What’s the real impact of the UK 2015 budget on procurement?

March 23, 2015 Procurious HQ

Last Thursday, UK Chancellor George Osborne outlined his fifth and final budget for the current parliament. Many analysts viewed this budget as pivotal as it helps to highlight the state of the economy in the run up to the General Election in May.

For many others, however, the pre-election budget amounts to no more than political positioning and posturing – a chance to take a free swing at opposition policy. The policies are subject to the outcome of the election and many are never implemented.

However, taking the Budget at face value and assuming that some of these policies will be implemented, what does it mean for procurement and supply chains? Procurious aims to talk you through some of the detail here.

The Budget – Key Points

First we need to summarise a selection of the key announcements. For a more detailed run-down, click here.

UK economy grew 2.6 per cent in 2014, faster than any other advanced economy
Record employment in the UK, with jobless rate to fall to 5.3 per cent this year
Trade deficit figures “the best for 15 years”
Inflation projected to fall to 0.2 per cent in 2015
Borrowing set to fall from £97.5bn to £12.8bn in 2017-8
Beer and cider duty cut; spirits and petrol duty both frozen
The tax-free personal allowance to rise to £11,000 in 2017-8

From a business point of view, the news somewhat mixed.

Tax on “diverted profits” to come into effect next month
Annual bank levy to rise to 0.21 per cent, raising an extra £900m
Supplementary charge on North Sea oil producers to be cut from 30 per cent to 20 per cent while petroleum revenue tax to fall from 50 per cent to 35 per cent.
New tax allowance to encourage investment in North Sea
Review of business rates but no details

Behind the Figures

Experts were largely positive in response. James Sproule, Chief Economist at the Institute of Directors, stated that although the economic recovery was taking longer than anticipated, “the immediate news was encouraging with employment rising to record levels”.

Also, despite concerns about the UK’s debt position, Sproule said, “the degree to which government and businesses are beginning to pay down their debt is an encouraging trend”.

However, it would be naïve to assume that it was all good news for the UK. Despite a more positive outlook and plans to end the public spending ‘squeeze’ a year earlier than planned, an additional £30bn in savings still needs to be found over the course of the next parliament. This means austerity measures and spending cuts will have to continue.

From a business point of view, this mean less business in the private sector, tighter budgets and the requirement to look further afield for new opportunities.

George Osborne pointed towards this when highlighting China as a major export market in the coming years. With an export target of £1 trillion by 2020, an increase in funding to the UKTI is a good start. But Allie Renison, Head of EU and Trade Policy at IoD, argues that a focus on one economy is not necessarily a good idea.

“Focusing the extra funds on China raises questions about the wisdom of prioritising one geographical market over another. The Chinese economy is changing, and consumer preferences are shifting with it. We have not yet seen the expected boom in demand for services materialise, at least not in the financial and associated business services sector.”

Impact on Procurement and Supply Chains

What does this all mean for procurement and supply chain in the long run?

Mentions of procurement were mostly limited to the public sector and increasing efficiency requirements. Without any details provided, there was talk of cuts to NHS procurement, something that is currently under examination by Lord Carter, the chair of the NHS procurement and efficiency board.

The long-term future may also hold more autonomy on spend in public sector procurement. Councils in Greater Manchester are being given more administrative power over income, with many seeing this as a test case for more regional powers.

The freeze on fuel duty will provide relief for logistics organisations too, as well as removing cost from many supply chains. This should provide more opportunity for supply chains to focus on increasing efficiency and diversity, assessing appropriate routes for both import and export, as well as where further improvements can be made.

The government has been challenged to help supply chains more when it comes to identification of these opportunities. Allie Renison argues “much more emphasis is needed on specific sector supply chains, to help identify where gaps exist, both in terms of research and practical support.”

In the coming weeks, we will return to this debate as policy announcements are made by the leading political parties. Procurious will look to assess these policies, their impact on procurement and what the overall impact of the General Election will be.

In the meantime, here are some of the other major procurement stories making the news this week.

Supply chain changes could cut food waste

Changes to the supply chain could save millions in food waste by increasing the life of products, according to a study. WRAP estimated an increase of one day on product life across a range of foods could prevent around 250,000 tonnes of food waste each year.
The study, Reducing food waste by extending product life, examines how ‘use-by’ and ‘best before’ dates are set by food manufacturers, brands and retailers, for foods that typically have a high level of waste. They included sliced ham, potatoes, apples, minced beef, juice, chilled pizza/chilled ready meals, bread, chicken breasts, bagged salad and milk.
It estimated the potential overall tonnage and financial savings by scaling-up data from these products to all food groceries.
It also urged manufacturers and retailers to challenge the safety quality ‘buffers’ to find opportunities to extend product life. It calls for a standardised approach to ‘open life’ guidance – the time food is deemed safe or retains its best quality once opened – and that it should be used only for food safety rather than quality.

