David Berry on Fixing the Innovation Supply Chain

How an efficient supply chain can transform innovation on both the individual and industry levels.

Procurement innovation

Thanks to David Berry for granting Procurious permission to republish this article. David is a partner at the venture capital firm Flagship Ventures.

As a graduate student at MIT, I had the opportunity to work with Professors Robert Langer and Ram Sasisekharan in an environment rife with innovative thinking. We asked what could be possible, and were driven to pursue revolutionary technologies that were widely considered impossible. This experience instilled in me a simple but powerful credo: think big.

Innovation is difficult. If one is willing to traverse the boundary of the unknown, one should pursue the course that promises the greatest potential impact.

In exploring a wide range of subjects – energy, agriculture, medicine, and more – one approach has, in my experience, emerged as the most effective: begin with the end in mind. By identifying the problems and envisioning the preferred solution, one can define the set of constraints into which technological innovation fits, and establish a clear, albeit often difficult, path to its realization.

A fundamental requirement of this approach is an open mind, unconstrained by the subject’s idiosyncratic dogma. Those who are immersed in a field have an established view of what is possible, based on some combination of previous successes, citation bias, current limits of knowledge, and truth – and it is often difficult to distinguish these sources. But the newcomer asking the most basic questions begins to notice logical inconsistencies, from which the real constraints on solutions and technological limits arise.

Breakthroughs lie at the intersection of technological possibility and market pull. An understanding of these forces enables innovators to optimize the direction of invention. With well-defined constraints, a clear path for developing innovative technologies – one that accounts for both the known and the unknown – can be planned. This unconventional approach has consistently produced groundbreaking technologies that, if successfully implemented, revolutionize a field.

What might be more interesting, however, is the response that such progress often elicits: “This seems so obvious. Why hasn’t someone done it before?” Early in my career, this reaction troubled me; it made me wonder whether I had, in fact, overlooked something obvious. But, as my experience with entrepreneurial innovation has grown, I have realized that the response is rooted in the fact that most people are trapped in a specific doctrine, which obscures the innovative solutions that lie beyond its borders.

Companies exhibit similar behavior when it comes to acquiring innovative technologies, adhering to ineffective, restrictive processes, despite an ostensibly obvious alternative: the efficient systems that manufacturers use to secure inputs for production. In order to establish a clear, low-risk path to producing their goods at a predictable (and profitable) cost, companies employ teams dedicated to securing the relevant supply chains, controlling inventory, managing the production process, and so on – from the point of origin to the point of consumption.

In many cases, this involves maintaining relationships with a dedicated network of suppliers, with which producers share detailed product specifications. Doing so ensures that producers get exactly what they need, and that suppliers are able to deliver the correct inputs. The result is a well-defined, highly productive, and mutually beneficial working relationship.

By contrast, the innovation supply chain (the process by which companies obtain and/or develop future products and improve on their current products) tends to be characterized by inefficiency, ambiguity, and competition. And, in many cases, no supply chain is in place.

Most pharmaceutical companies, for example, lack effective innovation supply chains. But only about 15% of the drugs that the US Food and Drug Administration has approved recently were developed by the same company that markets and sells them, meaning that many major pharmaceutical companies depend on the innovation ecosystem to advance their products.

Drug companies often lament that the firms from which they are sourcing innovations do not perform clinical trials to their specifications, forcing them to repeat the work. Nevertheless, they are reticent about providing such specifications in advance – even when innovators request them – perhaps to protect their market position or internal efforts. Moreover, the same companies compete directly in the supply of innovative technologies. The result is a broken supply chain.

Just as individual innovators must challenge conventional wisdom, companies must replace the established approach to the innovation supply chain with one that more closely resembles how they create and maintain a manufacturing supply chain.

If market incumbents are willing to share “innovation specifications” (which should not be confused with innovation methods), they can develop an effective network of innovation suppliers, thereby increasing the reliability of the product-development engine. And, as with effective manufacturing supply chains, the supplier and the purchaser must build a reciprocal relationship, in which they do not compete with each other, practically or economically, in the specific activities that they are performing.

An efficient supply chain can transform innovation on both the individual and industry levels. Indeed, a common approach – defining key market needs, coupling them with solution constraints, and pushing the boundaries of current thinking – applies to all kinds of innovation. With an innovation ecosystem organized along these lines, “obvious” advances could occur significantly faster. How obvious is that?

Procurious has gathered 40+ of the biggest influencers in procurement and will be discussing innovation (among a host of other topics) at the Big Ideas Summit 2015 on 30 April. Join in, ask questions, watch exclusive video content, and contribute to all the discussions by RSVP’ing here

5 of the deadliest risks facing your supply chain in 2015

Are you prepared to manage (and ultimately overcome) these challenges head-on?

5 biggest supply chain risks

Today we’re talking risk…

As a profession we’re getting better at managing common supply chain disruptions – supplier performance management and demand forecasting used to be the cause of week-long headaches… But the advent of new technology and implementation of streamlined processes are taking some of that strain. However we are not (yet) very effective at managing the less frequent, higher impact events that effect our operations.

