Are You Sick Of Your CFO Asking ‘Where’s The Money?’

Where’s the money? – Marisa Menezes launches The Faculty’s Making it Stick research at the 2015 CIPS Australasia Conference.  

Marisa Menezes launches The Faculty’s Making it Stick research at the 2015 CIPS Australasia Conference.

Consider this – you’re a successful CPO with a world-class Procurement team that’s brilliant at negotiating great savings and other value. Six months ago you successfully identified and negotiated contractual benefits worth millions with a critically-important supplier – at the time, there were plenty of high-fives and back-slapping amongst the team as you signed the contract and handed it over to the business owners… but fast-forward six months to the end of the financial year, and your glowering CFO calls you into his or her office to ask those three dreaded words – where’s the money?

Marisa Menezes, GM of The Faculty Management Consultants, has made the assembled procurement professionals at CISPA 2015 very uncomfortable. She’s describing a nightmare situation that has kept many a CPO awake at night – millions of dollars in identified value won by procurement failing to make its way to the bottom line, a despairing CPO and a furious CFO. The potential consequences of poor benefits realisation are frightening – apart from the obvious anguish of seeing savings going down the drain, it damages the procurement function’s credibility. Strategically-vital supplier relationships also suffer, as maverick spend damages vendors’ margins and restricts the purchasing organisation’s ability to negotiate future contracts in good faith.

But it’s not all bad news – The Faculty has a solution for Making it Stick.

Earlier this year, The Faculty Roundtable commissioned an investigation into best-practice benefits realisation, and our researchers have conducted a series of interviews and data analysis to unearth the factors that prevent Procurement’s savings from hitting the bottom line. The results were boiled down to five key hurdles to Making savings Stick, namely:

  • A lack of enterprise-wide ownership and alignment with Procurement’s targets;
  • Silo-style working environments rather than true cross-functional collaboration,
  • Maverick spend and other non-compliance that undermines Procurement’s gains and damages supplier relationships
  • Unclear benefits definitions, measurements and validation processes that haven’t been agreed upon across the organisation, and
  • An immature cost-conscious culture that hamstrings CPO-level efforts to expand the value Procurement contributes to the organisation.

No wonder CPOs are having trouble sleeping at night – as much as 50 per cent of contracted savings are not making their way to the bottom line of Australia’s leading companies, which is equal to $138.5 million dollars across the 16 major organisations that participated in this research. Overseas, the figures are even more disheartening: a report by Aberdeen Group in 2011 revealed an industry average of only 8 per cent, an incredibly low figure.

The Faculty’s Making it Stick research a call to action for CEOs and CFO to support their Procurement functions to dramatically improve benefits realisation. It requires no less than an organisation-wide change management program to drive the right behaviours around compliance and cross-functional collaboration, and this must be driven from the C-level if organisations intend to fully realise the benefits of their supplier relationships.

Marisa takes the audience through six different “levers” a CPO can pull to drive savings all the way to the bottom line:

  • Prove it – moving the Procurement team’s focus from projected to validated savings
  • Drive cross-functional collaboration, focusing on shared goals and language
  • Expand the focus beyond costs – only possible once a cost-conscious culture is in place
  • Align to business targets – without alignment, CPOs risk having their hard-won benefits dismissed as irrelevant
  • Build rigorous benefits definitions, measurement and agreed-upon validation methodologies
  • Focus on compliance – without a culture that values compliance, nothing will stick.

The Faculty’s Making it Stick report is now available for free to download. Armed with this call to action, CPOs have the tools they need to drive meaningful change, make savings stick, and sleep better at night.

Member Exclusive – Make Your Savings Stick

The Faculty’s Research Consultant, Hugo Britt, announces the release of ground-breaking procurement research exclusively to Procurious members.  

Download the exclusive report on Procurious

Astoundingly, more than 50 per cent of contracted savings are not making their way to the bottom line of Australia’s leading organisations. This troubling disconnect between contracted and realised savings has the potential to undermine the very credibility of the procurement function.

The Faculty’s latest research paper ‘Making it Stick’, is a call to action for procurement teams, CEOs and CFOs to address the fundamental shortfalls that are costing organisations hundreds of millions in unrealised savings.

You can access ‘Making it Stick’ from the  Procurious community feed.

Our report highlights exactly where organisations are coming unstuck in the process of realising savings and provides actionable pragmatic steps that can be followed to ensure contracted savings hit the bottom line.