How do you define trust in the supply chain?

March 22, 2015 Procurious HQ

Following on from our examination into the Siemens bribery scandal, we’ve compiled some of the excellent community discussion on the subject of trust in the supply chain.

How do you define trust in the supply chain?

Trust is a major factor when choosing suppliers, as well as staying with them for years. In a prior discussion on Procurious, trust, follow through and understanding of your industry were some of the top factors you all shared choosing and staying with your suppliers.

So how do you define trust? And what components of trust are most important when it comes to setting up your supply chain?

Thanks to Hannah Broaddus for this question, following up on one previously asked (and wrapped) on Procurious. Trust as a concept is hard to define, can take months or years to build up within relationships, and can be destroyed by one stray comment or action.

As seen in the recent situation in Australia with Nanna’s Frozen Berries, consumer trust can be lost through issues in a supply chain and will take time to be earned back.

The idea that trust had to be earned on both sides was cited more than once. Trust is built through interactions and discussions over a period of time. At the beginning, there needs to be the belief that both parties are working towards the same goals and that the other party has your company’s or customers’ interests in mind.

Trust is built by being open and honest. Companies that are good at generating trust will share information freely. This can be sales and operations data, forecasts or critical data that will ultimately benefit both sides.

One answer highlighted Mari Sako, professor at the University of Oxford. Sako states that there are three types of trust that we must all go through & earn from the other party.

Contractual Trust – prove you can do what you say you can (we both look for failure here)
Competence Trust – when I believe that you can do what you say you will
Goodwill Trust – we both do things for the good of the relationship

Finally, we’d like to leave you with the immortal words of Ernest Hemingway, “The best way to find out if you can trust somebody is to trust them.”

Wise words to live by, even if this is perhaps easier said than done in business.

Here’s something else the community has discussing at length:

Is your company’s procurement department strategic, or purely operational?

What is the best way to add value and make your Management aware of its strategic importance?

The question of whether procurement has a seat at the executive table is often asked. What is less apparent is whether procurement departments are conducting purely operational work in organisations. This question from Pedro Semprine asks just that.

A widely held belief is that most senior executives spend less than 3 per cent of their time on strategic tasks. One answer in this discussion highlighted an 80/20 split in time – where procurement leaders spend 80 per cent of their time on strategic matters and 20 per cent on the daily tasks, while juniors were the opposite.

A common thought was that procurement, depending on the task, had to be both strategic and tactical. Day-to-day materials would require a tactical approach, whereas critical or bottleneck items would require a more strategic focus. Tactical procurement activities contribute towards the overall strategic goals of both the procurement department and the organisation.

There was also the idea that all activities might be viewed as operational, unless procurement was seen as a strategic advisor in the organisation. One option to counter this was to be proactive, writing strategy documents and quantifying examples with data, for example cost savings or production times, so management would be able to see the value added.

Procurement could utilise a results oriented approach, publicising successes where value had been generated for the organisation. Organisation impacting activities, such as core product changes, cost reduction and process improvement could be laid out with future plans in order to show continuing value generation.

The tips were nicely summed up into three points:

Speak to influencers and key senior management figures – ask them what are their pains are
Conduct a group presentation to all of them to demonstrate how your plans can help meet their goals
Leave the emotive categories alone for now. These include stationery, car leases and most of all, travel.

In The Press

How do you go about transforming a bribery-entrenched culture?

March 20, 2015 Matt Farrington-Smith

Procurious has been in Cardiff attending Procurement Week 2015. We heard from Simone Davina General Counsel & Company Secretary at Siemens Netherlands, on the challenges of rooting out bribery and rebuilding trust.

Inspired by Simone’s words, we set about charting Siemens’ course on its road to recovery. Read on to see how it reversed the damage done.

Siemens on transforming a bribery-entrenched culture

We don’t want to teach you how to suck eggs, so there’s no need to school you on on the big ‘C’ – Corruption. Suffice to say that this threat is a scourge for all mankind, and has devastating effects on even the world’s strongest economies.

Fined in 2008 to a tune of $1.6bn – this record legal settlement served as a (highly-costly, overtly public) wake-up call to the German conglomerate.

US authorities charged eight former executives in connection with a $100m (ú64m) foreign bribery scheme. The bribes related to a $1bn contract to produce national identity cards in Argentina.