On Thursday 30 April, Procurious will host a world-first cost leadership think-tank at The Soho Hotel in London that will be amplified online to our 4500 members across 100 countries through a mixture of videos, interviews, social media and feature-writing. Follow along on Procurious by RSVP’ing here, then get ready to Tweet your questions and join-in with the discussion!

Below we’ve listed 5 key risks that procurement and supply chain staff face in 2015 and beyond.

  1. Cyber threats

2014 was the year that cyber attacks got real. The recent attacks on Sony Pictures exemplified that hacking has moved from a nuisance to a full-scale criminal operation. Cyber attacks not only cause significant business interruptions they also have an extremely detrimental effect on brand reputation. According to the Edelman Privacy Risk Index 71 per cent of customers say they would leave an organisation after a data breach.

We’re not only seeing a increase in the frequency and severity of cyber attacks, but companies appear to be grossly underestimating the risks attached to these attacks. The Allianz Risk Barometer suggests that 29 per cent of organisations are ill prepared to deal with cyber threats – a figure that is significantly higher than any other risk category.

  1. Health concerns 

2014 saw the largest outbreak of Ebola in written history. Over 10,000 deaths were recorded over the course of a few short months. In addition to the horrific human cost of this epidemic, it provided us with a sobering glimpse into what a global health pandemic might actually mean for our supply chains. While Ebola was contained largely to a small number of West African nations, cases began to show up in Spain, United Kingdom and the USA. Fortunately Ebola, while an incredibly deadly disease, is not highly contagious and the outbreaks were all suitably contained.

Had the outbreaks taken hold and spread further around the world, it would have likely had crippling effects on economic activity and trade flows. Nations may have been forced (as Sierra Leone was) to enforce lock-down periods where highly populated areas like shops, markets, and places of worship were shut down and people ordered to stay at home for significant periods of time.

As well as the human and economic impact of diseases, procurement and supply chain managers should also consider the impact these events have on the security of commodity supplies. The troubles in West Africa last year impacted the supply of raw materials such as cacao, rubber and aluminium ore.

  1. Weather

Extreme weather slows procurement progress. The economic impact of last years extreme weather events are summarised brilliantly in this chart produced by the Bank of America for the World Economic Forum in Davos. For some sense of perspective, the combined financial impact of 2014’s 10 most extreme weather events totalled more than $27 billion USD (that’s just slightly more than the GDP of Ecuador).

With extreme weather events apparently occurring more frequently and causing more harm to our operations, what exactly are procurement teams doing to plan for these sort of events?

  1. Brand reputation and value

Consumers are taking a far greater interest in where their products are coming from. As a result, organisations and indeed procurement and supply chain professionals are increasingly vulnerable to public scrutiny of their corporate practices.

A recent Chartered Global Management Accountant survey highlighted that 76 per cent of global finance chiefs now say that their company is prepared to lose short-term profit in order to protect its long-term reputation. The same number suggested there should be more emphasis placed on reputational risk this year. This is in stark contrast to responses collected in previous years.

Despite these suggested commitments there appears to be gap between the promise and the practice of brand protection. 60 per cent of those surveyed admitted they had no formal processes or models in place to calculate the financial impact of not managing reputational risk.

  1. Political instability

Political instability and war continue to pose threats for organisations with international operations. Events in the Ukraine, Russia, the Middle East (and a normally peaceful Hong Kong) have gone some way to destabilise the confidence of business operations in those regions.

Being the naturally curious sort we’re on the lookout for the hot topics, and big questions that influence the decisions supply chain managers will be making over the coming year. We want to know how the corruption allegations in Brazil will play out, what the drop in oil prices mean for the conflict in the Ukraine, and whether election results in Israel will bring stability to the region?

In its recently-published Reliance Index, FM Global listed Venezuela as bottom, while Norway came out on top. Read more on this story here.

Whether it’s war, hacking, weather, terrorism or brand destruction, risk will continue to play a pivotal role in the success of supply chains and indeed organisations as a whole. The question is are you prepared to manage (and ultimately overcome) these challenges head-on?

Are we facing a productivity crisis?

Are we suffering from a productivity crisis?

The International Monetary Fund (IMF) has released its latest report and with it come grave warnings for China, Brazil and others. However, the UK comes bottom of the pile when it comes to measuring productivity.

According to the new World Economic Outlook:

[The] analysis suggests that potential output growth in advanced economies is likely to increase slightly from current rates… In contrast, in emerging market economies, potential output growth is expected to decline further, owing to ageing populations, weaker investment, and lower total factor productivity growth as these economies catch up to the technological frontier.

Yes, although demographics are catching up with some of the larger developing economies, China’s working-age population is set to shrink rapidly – to cite but one example.

Static productivity

As much as technology gives – it too takes away. In fact the report claims that it’s one of overriding factors contributing to falling productivity levels around the world.

When advanced economies once saw a  boost in productivity through the use of technology,  the effects of such a boost have been in decline for a long time since (even before the economic crisis). Now however, emerging markets are becoming more turned on to technology – which, the IMF noted may curb the potential for new growth.

The Economist notes: Productivity growth will also weaken in future, both because the developing world has less room to catch up with rich economies and because productivity slowdowns in America tend to spill over to other countries. Economic disappointment is an increasingly global affair.

You can read the report in full here.

