in order to move up the ladder, purchasing (or the purchaser who wants to move on up) needs to shift focus from cost to value.

This echoes what IBX CEO Leif Bohlin recently wrote in recent issue of the IBX newsletter called “It’s the time for purchasing”. He argues that with the increased focus the current downturn has put on purchasing; it’s time to step up to the challenge; to act like value creators; because if you become a value creator no, that’s how you will be perceived when the economy rebounds and the spot light strays away and sets it’s focus on it’s more traditional targets (marketing and r&d)

The focus of the business world is on purchasing; don’t miss the opportunity to let them know that purchasing is so much more than just squeezing margins and policing contracts.

Many companies are – and will – slow down their product development in this downturn; so don’t let the opportunity pass, pick up the phone and tell who ever is responsible that you can use the r&d resources to get better value for your money.

Posted in Business, Supply Chain Management | Leave a Comment »

Supply Chain Finance

February 5, 2009

In the latest issue of World Trade Magazine, Richard Barovick  does a great job outlining and describing how companies can benefit from Supply Chain Finance (SCF) in the cover story of their February issue. The article is entitled “Where’s the Goods, Where’s the Money” and it’s a primer into a field of supply chain management that is still being explored by vendors and customers alike but the tools used are becoming more and more streamlined and now offer an almost standard set of functionality.

…four activities and their cluster of advantages have been shaping the field for some time. These include: making automatic payments, supporting supplier discounts and buyer early payments, injecting credit into key points along the chain (pre-shipment, post-shipment, inventories), and a catch-all effort, “integrating” the flows of goods, funds, and information.

For anyone interesed in increasing their risk awareness as well as streamlining the finance aspect of their supply chain, the article provides a great starting point.

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Splitting Responsibilies in a Center-led Purchasing Organization

February 2, 2009

In the Aberdeen Group report “CPO Rising: The CPO’s Agenda for 2008,” of the 350 respondents, 48 percent of the best-in-class operations had adopted the center-led approach. The corresponding result for the laggards was 28 percent. Today, I think few, if any, would argue the merits of a center-led purchasing function.

In a turbulent climate, the center-led organization is better suited to take advantage of local markets as well as streamlining and leveraging company size and processes. It provides a flexible platform that retains control and enables the implementation of modern processes and support tools.

The center-led organization is a hybrid that borrows from both the centralized and decentralized models. In the process of transforming the purchasing organization to fit this model, it is critical to define and outline the roles and responsibilities for all major interfaces and stakeholders. But in order to succeed, it is vital that the division of responsibilities is clear and concise. In the book Purchasing Transformation Björn Stenecker argues that the best way of doing this is to divide purchasing activities into three segments.

The first set includes activities that are the responsibility of the center-led organization. The second set pertains to customized decisions involving both centralized and local purchasing, and the third set is the responsibility of the local purchasing organization (such as a division or a business unit).

In the book, Björn breaks down the responsibilities of the organization in the following way:

Typical center-led purchasing areas of responsibility

  • Create and be responsible for the sourcing strategy
  • Ensure that the company leverages its buying power by aggregating the purchasing volume
  • Define general terms and conditions
  • Negotiate and sign agreements
  • Monitor contract compliance
  • Allocate decisions

Areas requiring customized decisions of responsibility

  • Supplier selections
  • Supplier assessment
  • Supplier approval
  • Audits
  • Quality audits
  • Supplier development
  • Securing capacity
  • Last time buy process
  • Logistics and supply chain setup
  • Engineer change order process

Typical local purchasing areas of responsibility

  • Measure and report contract compliance
  • Define functional and technical specifications
  • Handle claims
  • Call off
  • Issue purchase order
  • Ensure that a goods receipt is created and filed
  • Ensure the efficiency of the invoicing process

Posted in Organization, Supply Chain Management | Leave a Comment »

A Hands-on Guide for Responsible Supply Chain Practices

January 30, 2009

Albeit there has been much talk about sustainable-, green-, CSR-driven, eco-, etc, supply chains in the past year, little has actually been disclosed what you can do – and where to start – when going about these matters.

Spawned out of an EU-initiative called European Alliance for CSR, the Portal for Responsible Supply Chain Management provides an excellent starting point – and site of reference/benchmarking – for anyone with an interest in CSR and its place in supply chain practices. The portal is a laboratory of sorts, lead by HP, Volkswagen, Titan and L’Oreal, and in the state their aim as:

The Responsible Supply Chain Laboratory does not mean to develop a top down standard for suppliers to comply with, but instead aims provide practitioners from large and small companies with practical information and materials to enhance their ownership and capabilities in the area of Sustainable Development and CSR, both within their company and among their suppliers.

I think it’s a great initiative and there are lots of great hands on information on the site for both buyers and sellers alike; for good reason; as this is one of the key issues at hand when it comes to making CSR work. CSR initiatives cannot be unilateral; they need to be inclusive to succeed and as a buying organization you need to be able to work with your suppliers in order for your supply chain to become truly sustainable. In all senses of the word.

Posted in green procurement, Supply Chain Management | 1 Comment »

Air Freight in Free Fall, Backing 22.6 percent in December 2008

January 29, 2009

Earlier today, The International Air Transport Association (IATA) released international scheduled traffic results for December 2008 (as well as the full year). And the results for December were not even close to what was expected.