This was not the first time Siemens’ was thrust into the bribery spotlight. Allegations around deals between Siemens AG and Greek government officials during the 2004 Summer Olympic Games in Athens regarding security systems and purchases by OTE in the 1990s.

…As a result Siemens set about building a self-cleaning initiative.

How do you turn around a company like this?

If Siemens’ was going to get a second chance it would require an almighty effort. Collaboration with investigators, compensation for damages, guarantees that the situation won’t happen again – achieve all that and you’re just scraping the surface…

Challenges to scale this work across countries. Not so much of a problem in the Netherlands, but harder when it comes to China, the Americas etc. But if a company of such a size as Siemens can’t do it, then who can? That was the question Siemens’ CEO Peter Löscher was posed.

Peter Solmssen – Siemens general counsel, also believed that global cooperation was key. “If we, the major companies and, really, anyone in private industry, link arms, we can drive corruption out of our markets. I call it the Cartel of the Good. If we cooperate, then there is no bribery.”

In years before, Siemens’ operated in 190 countries across the world (with these distilled further into 70 clusters). Löscher reorganised this sprawling cluster system by condensing down to 20, and creating a steering committee to manage on a quarterly basis.

Out with the old – a seismic change in culture

In senior management 80 per cent were moved outside of Siemens. The old boys network had to be disbanded. In order to break the cycle, the peer-pressure, the whole culture needed a shake-up. Reinvigoration.

This was just the beginning – you could say that “bribery was Siemens’ business model”. An investigator from around the time of the scandal pointed out that internally Siemens referred to bribes as “nützliche Aufwendungen,” – a German accounting euphemism that meant “useful money”. But we must remember that until 1999, the act of turning a bribe was considered legal practice in Germany. German corporations were freely allowed to deduct bribes from taxable income. However, this was a new millennium and corruption was still very much at the core. Löscher realised in order to successfully weed-out the detritus he would need help from the very individuals with dirt on their hands.

The Guardian reported: Löscher offered his workers a deal: He promised that anyone who came forward to admit their involvement in bribery would get full amnesty. Not only wouldn’t they be fired, but the company promised to help with any legal problems stemming from these admissions. On the other hand, those employees who didn’t come forward, but were later found guilty of bribery, would be fired. Solmssen estimates that “about 130” employees came forward to admit their role in bribery and to explain where the money had gone.

In an interview with Harvard Business Review (Nov 2012) Löscher would later muse: “The scandal created a sense of urgency without which change would have been much more difficult to achieve, regardless of who was CEO. Siemens is a very proud company with a history of innovation and success. In the absence of a catalyst like this, people would have asked themselves, ‘Why alter anything?'”

In the period between the offence (2008) and that HBR interview, Siemens would invest in a 500-strong compliance team, instill a former Interpol official to head-up the newly-created investigations unit and put the company-wide compliance programs into place. An online portal would also be used to begin integrity dialogs, allowing staff to evaluate risk when starting tenders with companies. Siemens wanted to be in a position to end agreements if it suspected non-compliance – even going as far as carrying out audits at desks.

This welcomed in a new era of transparency for Siemens – for the first time it was placing itself very much in full view, demonstrating its meteoric changes to a quiet, questioning public.

By 2008 almost half of its 400,000 staff had undertaken training in anti-corruption issues.

In The Press

Is the electronic market the answer to procurement headaches?

March 19, 2015 Procurious HQ

Procurious is in Cardiff for Procurement Week 2015.

Answering our call of ‘what are other countries doing to innovate in procurement?’ We were given the opportunity to hear from Michal Ohrabio from Anasoft. In Slovakia procurers are looking towards the Slovak Electronic Market (or the ‘Gov eBay’ as it’s more commonly referred to ). This online portal functions as an alternative buying hub, and encourages procurers to think about the buying process in an innovative and refreshing way.

How can we make the processes more efficient and automate them?

The challenge this project tries to address is the procuring of common goods and services below the threshold, while maintaining good prices. Authorities and state institutions (ministries, state-run business, local governments) can bid at this portal for the purchase of smaller goods and services and construction work.

So what we’ve got is a catalog of subject matters: simplified procedure, anonymous CA, and suppliers during the tender. After closing the contract everything is made public and process is published.

The new portal will reduce the procurement process from 3 to 4 months to one week. Furthermore, it is an important anti-corruption instrument due to the fact that national and local governmental organisations will be purchasing live and online. It is hoped that this will help to improve the fairness to suppliers as well as government purchasers.

For state procurers, the value range of available goods and services is from 1,000 EUR to 134,000 EUR; for other procurers, the range is from 1,000 EUR to 207,000 EUR. The upper limit for construction work is 5,186,000 EUR. Registered companies can offer their goods, services and construction work.

