Risk Mitigation – Hope Like Hell It Doesn’t Happen to You

Organisations can plan and strategise for risk mitigation in their supply chain, but ultimately a lot of it comes down to luck.

Risk mitigation

In the words of one member of The Faculty’s Melbourne Roundtable, “There’s a lot of risk out there – you can mitigate all you like but in the end, you just hope like hell it doesn’t happen to you.”

Risk-experts Aaron Cleavely-Millwood (Market Development Manager – Regulatory, Market and Operational Risk) and Nathan Lynch (Head Regulatory Analyst) of Thomson Reuters, visited the Melbourne and Perth Roundtables to take members through their organisation’s global research findings on risk and disruption.

While the Thomson Reuters research focused on disruption to financial services, Roundtable CPOs drew some key learnings from shared challenges around governance, risk, compliance and regulatory drivers.

The Faculty ran its own snapshot survey among its Roundtable members, providing some interesting comparisons between Thomson Reuters’ global, cross-industry study and our local, procurement-focused findings.

Supply Chain Risks

Thomson Reuters’ top four disruption risks revolved predominantly around price:

  1. Raw material price fluctuation
  2. Currency fluctuation
  3. Market changes
  4. Energy fuel price volatility

The Faculty’s findings revealed that CPOs have a slightly different set of concerns:

  1. Supplier monopolies
  2. Market changes
  3. Climatic or natural disasters
  4. Emerging technologies

Risks and Impacts

Price risk is an obvious and ever-present danger and a key part of strategic planning. Cleavely-Millwood gave the example of the 2015 drought in Russia, which saw the price of wheat rise by 41 per cent, and create a huge impact throughout Europe. Spikes such as this (and of course the drop in oil price) cannot necessarily be forecast, but it is possible to plan for and hedge against these events.

Interestingly, social activism was placed at the bottom of both lists. This is surprising given some of the recent disruptions driven by environmental activism in the Australian coal and coal seam gas industries.

The Thomson Reuters presentation focused on fraud risk. This has been identified as a high area of concern for Australian organisations despite increasing regulation. CPOs have to be continually aware of the risks around supplier, contractor and employee fraud, and have plans in place to minimise the damage when fraud takes place.

Increased regulation is a double-edged sword. It will effectively lower the chance of fraud risk and other potentially damaging issues, but will mean CPOs need to spend more time and resources ensuring compliance.

Roundtable delegates were taken through various major pieces of regulation including the UK Bribery Act, the Australian Senate Review of Bribery Laws, the Dodd-Frank Act, and the upcoming Unfair Contracts Act.

The key takeaway – communicate regularly with your internal legal counsel to ensure you keep track of regulatory change.

Effective Risk Mitigation

Our snapshot survey asked members to nominate the most effective risk mitigation measures, with the following results (1 being the most effective):

  1. Building strong supplier relationships
  2. Creating a risk-aware culture
  3. Improving market intelligence
  4. Improving IT and data analytics
  5. Increased sharing of information

The Faculty’s advice for managing risk:

Due diligence can take place through three levels of risk assessment:

  • Ensure you thoroughly investigate new vendors.
  • Regularly perform risk assessments of existing vendors to check if anything has changed.
  • Ensure you have visibility of your suppliers’ suppliers, and their suppliers, and so on, until you’re confident that there are no major risks several layers down the supply chain.

Digital Economy, Disruption and the Future of the Payments Industry

Faster payments and customer demand is disrupting the payments industry, but PayPal say that the future is bright.

Digital Payments Industry

It may have been a boring space 20 years ago, but now the payments industry is undergoing major disruption and innovation, Libby Roy, Managing Director of PayPal, told the 9th Asia-Pacific CPO Forum in Melbourne.

The payments industry covers everything in to the end-to-end process that powers commerce, and is involved in all aspects of our lives. PayPay is involved primarily in the B2C space, which moves incredibly fast due to the proliferation of new players, and the integration of new technology powering our payments.

The innovations unfolding in the payments space is being driven by increasingly demanding consumers wanting the ability to make quicker payments.

Please the Consumer

Roy used an analogy to explain that everyone in the room was the consumer that PayPal was working to please.

“Think about it. Do you wait for your favourite television show to be scheduled and aired on television, or do you download the entire series, or live stream, because you can’t bear to wait? That desire to have access to thing immediately is higher than ever before, and we are leading the way in beautiful, frictionless payments,” Roy says.

Australia is fast becoming a cashless society in the consumer space, with the vast majority of payments using cards or contactless technology.

PayPal is continuously working toward new innovations to solve the pain points of consumers in a more seamless way, with new payment gateways and partnerships being constantly explored. This will result in a number of flow-on effects that will impact upon various industries, including procurement.

Social Payments

“Payments in the near future will become social, which lets you buy something at the moment of discovery. Consumers will be able to decide whether the good or service will work for them, and then be able to transact that very moment. Payments will be attached to any device, which will add billions if not trillions into the economy.”

For example, payment options will be attached to the household fridge, and connected to the local supermarket for re-orders.