What we uncovered

Our research, currently available exclusively on Procurious, identified that:

  • 29 per cent of organisations have no defined benefits realisation program for tracking savings
  • 58 per cent of interviewees were unable to estimate the precent of negotiated savings that actually reached the businesses bottom line
  • Only 20 per cent of organisations incentivise their staff on savings delivery beyond contract execution
  • Weaknesses in benefits tracking programs are shared across public and private organisations
  • Significant change management needs to occur before organisations can fully realise the savings they have negotiated
  • There is a lack of definitions and measurements around savings tracking and benefits realisation that undermines procurements efforts in this area

Why you should download “Making it Stick”

This timely and practical research report will enable you to:

  • Understand why organisations fail to deliver on contracted savings
  • Access a roadmap to ensure that your contracted savings hit the bottom line
  • Hear from industry-leading organisations that have got it right
  • Access checklists, tools and measurements in order to define and validate your success in this area

Download our latest research from the Procurious Community feed www.procurious.com/community and make your savings stick.

Inside China’s Red Supply Chain

Does China’s emerging ‘red supply chain’ pose a threat to the wider tech industry?

China's red supply chain

The emergence of a ‘red supply chain’ in China is exerting increasing pressure on existing suppliers in the fiercely-competitive technology sector. The move to cultivate a domestic supply chain is the brainchild of Chinese authorities and is looked upon as providing a much-needed shot in the arm to the country’s tech manufacturing sector.  Great news for China and its economy, less so for the countries that rely on China’s trade such as Taiwan.

Do you prefer your chips salty… or with an added sprinkle of competition?

Taiwan is feeling particularly threatened as this means China will depend less and less on imported parts (such as semiconductors and their ilk). And while predictions from some quarters point to Taiwan’s IT industry being replaced in the near future, others are confident in Taiwanese companies’ ability to sustain lead with smart manufacturing technologies.

Plans were also unveiled in May to set a 10-year plan in motion that would revolutionise manufacturing. The “Made In China 2025” initiative will be underpinned by smart technology and help China to shed its tired image and repackage itself as a respected player on the world’s stage.  With $20 billion already in the pot, a further $161 billion investment over the next decade will help to move China further away from its dependence on imported chips.

Earlier this year Chinese Vice Premier Ma Kai – speaking at CeBit, the world’s largest ICT trade fair, commented: “China intends to implement Made in China 2025 – which will change it from being just a big production country to a very powerful production country… Support for ICT, and innovative breakthroughs in ICT, will be an important link in this chain.”

China’s ability to manufacture chips on its own doorstep will no doubt send shockwaves through PC, smartphone, and tablet supply chains. Taiwan has long been the go-to for semiconductors, and is a highly profitable sector of the Taiwanese economy. The sector is currently valued at $70 billion and is expected to grow a further 5.5 per cent over the coming year.

In quotes obtained by Taiwan Business TOPICS Magazine, Christopher Thomas – co-head of consultancy McKinsey & Company’s Asia semiconductor practice, said that: “China’s increasing importance as a designer and manufacturer of ICs will not necessarily displace other semiconductor centers of excellence.” Adding that while Chinese IC firms enjoy important advantages, such as state support and proximity to a big mainland customer base, they are also “built for speed.”. He goes on to comment: “Chinese semiconductor makers are nimble, responsive, and with rapid design cycles, a good fit for the fast-moving mobile phone and consumer electronics markets.”

In a further twist of intrigue Taiwan has relaxed curbs on its own companies setting up semiconductor manufacturing plants in China, – a move that enables them to better compete for mainland clients.

According to Reuters, the Taiwanese economics ministry is now allowing a maximum of three wholly-owned 12-inch wafer foundries to be set up in China by Taiwanese companies, easing previous rules that limited such investments to mostly older technology and to joint ventures.

With global technology powerhouses like Samsung and Qualcomm already setting out stalls in China, along with Dell’s recently announced plans to invest $125 billion over the next 5 years – it is set to be an interesting few years indeed…

More information on the issues highlighted in this story can be found in a newly-published report that analyses the driving factors behind China’s red supply chain, along with Taiwan’s view on the emerging situation. 

What Can Olympians Teach CPOs About Leadership?

CPOs and Olympians gather to discuss leadership.

Taking the road less travelled
Success is about taking a path you believe in.

During the month of August, The Faculty Roundtable once again took to the road. Sessions were held with leading Australian CPO’s in Melbourne, Sydney, Brisbane and Perth. What stood out from this series of events was the changing role of the CPO. As we highlighted in this article, the rapid change of pace in the procurement landscape is challenging CPOs to lead and motivate their teams in entirely new ways.