The pilot was launched in September 2014, and roll-out began in earnest in Feb 2015. To-date the portal has signed-up 6500 suppliers.

In The Press

Innovation in the public sector: the rise of the smart, super connected city

March 18, 2015 Procurious HQ

How are we innovating in the public sector?

Procurious is here at Procurement Week 2015 in Cardiff. We have heard from Jim Smart – Head of Digital Cardiff, on the challenges that public procurement is facing in order to lay down the infrastructure that leads to innovation.

Cardiff is a city primed for growth, and it’s certainly no stranger to innovation – it’s a city that’s prospered not just economically, but socially and culturally over the last few decades.

By procuring broadband and bringing WiFi to the streets of the largest city in Wales, Cardiff will become a real smart city. The welcoming of this first class digital infrastructure will mean Cardiff benefits from the best penetration of superfast broadband throughout the UK Core Cities. It will also offer free to access WiFi on buses across the city and public buildings.

Joined-up procurement is healthy procurement

In this modern age, broadband access and a working Internet connection is taken for granted. But we often forget about the complexities required to get us online in the first place. It’s not just a case of plugging in to connect.

A number of pre-requisites are required to make Cardiff’s wireless dream a reality. The ingredients you will need: an Internet Exchange in the city centre, and a new highly secure Data Centre development. The Exchange itself is worthy of note, it not only represents an important £3.5m investment but it’s one of only four Internet Exchanges in the UK.

Such a monumental piece of work means a joined-up approach is needed in the city. You can’t have one procurement team not talking to the other, every party is required to pull together and champion transparency throughout the tendering processes. Superfast broadband is an enabler for innovation – the procurement itself should champion the super connected ethos, the one infrastructure, that will be borne out of this work.

At this stage it is also one of the first projects that will come in on time and under budget. Music to the ears of anyone involved in the initiative – procurement professional or otherwise!

Once the work is complete, the emphasis will be put back on the infrastructure. BT, Virgin, and Sky (to name but a few) all stand to benefit from the innovation Cardiff is being injected with.

Cardiff – the ‘One City Planet’

Outside of the work that Jim and his team are involved in, thirty councils have been selected to carry out feasibility studies for something called the ‘Future Cities Demonstrator Programme’- and of those is Cardiff.

Cardiff, like many cities around the world, is facing challenges managing its growth in a sustainable and prosperous way. The project will see the development of a virtual 3D city model to collect and manipulate data in order to monitor and control vital city functions such as, energy, transport, health, water, waste etc, in a holistic manner and develop a full understanding of how they interconnect and inter-depend.

The project will focus in particular on the role of Cardiff City centre as the heart of a rapidly growing city and as the retail, leisure, commercial and transport hub for city-region of 1.4m people. It will work with businesses, universities, third sector and citizens to ensure the delivery of a vibrant, prosperous, low carbon, healthy and happy city, and will form the platform upon which Cardiff can achieve its ambition of becoming a ‘One City Planet’ by 2050.

Procurement News

How can we procure in a smarter way?

March 18, 2015 Procurious HQ

The need for smarter procurement

Procurious is in Cardiff for Procurement Week 2015. We sat in on the 4th FAPPE (Faster Adoption of Public Procurement in Europe) Meeting where the group discussed pertinent issues that need addressing when deciding on a roadmap for smarter procurement.

We’ve taken these concerns and have chosen to present them to you in the form of an infographic.

FAPPE is the brainchild of Rui Patricio – the Managing Director (Procurement & Innovation Management Consulting) of Digitalflow. Digitalflow is a Portuguese boutique consulting firm that offers a full range of services to support the implementation of business-to-government processes making use of electronic platforms.

Generation Procurement

How to secure trust when procuring across borders

March 17, 2015 Tom Verghese

Trust is the foundation of all good relationships. When sourcing across borders and cultures, the key variable between a successful and unsuccessful procurement strategy is trust. Trust includes reliability, truth, honesty, credibility, competency and predictability. If it is absent, commitment wanes and frustrations, misunderstandings and missed opportunities ensue.

Procuring across borders: Do you have trust on your side?

All cultures value trust, the difference lies in how it is developed, sustained and repaired – or not. Although some of the strategies for building and maintaining trust are universal such as delivering on what you promise, there are others that are culturally specific; there is no ‘one size fits all’, particularly in terms of relationship-based cultures. There are both subtle and comprehensive differences between countries such as India and China, Australia and Germany for example.