The latest [March] findings from BDO’s Business Trends Report compounds matters further, revealing that productivity in the UK is 21 per cent lower than the average amongst the G7 countries, including Germany, the US and France. Stating that Britain’s workers were less productive in the final quarter of 2014, with output per worker falling 0.2 per cent.

On the UK’s continuing poor labour productivity performance, BDO partner Peter Hemington said:

“While it is encouraging to see strong business confidence, the UK’s continuing poor labour productivity performance is a very significant concern.”

“Although employment growth in recent years has been strong, much of this has been in part-time jobs,” he said. “Productivity ultimately determines our prosperity so it is a crucial area that must be addressed. Policymakers of all persuasions must take on this productivity puzzle.”

The Daily Telegraph’s assistant editor Jeremy Warner makes the controversial point that: “the fall in productivity might have something to do with an apparently inexhaustible supply of cheap workers, both from mass immigration and greater employment participation, particularly among the elderly. Employers have chosen cheap and easy-to-get-rid-of man hours over the capital cost of investment. In this sense there is a downside to Britain’s flexible labour market.”

He further compares the predicament to that of the United Kingdom’s closest European neighbours – France. “One of the reasons for relatively high rates of French productivity is that the labour market is so hedged around by protections that there is a positive incentive for French companies to employ as few people as possible. The costs of making workers redundant act as a powerful deterrent to taking them on in the first place. This is not an affliction that British businesses are likely to suffer from.”

Do we have a productivity problem? Over to you!

`Our People Are Our Greatest Asset.` Erm… Really?!

Our people are our greatest asset - Sigi Osagie

This is a guest post by Sigi Osagie – Sigi is a leading expert on effectiveness in Procurement & Supply Chain Management. He helps organisations and individuals achieve enhanced performance growth to accomplish their business and career goals.

A recent post by Stephen Ashcroft reminded me of a point I raised at a leadership round-table discussion a while ago. I smiled to myself as I remembered the looks on the faces of my co-panellists when I started talking about the ubiquitous phrase, “Our people are our greatest asset”. 

It’s one of the most common statements found in company annual reports and regurgitated by many senior executives. Yet, as soon as those same companies hit financial difficulties their people are the first thing they jettison, typically through redundancies, plant closures, etc.

Strange. And interesting.

Why would you get rid of your “greatest asset” so readily in difficult times?

It’s a bit like me being in a canoe on a river, paddling along merrily with my super-duper 4K-UHD TV and my wife, who I claim is my greatest asset*. And then I discover that the canoe has a hole and is taking on water – we risk getting submerged and drowned with the weight the canoe is carrying. I need to reduce the weight quickly for any chance of survival!

What do I get rid of: my 4K-UHD TV or my wife? Hmm… she does weigh more than the TV… but she’s my “greatest asset”

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Financial difficulties are often complex challenges for most organisations. And I’m sure quite a few resort to headcount reductions only as a last resort. But, perhaps, it’d be better for more companies to be more honest and say that their people are their “most dispensable assets”.

Actions do speak louder than words. So if people are really companies’ greatest assets, companies must demonstrate this not in words but in actions: let your corporate mandates and leadership actions show what you truly think of your people.

CPOs may not be the executives who make such “greatest asset” claims in company annual reports. But they face the same challenges of balancing ethical leadership sensibilities with the realities of organisational life. Procurement leaders at all levels must ponder key underlying questions, like;

  • Are my people really my greatest asset in my Procurement function?
  • How vital are my people to my personal success and the success of the enterprise, relative to other things like strategy, processes and systems?
  • How do I show that I value my people and their contribution to our collective success in my everyday leadership style?

These may be difficult probes for some Procurement leaders to contend with. Others may feel confident and justified in their personal modus operandi. Whatever the case, it’s a truism that most of us will spend the majority of our lifetime at work. So finding our mojo, or bringing out our best selves, in the work we do is a big part of our fulfilment and success.

Leaders have a unique role to play in helping people reveal their abilities to excel and succeed. This holds true for whole enterprises as for functional areas like Procurement. Yet, sadly, but in truth, majority of organisations don’t do enough to expose and leverage the capabilities of their people.

When we manage Procurement functions, or any other organisations, in ways that don’t release people’s enthusiasm, energy, excitement, emotion, effort and expertise – what Charles Handy called the ‘E’ factors – we fail the individuals and we fail the organisation. An effective leadership approach that nurtures individuals’ talents and provides opportunities to grow is one of the critical conduits to sustain the psychological contract between employee and employer. It’s a vital mechanism to foster staff motivation and engagement, which, ultimately, fuel performance success.

Register for the Procurious Big Ideas Summit

Procurement organisations that are able to unlock the performance capabilities of their people are always places of great effervescence. They fizz with the collective passion of the purchasing people, the same people who do the work and deliver performance outcomes that enhance Procurement’s enduring success.

People are indeed the greatest asset of any Procurement organisation. And their harnessed talent is the lifeblood of the function. But ask yourself this: Does our approach to managing our Procurement function bring out the best in our people?

NOTES

*In truth, my wife is not and never will be “my asset”; she’s my co-pilot in life.