During its August session, The Faculty Roundtable brought together a group of elite Australian CPOs as well leaders from the business world and the sports field to discuss the changing face of leadership in Australian procurement.

The points below present a summary of these discussions.

An Olympic Perspective

Jenn Morris, the guest speaker at our Perth event, has a truly impressive record in leadership. Jenn is currently a partner at Deloitte, a director at the Fremantle Dockers Football Club, the Commissioner of the Australian Sports Commission and a dual Olympic gold medallist. So when Jenn speaks about leadership, she is provocative, challenging and it pays to listen.

Drawing on fascinating examples from both her corporate career and time with the Olympic gold medal winning Australian hockey team, Morris’s discussion on leadership highlighted some truly valuable lessons for Australian CPOs. She spoke on the importance of leaders setting the bar for performance within an organisation. It is the responsibility of CPOs to define what ‘high performance’ is and ensure the workplace is structured in a way to deliver this kind of performance.

Morris also described the importance of leaders sticking to their guns, suggesting that it takes courage to develop a plan and stick it through thick and thin. This statement was given some context with the example of the Fremantle Football Club, a team that for 15 years was perceived to be underperforming. The organisation undertook a top-to-bottom strategy change. Many of the decisions made in this process drew criticism from the clubs fans and footballing media. However the leadership team stuck to their plan and this year the team has finished the season on top of the ladder. Morris, a director at the club, emphasised the importance of not being distracted as a leader, suggesting that success is about setting a path that you believe in and having the courage and faith to stick to it.

New Projects that Challenge Procurement’s Traditional Modus Operandi 

Perhaps one of the most innovative initiatives we’ve seen come out of the Roundtable in recent times was a project that saw a number of firms in the same industry (traditional competitors) working together to develop a joint supplier pre-qualification process. The CPOs involved in this fascinating project were able to put traditional rivalries behind them and work together on a project that would be mutually beneficial for all involved.  This project perfectly highlighted the need for CPOs to challenge their traditional thinking to come up with solutions that will provide optimal benefit for the business.

Hurdles to effective leadership

A dramatic discussion in Sydney led by managing director of Transfield Holdings, Luca Belgiorno-Nettis, highlighted the role that external forces (such as governments) play both in hindering and enabling corporate leadership in Australia. Belgiono-Nettis is a passionate follower of disruptive models and spoke of his work in exploring random citizen selection as a community change tool that challenges traditional notions of power in the political process.

CPOs discussed the challenges that they felt stood in the way between themselves and optimal leadership. Belgiorno-Nettis challenged CPOs to try and understand what is was that brought people together in a collaborative manner and to harness a culture that encouraged this. Also highlighted, was the fact that true leaders are unfazed by taking new approaches to old problems. Drawing references to current political systems, Belgiorno-Nettis suggested that sometimes a complete rethink of power and leadership structures is necessary to impact positive change.

Linking Procurement Activity with Board Strategy

Annabel Chaplain, a non-executive director at Downer, highlighted that as procurement continues to move into the corporate spotlight, the function’s leaders are realising the importance of taking actions towards achieving corporate objectives set by the board rather than their own ‘procurement objectives’. Knowledgeable boards are now seeing procurement as a legitimate avenue for competitive advantage and the CPO is viewed as the conduit between board level objectives and procurement activity. It is the leadership of CPOs that will ensure corporate objectives are met.

Chaplain’s presentation pointed out that the leadership qualities shown by CPOs need to go both up and down the chain. Truly successful CPOs are able to lead their teams to achieve corporate goals but are also able to educate board members about the opportunities and challenges that lie within the businesses they are tasked with guiding.

2015 FLiP Ambassador Talks Future Of The Procurement Function

Procurious interviews 2015 FLiP Ambassador – Ryan Kirgan.

The future of the procurement function

Ryan Kirgan is a Portfolio Category Manager at Downer, a leading provider of services to customers in markets including Transportation, Mining, Energy and Industrial Engineering, Utilities, Communications and Facilities.

At the recent Future Leaders in Procurement (FLiP) event, Ryan was awarded the position of FLiP Ambassador for 2015. Procurious recently caught up with Ryan to discuss his ambassadorship, the FLiP event and the future of the procurement function. 

Procurious asks: Ryan firstly, congratulations on being recognised as the FLiP (Future Leaders in Procurement) 2015 ambassador and carrying the flag for the next generation of procurement leaders. Could you give us some background into the FLiP group and what it hopes to achieve?