The necessity for establishing trust when procuring across national borders include the following:

Tap into and connect with new markets
Increased reliability of people ‘on the ground’
Increased brand loyalty within new markets
Increased speed and on-time delivery
Greater sharing of knowledge and expertise
Focus and commitment especially when things go wrong

We intuitively know the common beliefs and values that are held in our local markets; such as the appropriate balance of personal versus business conversations, appropriate and inappropriate behavior, how to address people and so on. But the rules change instantaneously as we pick up the phone or engage in meetings or teleconferences that involve crossing cultures and borders. In this moment we need a heightened level of awareness and flexibility in order to adapt our communication and behavioural styles to ensure that they are appropriate to that current cultural setting. This new cultural setting may even occur without you leaving your office.

Strong, trusted relationships with local people provide many opportunities, one of which is a ‘right-hand’ person. They offer not only greater access to understanding your customer/client base, their needs, preferences and desires; but also can be a valuable sounding board for cultural knowledge and etiquette. Local contacts can act as intermediaries, performing a significant role in establishing trust amongst local suppliers through introductions. They can open doors, offer connections within local networks and ‘lend their reputation’ to build trust with others.

Strategies for Building Trust Across Cultures:

Be open to new experiences and situations.
Be prepared to have personal discussions about family etc; sometimes your conversations may not include work discussions at all.
Provide as much data and information as possible when working in unfamiliar cultures.
Spend some time learning about the culture. Read local newspapers, and make extra time for personal conversations.
Listen…especially to the tone of voice, to what is not being said and to the contexts of the conversations.
Pay attention to the non-verbal communication such as eye gaze, postures, tone of voice etc.
Consider finding an intermediary or go-between person. They can be valuable in terms of tapping into local networks, industries and introductions.
Engage in some cultural intelligence training.

In The Press

Internet retailer Amazon on putting people first

March 16, 2015 Procurious HQ

Work hard, have fun, make history

Procurious is at Procurement Week 2015 in Cardiff – ahead of our exclusive interview with Amazon’s Gary Elsey – Operations Manager for Amazon.co.uk, we present some bite-size tidbits into Amazon’s people-centric philosophy.

Amazon in 1995 – started life an online bookstore (VHS, DVDs, CDs etc. came later), but at that time there was no discernible way of searching through the product listings. A far cry to the behemoth that stands before us today.

Amazon on customers

Amazon’s vision is simple – no matter what it’s doing, what products it’s launching – the customer is always the end goal.

As a company Amazon has always strived to work backwards from the customer. ‘What can we do differently, how can we distinguish ourselves and innovate?’ These are all essential touch-points that the Seattle-born retailer has obsessed over since day one.

For an example of Amazon’s customer-centricity, look no further than the release of Microsoft’s Windows 7 operating system. When it went on sale, as soon as Amazon sold through all its original allocation, it made the ballsy move to direct customers to competitors websites. No ‘out of stock’, or ‘awaiting stock’ messages here… Amazon is an altogether different beast.

With seperate online properties operating in United States, United Kingdom & Ireland, France, Canada, Germany, The Netherlands, Italy, Spain, Australia, Brazil, Japan, China, India and Mexico, ultimately logistically problems do arise… But here is where Amazon plays its trump card, as the retailer offers almost-instantaneous conflict resolution. If you choose not to opt for online chat or a response by email, an Amazon representative will offer to phone you back.

In Amazon’s history there have even been examples of purchases being personally delivered when the situation dictates…

…On passing back savings

Unlike most, Amazon employees don’t carry business cards. Why? They’re an unjustifiable spend. Amazon always asks, ‘does the customer need this?’ If the answer is no, then the outcome is quite clear (no business cards…) It shouldn’t surprise you to learn that every decision is examined in this way. Amazon always seeks to maintain low operating costs, so it can pass the savings back to the customer.

…On hiring

Amazon’s ethos is very much: ‘I’d rather interview 50 people and not hire anyone than hire the wrong person’

…On inspirational leadership

‘My own view is that every company requires a long-term view’ – Jeff Bezos. It is worthy to note that making a profit is not one of Amazon’s goals. Instead it employs elements of Simon Sinek’s Golden Circle Theory: ‘What, how, why’.

It is said that Amazon’s CEO – Jeff Bezos, spends a couple of days every year on the service desks to field customer feedback. Even better than that, send him an email and he’ll personally see to it that someone from Amazon responds to your query.

Procurious

Monthly Archives: March 2015

What’s the real impact of the UK 2015 budget on procurement?

How do you define trust in the supply chain?

How do you go about transforming a bribery-entrenched culture?

Is the electronic market the answer to procurement headaches?

Innovation in the public sector: the rise of the smart, super connected city

How can we procure in a smarter way?

How to secure trust when procuring across borders

Internet retailer Amazon on putting people first

Procurious Blog