We’ve identified Sigi as one of procurement’s key influencers – he will be appearing at our inaugural Big Ideas Summit 2015 on 30 April in London. We hope you can join (digitally!) – catch all of the day’s action here on Procurious and get access to exclusive interviews, video content and discussions. RSVP now and get ready to submit your questions.

Behind the supply chain curtain: 5 questions procurement needs to ask

The five questions Procurement need to ask to avoid a Nanna’s frozen berry issue

Lessons that procurement needs to learn to avoid a Nanna Berry issue

It’s a tense moment in the Emerald City. Dorothy, Tin Man, Lion and Scarecrow stand trembling before the giant visage of The Great and Powerful Oz as he thunders and roars, complete with jets of flame and billowing green smoke. Toto, Dorothy’s little black terrier, slips away unnoticed to the side of the room and pulls back a curtain to reveal that the terrible Oz is in fact a short, grey-haired gentleman frantically manipulating a control panel and speaking into a microphone.  

We’ve all been guilty of accepting the facts presented to us by an organisation without pulling back the curtain to confirm them ourselves. As customers, our powers of investigation are often limited – there’s only so much you can glean from scrutinising the ingredients and country of origin labelling on a box of cereal and you’re unlikely to get very far by interrogating a uniformed teenager stacking the shelves at Woolworths or Coles. A business, however, has the opportunity to gain a great deal of visibility and control over its supply chain, but only if we are willing to do the hard work and get to know their supplier.

The recent product recall of Nanna’s frozen berries across Australia was a very public demonstration of how badly things can go wrong in the supply chain. In mid-February this year, over a dozen cases of Hepatitis A were reported by people who had consumed frozen berries sourced from China via Chile. The company immediately issued a recall but the impacts were enormous: financially, the parent company Patties Foods suffered a 12 per cent fall in share price, while $1.7 million worth of unsaleable inventory sat in their warehouses. The blow to the company’s reputation and customer trust was even more serious, with daily headlines, a class action being threatened and furious comments flooding social media. Red Cross even voiced concerns over potentially infected blood donors.

In January 2013, UK supermarkets including Tesco, Iceland and Lidl were engulfed with a similar supply chain scandal involving meat. Frozen burgers and frozen ready meals labelled as beef sourced from Romania and Poland were found to contain horse and pig meat, leading to a huge customer backlash that saw Tesco drop €360 million in market value, burger sales tumble by 41 per cent and ready meals fall by 15 per cent.

In fact a snapshot of a recent 30 day period identified 47 product recalls in Australia alone. So why did these companies make such poor sourcing decisions that left them vulnerable to risk?

Well firstly, the evaluation team may have put factors such as price and availability above equally-important factors like reputational risk. In an environment where every dollar is a prisoner to its owner, snap price decisions are made without thought to total cost, including risk. The leading procurement managers measure risk by how much it would cost the business if the worst happened, making the total cost argument even more persuasive.

Secondly, have we accepted the Oz-like visage presented by the supplier without taking the important next step of delving a little deeper? Who supplies your supplier? And, in turn, who supplies your supplier’s supplier? Investigating your supplier’s suppliers can be a courageous decision – in many cases, a company may be justifiably worried by what they might find.

So, how can businesses both large and small ensure that a frozen berry or horsemeat-type scandal doesn’t happen to them? The answer lies in taking the well-known financial services compliance mantra of “know your customer” and adapting it into “know our supplier”.

Procurement professionals need to be able to confidently trace the elements used to create their product back to its source, secure in the knowledge that risk mitigation and regular auditing is in place to protect the company’s profits and reputation.

Some typical due diligence questions might include;

  • How financially stable is the supplier?
  • What quality systems are in place to ensure the products or services supplied are of a consistent and high quality?
  • Who owns the supplier?
  • Where does the supplier obtain their goods from?

The first three are typical questions to ask, and ask them we do, but it’s the last one that we need to spend more time and to “look behind the curtain” to find out more about the supply chain. So when we do draw back the curtain what do we need to find out? A good place to start is;

  • Has your supplier done the same amount of due diligence with their suppliers as you have done on them

The walk free foundation http://www.walkfreefoundation.org/ discusses the obligation and opportunity for procurement and supply chain to eradicate modern slavery, a huge and noble venture. One of the ways it advocates this is to audit continuously your supply chain to ensure its slave free. This should be part and parcel of what we do and whilst we are ensuring it is slave free, we should check that the suppliers through the supply chain can actually deliver what the value that each stage brings

To summarise, here are the five vital questions that procurement should be able to answer:

  1. Who, exactly, is the supplier?
  2. Who are the supplier’s suppliers? And who are the supplier’s suppliers’ suppliers (and so on)?
  3. What are the risk factors associated with using this supplier?
  4. What systems are in place to minimise or eliminate risk?
  5. What systems are in place to ensure the product or service is of a consistent and high quality?

So don’t wait for Toto to pull back the curtain, get to know your supplier and pull back the curtain yourself. 

Unfortunately the threat of risk looms large over our profession… In 2015 we’re facing ongoing political instability, increasingly extreme weather conditions, as well as newfound threats from hackers in the digital landscape. We’ll be expanding on these at our Big ideas Summit held in London on 30 April (and digitally – on Procurious, for those wanting to join the discussion online).