Ryan answers: The FliP group is a collection of young leaders in the procurement function. Our meetings are held in conjunction with The Faculty’s CPO Forum. When we meet, we undertake an intensive program of discussions, presentations and networking with the ultimate goal of developing the next generation of procurement leaders and furthering the procurement profession.

FLiP put on a fantastic series of events. Through the relationship with The Faculty, we are able to attract a good number of truly outstanding speakers. This, and the chance to network with our peers in other businesses, presents a fantastic opportunity to develop our skills not only as procurement professionals, but also as leaders.

Procurious: How have the FLiP events helped develop you as a leader within your business?

Ryan: The most critical link I think, in developing the functions future leaders has been the access FLiP has granted us all to senior procurement leaders.

We have been given backstage access to a huge number of influential CPOs. All of these leaders have been very approachable and accessible. They’ve opened up on discussions and events that are impacting the function at the moment. To have access to this level of seniority has been huge. We’ve all been able to benefit from people who have already had long and successful careers in procurement.

What has been really great is that rather than discussing the technical capabilities of procurement staff, which most other conferences do, FLiP is pitched much more around soft skills with a younger audience in mind. That’s something I haven’t come across at other conferences. The program is really tailored to what we’re doing as young procurement professionals.

Procurious: Aside from the speakers and CPO access, were there any other intangibles you were able to take away from the event?

Ryan: The event was fantastic for market intelligence. When you put people who are making similar decisions in the same room you’re bound to learn something.

It was a great opportunity to understand my suppliers, not just from a procurement perspective, but also more broadly around what they are trying to achieve as a company. That sort of insight is priceless.

The general openness and willingness to impart knowledge and help out as much as possible is fantastic. It’s not like you’re making a cold call and asking for insight. It is senior level procurement professionals who are there with a genuine interest in helping out and developing the function.

Obviously, networking is what you make of it, but I’ve had great engagements off the back of the conference. A few days after the event, another delegate contacted me to discuss fleet management, a category that my organisation sources well. I was happy to share my experiences. A few weeks later my help was reciprocated when the person I spoke to was able to assist me with some queries I had about supplier relationship management.

Procurious: Have you been able to transfer any of the learnings from the FLiP conference into your job at Downer?

Ryan: At the end of the conference Gordon Donovan (Principal Consultant at The Faculty at the time) challenged us by saying that he would be calling each attendee 50 days after the conference to see what changes we’ve made based on what we took away from the conference.

This is something that I got down to right away. The day I got back to the office, I called a meeting with the corporate affairs manager. We spoke a lot about alignment with corporate objectives at the conference and I wanted to ensure my activities were contributing directly towards our corporate success.

Downer has recently refreshed its corporate identity. This has involved a shift towards a greater customer focus. Our tagline is “relationships creating success”.

During this discussion I found myself asking, “how does my work as a procurement professional align to the corporate vision?” I quickly realised that I had a fairly deep understanding of our relationships with our top 100 suppliers, however knew little about our engagement with all but a handful of our key customers. This seemed ridiculous.

I grabbed all the guys in the team and went through a process of aligning each of our category plans to the corporate vision and to our end customers. I also initiated our team’s ownership of managing revenue data reporting in addition to spend data; all of which helps bolster our presence as commercial leaders within the company. Unless I’d gone to the conference, I don’t think we would have gone through that process.

Procurious: As part of your ambassadorship you were given the opportunity to take part in a panel discussion at The Faculty CPO Forum. Can you tell us about that experience?

Ryan: It was a great opportunity to speak in front of such an experienced procurement audience. I feel that those sorts of opportunities are a valuable part of our professional development as leaders.

To sit alongside three highly experienced CPOs and to come off the stage and be told that I didn’t seem out of place up there was very humbling and flattering.

We spoke about ensuring alignment of procurement activities to the wider business. It was reassuring to see that across industries, procurement teams are taking on similar programs and facing similar challenges. As I mentioned earlier, this initiative is something that I acted on as soon as I got back to the office.

Procurious: At Procurious we’re passionate about social media and its role in the development of the procurement function. What have been your experiences as a procurement professional on social media?

Ryan: The opportunities that lie within social media are truly eye opening. I think the biggest challenge is staying on top of everything. The speed that things are changing is so rapid.

Social media is becoming standard practice for procurement; it’s no longer a fringe activity. We need to leverage our relationships with suppliers, co-workers and colleagues and social media is the most effective way to do this.

Social media gives us access to knowledge sharing and best practice thinking from across the globe. All of this builds out our capability as professionals.