“The 22.6% free fall in global cargo is unprecedented and shocking. There is no clearer description of the slowdown in world trade. Even in September 2001, when much of the global fleet was grounded, the decline was only 13.9%,” said Giovanni Bisignani, IATA’s Director General and CEO.”  Air cargo carries 35% of the value of goods traded internationally.

For the full year international cargo traffic was down 4.0 percent (as compared to the 4.3 percent growth of 2007). IATA accounts that the collapse in the airline industry’s freight business is a reflection of 20-30% declines in export and import volumes (which have been reported across Asia, North America and Europe).

In a forecast for 2009, IATA expect airlines/carriers to lose USD 2.5 billion and concluded that there is dire need form major structural changes to the industry. What this will mean to supply chain professionals is yet to be seen (Ariba’s Rachel Rutkoski recently posted on this subject on Supply Excellence), but ensuring that you’ve got your risks covered; especially when it comes to shipping/cargo/logistics; will be a must-do in everyone’s 2009 playbook.

Posted in Global trade, Logistics, Supply Chain Management | 1 Comment »

President Obama Pinpoints the Keys to Procurement Success

January 28, 2009

In his rather low-key (on the Obama-meter) inauguration address, President Obama was spot on when it comes down to procurement practices.

“…those of us who manage the public’s dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government…”

Taking out the fluff, President Obama is demanding that his government’s procurement practice is guided by three principles:

  • Spend wisely
  • Reform bad habits
  • Do our business in the light of day

Or in the words of a purchaser:

  • Do your spend analysis and act accordingly
  • Implement best practice processes
  • Increase spend transparency

Seems simple enough, yet in many areas of purchasing, much spend still flies under the radar. According to A.T. Kearney’s 2008 Assessment of Excellence in Procurement the top 5 percent (aka the Leaders) boast that they have 72 percent of their indirect spend under management, for the followers this number was a disappointing 42 percent. Since the leaders in this study are yielding overall spend related savings that are 2,3 times greater than their followers, not only are they outperforming their peers in the purchasing department, they are delivering a huge advantage in earnings per share versus their competitors, all accounting to getting more spend under management.

Growing up as a strong believer in smart suits, Vespa’s and the power of the crash chord I would offer this piece of advice to those that struggle with getting their spend under management (courtesy of UK mod revivalists The Secret Affair): “This is the time, this is the time for action”. Unfortunalty rock rarely speaks eloquently enough to be fitting in the board rooms, so one can borrow another of President Obama’s inaugural catch phrases:

All of this we can do. All of this we must do.

Posted in Business, Change Management, Procurement, Public procurement, Supply Chain Management | 1 Comment »

How the Irish dioxin scandal exposes some of the difficulties of public procurement

December 18, 2008

In Sweden, traditional Christmas ham is one of the main dishes on the Swedish Christmas table; approximately 7 000 tons of Christmas ham is sold in Sweden each Christmas. Yet recently, the Irish dioxin scandal – which resulted in nearly 100 000 Irish pigs to be culled due to farmers using cheap animal feed – almost upset this tradition.

In Sweden, the dioxin scare was very real and very close to home since food produced with the polluted meat was sold to municipal operations such as schools and elderly care.

Seen from a procurement angle this significantly exposes one of the key challenges for public procurement: what is really the total cost?

Municipal governments in Sweden span over a large range of public offices, where procurement is one, another is health. In this case, the procurement functions had sourced food for municipal operations from large well known firms, yet their eyes were probably firmly locked on the cost per meal. On the other side of the hall (in our factual municipality building) sits the health inspectors, they spend some of their time banning practices which they see as unhealthy, unethical and plain wrong. Sweden has rather strict laws when it comes to keeping animals – whether this is good or bad is another question, for now this is the playing field – resulting in banning standard practices of foreign farmers for the sake of animal safety.

Simply put; procurement has bought goods – perfectly legal – from sources (further down the supply chain) which the health inspectors would have closed down. And these are people that probably know each other quite well; and they are both just trying to do their jobs best they can.

When we say that public procurement is lagging behind procurement practices in general, we often fail to see the vast differences in responsibility between the public and private sector.

Posted in Business, Organization, Procurement, Public procurement, Supply Chain Management | Leave a Comment »

Tools for managing supplier risk (of the natural kind)

December 8, 2008

With the current financial situation; risk management has almost intuitively taken the prefix financial (risk management); yet although the financial risks have increased exponentially as of late this does not mean that you can rest easy if you’ve got your financial bases covered. Regardless of our self-inflicted catastrophes, mother earth does not plan to rest.

As we’ve seen on numerous occasions this year alone, natural disasters such as earthquakes, fires, storms, floods etc have wrecked havoc in many industrialized regions across the globe.

We’ve previously dealt with the subject of risk management and there are plenty of tips and tricks available in the blogsphere (Sourcing Innovation quickly comes to mind but most of the tools available are methodologies. And as we all know methodologies are a great starting place but unless you have data on which to act, chances are that you’re not going anywhere.

So, where does one go to find the latest news about natural disasters?

Based in Budapest, Hungary, the National Association of Radio-Distress Signalling and Infocommunications provide a clickable, real time map service of natural disasters worldwide. If nothing else, it’s a fascinating view of the world and how we are all affected by the forces of nature. For a purchaser buying goods or services from affected areas it’s a great tool for up to date information allowing for on your toes risk mitigation.

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

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