We’ll be tackling all the Big Ideas that are set to shape procurement now and in the future with a goal to inspiring a new generation of business intrapreneurs – people who can think outside the box – to drive innovation and lead change in large organisations. For all of the details, to see who’s speaking and how to get involved head to www.bigideassummit.com – don’t forget to RSVP on Procurious here.

Slavery in Supply Chains – A Modern Day Risk

The case of the 550 fishermen freed from slavery conditions in Indonesia (as reported on Procurious), highlights a wider issue of slavery in supply chains across the globe.

Modern slave trade in fast fashion and electronics

We might think that slavery is a thing of the past, or limited to the developing world, but increasingly that’s not the case. A few weeks back, Procurious highlighted the issue of apparent ‘sweatshop’ conditions here in the UK in the fashion industry, where workers with poor English skills are being paid less than half of the minimum wage to produce garments for high street stores.

Not many people realise that the clothes they wear, the mobile phone they use and the food they eat can often come from supply chains where there are conditions of slavery or forced labour. And as demand for products grows, along with the expectation of paying lower prices on the high street, these incidence of these conditions is increasing.

Slavery Bill

The issue of modern day slavery is being given focus at the highest level of government in the UK. The Modern Day Slavery Bill is currently being debated in the UK parliament and is aimed at forcing large companies to disclose the actions they have taken to ensure that their supply chains are free from slavery, trafficking and child and forced labour.

However, there are criticisms that the bill doesn’t cover everything it needs to. According to an article in The Guardian newspaper at the end of March, the current wording of the bill only requires the large companies to report on supply chains which have parts in the UK, or where products are brought back to the UK for sale.

This omission potentially renders the bill powerless to stop UK-based companies profiting from slavery in overseas supply chains, particularly where there are wholly owned subsidiaries in other countries. There are also criticisms over a lack of consistency in reporting, as firms will not be told what to include, as well as how this law would be enforced.

Individual Responsibility

While it will be interesting to watch the debate on the new bill in the UK, particularly as the General Election approaches, there is also an argument for individual and organisational responsibility.

According to CIPS, businesses can take three basic actions to combat slavery in their supply chains:

  1. Understanding and commitment – know what modern day slavery is and commit to taking a proactive role to end it.
  2. Leadership on auditing – engage in rigorous audits of supply chains.
  3. Accountability – be accountable for business relationships and work to eliminate vulnerabilities in supply chains.

As Procurement professionals, we have the ability to influence what is happening in this particular area through our interactions with supply chains and second and third tier suppliers.

  • Putting into place POLICIES to prevent, detect and eradicate modern slavery within their own operations
  • Establishing PROCESSES to identify vulnerabilities
  • PLANNING for situations where corrective action is needed

Supply Chain Risk

So why are we focusing on this? At the Big Ideas Summit on April 30, some of the leading procurement influencers will be discussing Risk and what the ‘blind spots’ are for the profession. In looking ahead towards 2030 and beyond, it’s worth considering that that modern day slavery could still be something that is present in supply chains and something that organisations will have to deal with.

Is this a risk that can be mitigated? Can it be passed on to someone else? From our point of view as procurement professionals, the answer to both of these questions has to be ‘no’. The only way to look at and tackle a risk like slavery is to meet it head on. And this can come down to taking responsibility at a personal and organisational level.

Next time you’re in the shops, think about where that t-shirt was made or where that coffee came from. When you’re dealing with suppliers, do you know what their suppliers are doing? What are the policies you have in place and are you collaborating with suppliers closely enough?

This won’t be solved overnight, but if each individual takes responsibility, then it can be beaten in time.

Have you got any thoughts on supply chain risk and modern day slavery? Why not pose a question to our experts at the Big Ideas Summit on this and see what they think? Get involved at www.bigideassummit.com, join the Procurious Group, or add to the conversation on social media using the hashtag #BigIdeas2015.

In the meantime, here are some of the top stories making the headlines in procurement this week.

Fashion brands make positive strides towards detoxing supply chains 

  • In an update of its Detox Catwalk campaign, which charts the progress by 18 companies, Greenpeace East Asia has listed their achievements and commitments over the past four years.
  • The companies represent 10 per cent of the $1.7 trillion dollar apparel and footwear industry, the environmental campaign group said. Brands including Adidas, Benetton and Limited Brands, the parent company of Victoria’s Secret, were praised for ensuring data on hazardous chemicals in their supply chains is published on the global online platform IPE.
  • C&A and H&M are among brands that have eliminated PFCs, while Levi Strauss, Mango, and Marks and Spencer are among fashion companies working towards the elimination of APEOs and phthalates in their supply chain.
  • However, Nike and Li-Ning were criticised for not doing enough to ‘detox’.

Read more at Supply Management

Is this the biggest threat to Alibaba?