Access to sites like Procurious means that good ideas don’t remain hidden for very long. If one person asks a question, you’ll get 30 people responding. There is so much knowledge and wisdom out there and Procurious is connecting all of that.

At Downer, we use Yammer as well and I’d be one of our most active Yammer users. I’ve established a group to discuss our fleet services; the 80 stakeholders across the business for fleet services are in this group. It’s a brilliant way for us educate and connect with the stakeholders. We get great engagement on there.

Procurious: Thank you for taking the time to speak with Procurious and again, congratulations on your ambassadorship for 2015. Any final thoughts you’d like to leave us with?

Ryan: I’d like to thank FLiP and The Faculty for the opportunity they’ve given me. The exposure to all of The Faculty’s programs has given an insight into just how switched on they are. Having programs that develop procurement people at each stage of their professional development is brilliant. They are great advocates for the profession.

Smart Supply Chains – Gazing Into The Not-So Distant Future

The term ‘Smart Supply Chain’ might not be that familiar to you, but most people will have heard of, and understand, the Internet of Things (IoT) and Big Data. With the supply chain, and the processes within it, evolving, what are the key trends you need to be aware of?

Smart supply chains of the future

The topics of Big Data, 3D Printing and Technological Change have been discussed on Procurious independently recently, but it is the connection between these concepts within the Smart Supply Chain that organisations will be able to take advantage of over the next 12-18 months.

Some of these concepts demonstrate supply chain thinking coming full circle, while others are newer and yet to be fully embraced by organisations on the whole.

Keeping ahead of, or at least up to date with, these trends will be crucial for supply chains in order to remain flexible and competitive globally. We consider the three outlined below to be the most interesting for supply chain development, however there are many others that also could be considered.

Distributed Manufacturing

More recently, organisations have begun to bring much of their manufacturing back in house, reversing the trend for outsourcing to low cost regions. The next step in this process for many is the idea of Distributed Manufacturing.

In Distributed Manufacturing, products are manufactured across multiple geographical locations by either the primary organisation or a local partner. These locations are closer to key consumer markets, and make use of local experts for the final assembly stage of production.

Key advantages of this approach include a reduction in logistics costs, a more agile supply chain and access to a global network of experts. In late 2014, Jaguar Land Rover opened a plant in Changsu in China, aimed specifically as servicing the Chinese market. This allows a better service to a major market for Jaguar, but enables them to ensure that production quality remains high.

Additive Manufacturing

Additive Manufacturing is essentially 3D Printing by another name. Although still more expensive in comparison to traditional methods, the AM process allows for faster creation of prototypes, greater tailoring of sizes and shapes of products and much lower scrap rates.

Earlier this year, Rolls Royce announced plans to flight-test the largest ever 3D-Printed aerospace component. The company have said that the process has cut like-for-like manufacturing lead times by 30 per cent, representing a considerable saving in terms of time and cost.

A combination of Distributed Manufacturing and Additive Manufacturing could potentially allow organisations a considerable competitive advantage in a supply chain, with faster, more agile manufacturing allied with shorter lead times to consumer markets.

However, to make this a reality, we need to consider the impact of the third of our trends.

IoT, Big Data and Demand

Consumer demand is a tricky beast to pin down. With consumer behaviours constantly changing and the increased availability of products online, which can then be delivered the following day, simply using historical trends to predict demand is no longer an option for supply chains.

Now, organisations are looking towards connected networks and systems, capturing up to the minute data on where, when and how products are bought and which markets are the most profitable to service. The use of the IoT and Big Data is opening up a new way of predicting demand.

Big Data is being used in the automotive industry to do just that. Now, sales can be seen anywhere in the world instantly and companies who have traditionally operated ‘Just-in-Time’ systems now can keep up with this, ensuring the right parts are in the right place at the right time.

Distributed Manufacturing relies on this interconnected network of systems for exactly this reason. This improved demand planning can then be used to reduce excess stock and wastage and at the same time, provide all the data required for effective Additive Manufacturing.

The Not-So Distant Future

As these technologies advance further, and organisations become more adept at using them effectively, there is a potential for a major change to the way supply chains are organised.

And what will this mean for procurement? Beyond the increased complexity of providing for a global supply chain, could we see the advent of Distributed or Remote Procurement? Or will the profession be split up and placed wherever the need is greatest? It’s certainly a question worth considering.

Have we missed any game-changing supply chain trends? Are you working in an organisation where Distributed Manufacturing is a reality? Procurious would love to hear your experiences!