  • JD.com, China’s largest online direct sales company, is set to be the new challenger to ecommerce giant Alibaba. It has announced UNIQLO as the newest international brand to partner with the company by opening a flagship store on its marketplace platform, enhancing its reputation further within the industry.
  • The new UNIQLO flagship store is part of JD.com’s industry-leading marketplace, which is increasingly becoming the platform of choice for both domestic and internationally renowned brands and manufacturers seeking to reach the company’s massive base of active Chinese shoppers. The addition of UNIQLO adds to JD.com’s growing reputation as the go-to destination for shoppers looking for authentic, high-quality goods in a broad and growing range of categories.
  • UNIQLO will also become the first international clothing brand on JD.com’s marketplace platform to warehouse its merchandise in the company’s facilities. By using JD.com’s complete logistics solution, UNIQLO is enabling customers in eligible areas to take advantage of JD.com’s unparalleled same- and next-day delivery service.
  • JD.com is the largest online direct sales company in China. The company operates 7 fulfilment centres and a total of 123 warehouses in 40 cities, and in total 3,210 delivery stations and pickup stations in 1,862 counties and districts across China, staffed by its own employees. The Company provided same-day delivery in 134 counties and districts under its 211 program and next-day delivery in another 866 counties and districts across China as of December 31, 2014.

Read more at Supply Chain Digital

Bulgaria among Top 10 in EU by Transparency in Public Procurement

  • Bulgaria is among the top 10 in the EU by transparency in public procurement and among the top 5 by electronization of the process, according to Economy Minister Bozhidar Lukarski.
  • Citing statistics of the Sofia-based office of the European Commission, Lukarski noted that Bulgaria was among the top 10 in the EU by transparency in public procurement and among the top 5 by electronization of the process.
  • Lukarski vowed that e-public procurement would be universally available in the EU by 2020.
  • He expressed satisfaction that the European Commission had backed the attempts of Bulgaria to boost the development of the country’s northwestern region, the poorest region in the EU.

Read more at Novinite.com

Basware buys UK’s e-procurement network Procserve

  • Basware, a provider of P2P, e-invoicing and network connectivity solutions (and now trade financing as well), said the deal with public sector e-procurement vendor Procserve “significantly strengthens Basware’s position in the public sector, combining Procserve’s UK government experience with Basware’s established global expertise in purchase-to-pay and e-invoicing.”
  • Spend Matters offered their thoughts on the acquisition, saying: ‘It is smart for Basware to use its appreciating currency and balance sheet to acquire volume, but also to purchase technology that could potentially be used elsewhere in its solution portfolio (outside of just targeted efforts in the UK public sector).
  • ‘On a comparative basis, Basware has continued to struggle to date on the e-procurement side of P2P, and while Procserve has focused on the UK public sector, there might be elements of the solution that architecturally and on the product-level could improve Basware’s overall capabilities to more effectively compete against providers like Coupa, Ariba, SAP and Oracle on a global footing for integrated P2P deals.’

Read more on Spend Matters UK

Order and procurement progress in Brazil

Procurement in Brazil

We quizzed Procurious members Luiz Paganini and Elaine Santana on the state of procurement in Brazil. Here is what they had to say…

Procurious asks: How do you think procurement differs in your country, as opposed to elsewhere in the world?

Luiz: I believe that procurement in Brazil is still in its early stages. Our business culture is not used to have a person dedicated to Strategic sourcing and another person dedicated to spot processes, what we see most in companies is a person responsible for both jobs, which in my opinion, affects the performance in both cases. Saying that, Brazil does not have a good logistics infrastructure, despite its great potential to have it. Besides that, the experience you gain working in this area is really unique, because, you can work with many types of materials, in many types of industries and basically, if you have experience in procurement, you are able to work with many different materials and products.

Elaine: Brazil is now looking for strategic sourcing specialists, which was not something considered important about 5 years ago. And it seems that only the major companies are looking for this specific skill…

Do you know how many other procurement professionals are in your country?

Luiz: It really depends on the importance companies give to procurement departments, the company’ size and the material’s complexity. As an example, I have worked in teams with almost 60 buyers and contract managers, and I currently work in a team with 3 buyers, which manage contracts and issue POs.

How did you get started in procurement?

Luiz: My first internship was in a chemical company and I was the international purchasing intern. The funny thing about it is that I really wanted to get a job where I could use my English, because I really enjoy speaking it. When I started I used English every day – what made me fall in love with procurement was my first manager, who explained to me the importance of procurement for a business and what benefits can be reached by doing an efficient job in this area.

Elaine: I was in an automotive company as an assistant in Logistics. The role evolved to Foreign Trade and then Purchasing.

What do you see in procurement’s future in your country and how can social media play a role?

Luiz: I reckon that Brazil is moving forward regarding procurement techniques and tools and I suppose that this movement will lead to a huge transformation where we will see more contract managers, giving the necessary quality and generating better results in companies all over the country.

Regarding social media, I believe that it has strengthened our relations with another professionals all over the word, which results in exchanging and sharing experiences, updating these professionals and making them to want change (which in my opinion, is a really good thing).

Elaine: I’ve noticed that Engineers are being targeted [specifically] in this area – and mainly those in the automotive industry. So it looks like people are looking more and more for technical skills in this area.

Why did you join Procurious?

Luiz: Being able to connect with other procurement professionals from many different countries has been really good to me, because it makes me see that I can be the change needed in this area. Besides the fact that I really would like to build an international career, so I reckon that building a strong network in the procurement area is a huge step for me to achieve it.

What are you hoping to get out of the network?

Luiz: Knowledge, contacts, jobs opportunities and partnerships.

Elaine: I hope to get to know more people and learn how procurement works in other countries.

If you’d like to be featured in a future instalment and are keen to fly the flag for your country, why not drop us a line here?

Realising spend savings can leave you wide of the mark

saving money in procurement

It might be seen as a radical point in some quarters, but the first objective of procurement is to save money…

There are clearly other objectives but the primary task remains the same, to deliver cost-effective solutions from third party spend for the business, this is something of a dilemma for procurement and the major customer of procurement – finance. Why is this a dilemma, well, in many cases the finance community do not recognise the savings reported or identified by procurement because they do not actually get to the profit & loss statement. This very simply leads to a disbelief in the claims and ultimately the value of procurement to the organisation.

When CFO and CEOs are polled about what they want from procurement they will in my experience (and various surveys) state three main things:

  1. effectiveness (savings)
  2. efficiency (lower cost of procurement)
  3. risk management / alleviation

Procurement Performance Metrics: Which metrics does your organisation use to measure procurement performance?

Procurement Performance Metrics:

Source: From Data to Profit The Financial CPO – Jonathan Webb 03/12/13, in association with Bravo Solutions. First Published in Procurement Leaders.

This has not particularly changed during my 28 years in the profession across line procurement, consulting and procurement outsourcing. At the same time procurement professionals as well as the Chartered Institute of Procurement (CIPS) the professional body for the profession continue to press for the function to be taken more seriously and strategically.

In my opinion procurement is not recognised in many organisations as a source of competitive advantage for the following reasons:

  1. procurement and negotiation is not understood as an area of competitive advantage
  1. the perceived ROI from investing in procurement is not high enough
  1. other corporate activities / strategies are more important and generate a better return
  1. a general disbelief that the suggested savings can be actually delivered in the business, and ultimately to the P&L statement

It is clear (to me) that the savings opportunity from the effective management of third party spend can be high with the application of the right approaches, and the savings opportunity is of the order 15% on the total external spend of the enterprise.

If procurement is to be treated more favourably it needs to ensure that the benefits are delivered, captured and flow to the P&L. In the same way that profit delivered from new sales flows directly to the income statement. But the question is why do the savings not materialise?.

From my experience across every industry sector the answer lies in the detail, and specifically the common impediments to savings realisation. These are:

  • Institutional lock out
  • Contractual lock out
  • Content compliance by suppliers
  • Budget reduction inertia / budget flow down
  • Lack of knowledge / skills in best practise
  • Cost of delivering savings (overhead)

In simple terms all businesses can save money on the cost of goods and services from third party (external) suppliers, however there are a series of factors that limit even the best businesses from achieving, and more importantly realising, the maximum savings they can.

The total typically that any business can reduce these external costs by is 10-20%; the average company could save 15% from a standing start. So taking a business spending £100m externally could deliver a £15m gross reduction.

However this is often not realised for a variety of reasons. These are:

  1. Institutional or internal cultural lock out – for instance spend areas like legal services, audit, consultancy are controlled by senior stakeholders who will not allow procurement to interfere. This might relate to 8-10% of the saving opportunity. Thus reducing the £15m by £1.2-1.5m.
  1. Contract lock out – these are contracts already awarded and in term, that are felt to be locked out to the end of the term. This might be 10 – 15% of the saving – reducing the £15m by £2.25m.
  2. Contract compliance by stakeholders / users of the deals – not everyone in a business will take up the deals that are put in place. This might be deliberate or because their is a lack of knowledge (i.e. no systems to highlight the deals). This might range from 5-10%.
  3. Contract compliance by suppliers to the deals agreed – this is where suppliers charge rates higher than the agreed contractual rate to different divisions / stakeholders / depts. This might range from 1-5%
  4. Budgets are not reduced to reflect the savings achieved (most permanent in indirect goods and services), resulting in budget holders spending the saving on more goods and services. This is typical in almost every business (except for direct goods and services). It will often range from 33.3 – 50% on average.
  5. Lack of knowledge / skills to apply best practice thinking to the purchased goods or services, thus failing to get the full value of cost savings available (as might be enjoyed by other buyers in other companies). It will typically range from 5-10% of the saving opportunity.

The final element to consider is the cost of procurement. The list above suggests that potentially the best case for savings getting to the bottom line of a business i.e. fully realised would be 67.3% and worst case none (0%) getting through. The cost of procurement to a business will typically be 1-3% (as a proportion of spend). i.e. a spend of £100m, might need staff, overheads and systems totalling £2m p.a. (average of the range 1-3%) to manage. Thus a 10% or greater impact on savings realisation, or put another way a significant decrement to the savings at a net benefit level.

Cost of Procurement in Relationship to Spend Managed 2014

graph2Source: CAPS Research July 15’ 2014

Putting this in in the most simple terms means that for the worst performing function procurement is a negative net cost to the business and in the best only half of the savings opportunity is impacting the P&L.

The critical question is how do we ensure that the savings impediments are overcome, and the savings are realised?

There are a range of factors that can support overcoming these barriers, however one stands out for me – people TALENT or expertise knowledge enshrined in subject matter experts. Clearly there are a whole range of other factors encompassing change management to technology to mandate – oh, mandate the golden ticket, or so some believe amongst procurement professionals.