Eyes down for the other big stories we think you should be aware of this week…

Oil prices steady after U.S. drilling cut but oversupply still weighs

  • U.S. crude futures were trading at $44.67 per barrel at 8:00 IST, up 4 cents from their last settlement, pushed by a slight fall in drilling activity. “Baker Hughes reported US oil rig count fell 10 to 652 last week. The consecutive second decline suggests a low price environment coupled with low oil price hedge is starting to impact U.S. supply,” ANZ bank said.
  • The International Energy Agency (IEA) said on Friday that a cut in production from non-OPEC suppliers, especially from the United States, would lead to a rebalancing of the market by next year.
  • Despite this, the outlook for global oil markets remained weak due to strong production clashing with stalling demand, creating a market in which more oil is produced than needed.
  • The global crude benchmark Brent was trading at $48.95 a barrel, virtually flat from its last close.
  • ANZ said strong supply from the Middle East remained a concern on the supply side, while Macquarie bank noted that falling auto sales in August were acting as a drag on demand.

Read more at The Economic Times/IndiaTimes

Allianz warns of storm impact on transport and supply chains

  • With a severe El Nino event forecast and the cyclone season approaching, insurer Allianz has highlighted transport and supply chain interruption as a consequent threat for international and domestic transport and logistics. The global insurer’s Allianz Global Corporate & Specialty (AGCS) section has marked the recent 10th anniversary of Hurricane Katrina in the US with an analysis of storm-related losses, trends and global businesses preparedness for such events in future.
  • But its local operation points to issues here and in Asia that have the potential to cause financial hardship, particularly for the unprepared. “The general consensus of scientists is for an increased severity rather than frequency of windstorm events, such as Australia has experienced this year,” Allianz Risk Consulting Pacific regional manager Iain Ritchie says. “Further, with the current growing El Nino in the Pacific, climatologists are predicting even more intense weather phenomena in the immediate future, which requires risk assessment and planning.”
  • Ritchie adds that “not only is pre- and post-loss risk management crucial in mitigating the impact of increasing windstorm losses, risk management should also focus on loss minimisation during windstorm events. “Business continuity planning must also incorporate direct as well as indirect supply chain exposures to be effective.”

Read more at Fully Loaded

Tianjin explosions to affect supply chains for months

  • The deadly explosions that rocked Tianjin could create logistical delays and other supply chain problems for months to come, even as operations at the port itself return to normal, according to a new report by Resilinc, a supply chain technology firm.
  • Day-to-day operations have largely resumed at Tianjin’s port, roughly a month after two explosions killed over 100 people and caused widespread damage. However, Resilinc found a number of factors that will have a lasting impact on companies with supply chains tied to Tainjin. Chief among them: uncertainty over how China’s government will respond to the incident, which was caused by the improper storage of hazardous chemicals and is still being investigated.
  • Shippers of materials classified as hazardous should expect delays from additional scrutiny of their cargo, and stricter regulation and punishments, Resilinc said.
  • A logistics center that processed much of the port’s paperwork suffered severe damage from the explosions, causing forwarders, haulers and other logistics players to deal separately with individual terminals, putting a strain on those terminals’ capacities to handle administrative tasks. And blockages are preventing the delivery of in-bound raw materials, which impact local factories, and effects could last longer than six to eight weeks on companies within a ten-mile radius of the blast.

Read more at The Wall Street Journal

Glencore Queensland to save AUS$300 million through procurement outsourcing

  • Glencore has hired Accenture to provide sourcing and procurement services for its Australian copper and zinc business.
  • The six-year contract with Glencore Queensland, a subsidiary of the diversified natural resource company, is expected to deliver cost savings of more than $300 million over the period.
  • Under the deal, Accenture will provide end-to-end sourcing and procurement services including cloud-based sourcing, category management and procure-to-pay tools, as well as market sourcing insights and analytics to help Glencore maximise procurement and sourcing benefits. “Mining clients continue to grapple with cost pressure in the ongoing environment of low commodity prices,” said Joost van de Meent, managing director, resources, at Accenture. “Our solution will extend Glencore’s existing procurement capability to improve spend management and reduce transaction costs, while improving visibility across Glencore’s businesses.”

Read more at Supply Management

Why the threat from avian influenza isn’t just a load of hogwash

Pigs might fly, but when it comes to avian flu… it’s no laughing matter.

The threat from avian influenza on supply chains

Pigs and poultry might be more closely linked than you realised… discover how they are impacting supply chains on a global level.

China’s incredible shrinking hog herd

The astonishing drop of the Chinese hog and sow herd is expected to impact the entire global pork market for the remainder of 2015 and into 2016 according to a recently published report by Rabobank Group.

Chinese pork production is forecast to plummet by 3.7 million tonnes (6.5 per cent), to 53 million tonnes in 2015.

Over the last 18 months, China’s pork industry has experienced one of the largest culls on record—the ramifications of which are just now being felt globally. To put this change into perspective: the decline of nearly 100 million head in China’s hog herd and 10 million in its breeding herd is equivalent to the U.S., Canadian and Mexican pork sectors all disappearing from global supply in a span of less than two years.

However, explains Rabobank Animal Protein Analyst William Sawyer – “This will be supported by a 600,000 tonne increase in imports – primarily from the EU, the U.S. and Canada – in the second half of 2015… This surge in pork trade could not come at a better time, as the global pork sector is in the midst of a supply glut after many regions have recovered from the porcine epidemic diarrhoea virus outbreak of 2014, and a number of trade bans have depressed pork prices and producer margins.”

Indeed, this export opportunity is very attractive to a sector that has been under pressure in recent times. Capitalising on the opportunity will require processors and traders who have the right product at a competitive price; who can deliver in the coming months; and who can readily mobilise their supply chain.

Avian influenza outbreak to hit regional markets

China’s porcine problem might also have knock-on effects for poultry production…

In a separate report from Rabobank, analysts believe the outlook for late 2015 and 2016 is bullish. Feed prices are still expected to remain at low pricing levels, and global breeding stock supply will be very low in regions with avian influenza-related import restrictions, such as China and South-East Asia. The expectation that China will face a shortage in poultry and pork supply next year could especially become a major swing factor for the global poultry industry. The expected further spread of AI to key U.S. chicken production areas is a major wild card for the industry outlook in the second half of this year.

The report states: “The performance in most regions is currently improving, but the industry should have optimal biosecurity as its first priority, as avian influenza pressure is still significant. Any new case can have a big impact on regional and global trade streams, as we have seen in the past months, in which Brazil and Thailand have taken further market share in global poultry trade from the U.S. and China”. Yet it notes that both Australia and South America have yet to fall foul of new outbreaks.

Procurious Big Idea #40 – Helping CPOs With Change

Jade Campbell, Senior Consultant with The Faculty says CPOs are working in a constantly changing environment and need to be able to lead their teams through it.

Jade believes all procurement professionals have a role to play in supporting the CPOs in dealing with these changes.

See more Big Ideas from our 40 influencers

Like this? Join Procurious for FREE and meet like-minded procurement professionals from across the world.

IT departments revealed as ‘maverick spenders’

New research suggests IT decision makers like to go it alone when making purchasing decisions.

IT departments are to blame for maverick spending

According to a recently-published survey, billions of pounds of business IT spend is being put at risk annually by IT teams that skirt corporate procurement rules and processes. The survey reveals that (crucially) most IT leaders dismiss the value of the procurement function out of hand.

In the Procurement Perceptions research, which surveyed 200 procurement professionals and their colleagues by Redshift (on behalf of Wax Digital), an overwhelming 78 per cent of the IT professionals surveyed suggested that procurement hindered rather than helped their department, with one in three admitting to bypassing official purchasing processes as a result.

Where procurement is involved in the process only 19 per cent of IT respondents said that the procurement team actually led on IT cost savings initiatives. This is compared to 43 per cent of procurement claiming that they did. 

The two departments are also found to have a polarised view of spending priorities for IT, as procurement focuses its support on front-end technology devices and hardware, while IT places greater importance on infrastructure and security.

In a spend category which typically deals in high value multi-year agreements, supply chain risk was at least one area where IT and procurement teams are more closely aligned. Almost half (46 per cent) of IT respondents identified the most important contribution from procurement was in the areas of supplier risk and negotiation. 

Daniel Ball, director at Wax Digital, comments: “IT is a complex spend area, but that is all the more reason that procurement expertise and rigorous policies are brought to bear here. The fact that IT departments often spend without procurement’s oversight makes maverick over-spending likely and could open the organisation up to severe financial and reputational risk. Let’s face it, it’s an industry littered with project failures, therefore it’s critical that these two departments look to collaborate more effectively than is obviously the case in many organisations.”

Why It Makes Sense To Do Business In Africa

Sitting amidst the buzz of 300+ SME exhibitors in the Enterprise Development Hall in Johannesburg, it’s not hard to see why Harvard Business Review (HBR) believes Africa’s time is now.