The reality is that very strong capability will overcome institutional lock-out for example through the deployment of SMEs who really understand how to manage complex spend used and managed by executives. Similarly locked out contracted spend can be unlocked and re-negotiated by specific category experts who know which levers to pull. Knowledge of leading edge technologies and their application will enable the capture of best practise approaches to spend management, budget reduction and communication that ensures deals are adhered to.

The topic of how to remedy the savings impediments could, and may be another paper in itself.

However the answer lays in talent, people talent, the application of subject matter experts whether from within the business or from expert external talent – career interims, for example having made their career from their expert procurement knowledge – will go a long way towards overcoming savings delivery impediments.

So how do you secure and keep up to date talent in your business?

550 enslaved fishermen freed from remote Indonesian island

Hundreds of fishermen slaves freed

The Indonesian government announced this week that it is making moves to return foreign fishermen (mostly from Myanmar) to their home country after an Associated Press (AP) report revealed they were being held under conditions of slavery.

The report detailed the plight of hundreds of men and women, who were trapped in the Indonesian village of Benjina. It is alleged that the men and woman were moved (in some cases sold by slave traders) to Indonesia to work on fishing boats. The working conditions on the Indonesian fishing vessels were dire. The AP reported that workers were not paid, were forced to drink unclean water, work 20-22 hour shifts without days off and are beaten if they try to rest or complain.

Once the boats return to port, their catch is emptied and then shipped to Thailand where it enters global seafood supply chains. The AP report highlighted several high profile American brands that were carrying products sourced from the same Thai factories that were buying seafood from the slave vessels. The organisations named included Kroger, Albertsons, Safeway, Wal-Mart, and the nation’s largest food distributor, Sysco. As well as distributing to the US the report also highlights that seafood from these factories is making its way to Europe and Asia.

US government leaps to action

This case, (one among others), has prompted action from the US government, with Barack Obama signing an executive order that recently came into effect, requiring all government contractors to ensure their supply chains did not utilise slave labour.

It also looks likely that U.S Rep. Carolyn Maloney will reintroduce her proposed legislation that will force large firms (those with over $100 million in global receipts) to spell out their policies for ensuring slave labour stays out of their supply chains.

Speaking on the complexity of managing global supply chains Jeff Tanenbaum, a partner at Nixon Peabody’s labor and employment practice said: “It is a difficult aspect of supply chain management and compliance operations. When talking about potential illegal and or horrific behaviours it can be very difficult to uncover them, and it is hard to effectively address them until they are uncovered.”

While the news that workers from Benjina are being sent home is good, it seems likely that for as long as companies and consumers in the US, Asia and Europe demand the lowest possible prices for their seafood that products sourced through slave labour will find their way into the supply chain.

Until supply managers alter their approach to purchasing seafood and create more collaborative approaches to these problems with their suppliers, it seems certain we will continue to hear reports of such incidences. The quote below sums up this sentiment effectively…

If Americans and Europeans are eating this fish, they should remember us. There must be a mountain of bones under the sea – Hlaing Min, runaway fisherman Benjina

Big Ideas 2015: How to be a Digital Delegate and get involved

Big Ideas Summit 2015 - how do I get involved?

Chances are if you’ve visited Procurious in the last few weeks you’ll have seen mention of something we‘re calling the Big Ideas Summit 2015 that‘s due to kick-off in London on 30 April. Good for you, but why should I care?‘ you might ask…

You’ve read all about our Influencers, the issues affecting procurement and supply chains in 2015, maybe even come-up with a question or two – but now you want to be a part of it.

It just so happens we’re billing the Big Ideas Summit 2015 as a ‘digitally-led’ conference. So it doesn’t matter where you are in the world, you can still get involved as a Digital Delegate and catch the day’s discussions as they happen. Interactivity is key!

How can I participate?

If you haven’t already make sure you’ve joined our Big Ideas Summit 2015 Group on Procurious. Click on the link or find it by visiting the ‘Groups’ area.

Beforehand make sure to submit your questions for the various sessions (and Influencers) on the Big Ideas Group page. You can get all of the schedule details here so there’s still plenty of time to come up with a question.

In the run-up to 30 April we’re posting articles that shed light on our key topics of risk, talent, technology and cost. As well as interviews with our Influencers, group discussions, and guest blog posts.

On the day: Keep your eyes peeled – the Group will be THE place for getting the updates from London as they happen.

We’ll also be live-tweeting from the event. Join in by following along with our tweets, and Tweet us @procurious_ using #BigIdeas2015 so we can pick your questions up!

Facebook user? We’ll be updating Facebook throughout the day with photos of key moments and our Influencers in action.  You can like Procurious on Facebook here.

Keeping the discussion going: Following the event we’ll be posting footage from our sessions, and our Influencer’s very own 3-minute ‘Big Ideas’ videos.

Once again, the only way to access these videos will be to join the Group.

Invite others: The more people that join the discussions and get involved, the better!

Use the Procurious ‘Build your Network’ feature to send invitations to your LinkedIn and email contacts. Tweet your Twitter followers (remembering to use #BigIdeas2015), post to your LinkedIn network, or Facebook news feed.