Doing Business in South Africa

Here to attend and speak at the Smart Procurement Conference, this has been my first trip to South Africa and I’ll leave tonight with an overwhelming sense of four things:

  1. The warmth and friendliness of the South African people
  2. Their relentless desire to connect and learn
  3. An all pervasive energy to try new things and support the country’s growth
  4. The truly excellent beef. Really, it’s delicious!

It was very good fortune then that as I was about to make my way back to the hotel, I happened upon Selven Moodley’s presentation in the Knowledge Hub, titled: Doing Business in Africa.

As Selven explained, two years ago, Harvard Business School, identified 7 Reasons Why Africa’s Time is now. As you’ll see below, all continue to apply:

  1. Africa has huge market potential

There are 52 cities on the continent with populations of 1 million or more – the same as Europe. And don’t be fooled by outdated misconceptions – there is a middle-class here which is bigger than India’s and who need everything from healthcare, to retail, to telecommunications.

  1. The region is increasingly stable

Africa appears to have entered a modern era of greater stability, particularly in Sub-Saharan content, with a declining number of coups. Though moving at different rates across the continent, political reform is also underway.

  1. Africa has the world’s largest workforce

By 2035, Africa’s workforce will outnumber China’s and this paired with the Government’s growing investment in education, could prove game changing.

  1. Mobile traffic exploding

Mobile penetration, which stood at 2 per cent in 2000, has increased to half a billion subscribers (just shy of 80 per cent) in 15 years. As handsets become more affordable and the internet is democratised through low cost data for rich and poor, this trend will only accelerate.

One quick word of warning: Don’t necessarily expect your African procurement or supply partners to be on WhatsApp just yet. Smartphones remain very much in the minority, making up only 15 per cent of overall mobile phone usage so you may need to figure out how to do business with non-smart phones for a time yet.

  1. Intra African trade is in its infancy

Intra-African trade currently only accounts for 11 per cent of South African trade. With Government mandated investment in local content and a subsequent boom in SMEs, there is enormous potential to move the needle on this.

  1. Increasing Government spend on education

On average, African countries spend nearly twice what OECD governments spend on education.

  1. Africa contains most of the world’s arable land

A fact that surprised me, were you aware 60 per cent of the world’s uncultivated farmland is in Africa?

Of all these reasons, Number 5, the potential for Intra African Trade cannot be understated.

Selvern offered the example of one of his Ghanaian clients who imports large quantities of copper cabling from China. Selvern queried the origin of the copper, only to discover it is mined in Zambia, before being taken to China, made into cable and only then sent back to Africa. Imagine the benefits – cost, speed, continuity etc. – if Africa was able to produce the wiring in-region?

Number 6, Education, also feels to me to be a tipping point. Although secondary school enrolment remains low across the region by world standards, the talented individuals I met at Smart Procurement World were truly exceptional and I’ve never felt a stronger thirst for learning at a procurement conference before. If Africa can develop skills in those areas that will drive the economy, then when paired with the size of its workforce, will eventually challenge China and India for supremacy in this area.

Without getting into the myriad of environmental issues that accompany the destruction of natural habitats for farming, Africa clearly has the potential to become an agricultural powerhouse. Add to this oil, gas and her other natural riches, and it’s safe to say that if Africa is not already part of your supply network (or even consumer market), it almost certainly will be in the near future.

Speaking with the entrepreneurial business owners in the Enterprise Development hall, I am struck by the fact that to be successful here in Africa, foreign investors must use local businesses, hire local people, and likely, produce for the local market. To do otherwise, will not only short-change Africa but deprive your business of the experience, innovation and local know-how that exists here.

While Selven’s advice was directed to SME owners, I have a feeling his tips are just as applicable for Procurement professionals looking to do business for the first time in the region (or any new geography for that matter).

Selven’s advice follows:

  • Understand market you are operating in
  • Understand the logistics of operating in Africa
  • Familiarize yourself with trade agreements, export processes, workforce agreements
  • Interact regularly in your field to learn and determine if there are opportunities as both buyers and suppliers to ‘hunt in a pack’
  • Understand the support mechanisms offered by Government incentive schemes, NGOs, insurance businesses etc.
  • Get out from behind the desk, go work in the field. Link up with a partner in country to accelerate your learning

Naturally this last piece of advice is music to my ears, highlighting yet again, the value of building your global procurement network here on Procurious!

If you are one of our new African members to Procurious, don’t forget to join the African Procurement Professionals Group here.