“These innovations are being driven by the tremendous amount of investment occurring in the fintech space, though not all of the startups in this space are successful. It’s not surprising, it’s a complex space.

“Meanwhile, we’re seeing a number of new payment players aside from the banks and financial services companies entering the payments space, including Apple, Facebook, Amazon, Google and Microsoft,” Roy says.

Roy also told the audience that PayPal has started lending limited funds to small businesses to help them grow.

Why the Entire Procurement Profession Needs to Get Social

Tania Seary tells delegates at the Asia-Pacific CPO Forum that procurement needs to get social to drive the profession forward. 

Tania Seary - Get Social

Procurement professionals need to claim their rightful place on the Internet, and get social, by actively participating in social media and blogs for the benefit of the broader industry, the founder of Procurious told a conference in Melbourne yesterday.

Tania Seary, who founded Procurious to connect, promote and support procurement professionals across the globe, told the 9th Asia-Pacific CPO Forum that online visibility has several benefits, but that it’s everyone’s responsibility.

Large portions of the procurement profession are working in isolation, unaware that there is a whole universe of knowledge available to help them do their jobs better and learn, Seary told the audience.

In fact, there are more than 2.5 million procurement professionals in the world, but probably less than 500,000 that the industry can readily connect with, she says.

Share, Share, Share

Procurious was launched two years ago as the world’s first online business community dedicated to procurement and supply chain professionals.

“The procurement profession must share, share and share online to build our collective muscle, amplify attention to our impact, and tackle our thorniest issues together,” Seary says.

This can start by simply sharing your social media profile, your business photo, and by broadcasting your everyday successes.

“Think about what it would mean if a newly-minted company CEO who wants to understand what we do, takes the time to Google ‘procurement’ and sees overwhelmingly positive language in their search results. That CEO can’t help but be inspired and energised by the hype and positivity around procurement,” Seary says.

She also urged all procurement professionals to ask questions and share what they don’t know, saying that without sharing the things you’re concerned about, no action can be built, and there can be no moving forward. Giving back to enrich the wider community, by understanding that everyone has something valuable to share is important too, she says.

Big Ideas 2016

The highlights of Procurious’ Big Ideas Summit, held last month in London, were also shared to the 50-strong audience of procurement leaders. Keynote speakers included IBM, Coupa, ISM, Facebook and The Economist.

“What happened in the conference in London was only a small part of the story. What makes Big Ideas truly unique is that it is a digital conference that is amplified to procurement professionals around the globe.”

For example, the #BigIdeas2016 hashtag was tweeted 1,500 times, reaching a potential audience of 4.3 million individuals, all around the world, in just over 24 hours.

“Let me tell you that the message in the room was clear. Procurement needs to think the unthinkable and certainly rethink the possible,” she told the audience.

The UK is now auditing Supply Chain Purity in the fight against slavery, while Social Procurement is on the agenda in Australia.

Get Social Enterprises on Board

Social Enterprise UK CEO, Peter Holbrook, announced at the Big Ideas Summit the ‘Buy Social Corporate Challenge‘, which will see a group of high profile businesses aim to spent £1 billion with social enterprises by 2020.

The founding partners include heavy hitters like Johnson & Johnson, PwC and Zurich.

J&J are taking action and supporting people often termed ‘furthest from employment’, with the ‘Social Impact through Procurement‘ initiative aiming to create at least 150 jobs for these people by 2020.

“Here in Australia, Social Procurement has been a concept we have been talking about, trialling, but the big ideas summit confirmed that this is now firmly on all major corporation’s agenda.

“Not only is this the right thing to do, but this is the sort of thing that the C-level, annual reports and what Procurement could be famous for. So where are we with Social Procurement in Australia? I will be interested to hear.”

How Top Procurement Professionals Conduct Reverse Auctions

Using reverse auctions opens up a wealth of benefits for procurement professionals. But it’s important to fully understand when and how to use them. 

Reverse Auctions
Image from reynermedia

Reverse auctions have been around since the late 1990s, and have been regularly used as a tool by procurement professionals to obtain better pricing and lower supply costs. The use of reverse auctions can benefit companies of all sizes, but it really comes into its element when used by professionals within the procurement industry.

In an ordinary auction, buyers would compete with each other to obtain a product or service, yet in a reverse auction, the roles of the buyer and seller are reversed, and involve sellers competing to supply goods or services to a buyer. Over time, the price in the auction will start to decrease. Think of it like an eBay for the supply chain.

For procurement professionals who still haven’t started on the reverse auction or e-auction game, we’ve taken a look at how some of the finest procurement professionals use reverse auctions in their daily lives, and what benefits there are to using the service.

Time is of the Essence

When it comes to reverse auctions, as the supplier does most of the work, one of the greatest benefits is that the procurement professional can save time.

In the case of a traditional contract, businesses send out a request for a proposal which would have to be completed by the seller. The business would then sort through the proposals to make a qualified decision. The process of a reverse auction means that the whole process can be done online, cutting the requirements for manpower and time, with a decision being made much quicker.

Most reverse auctions won’t last longer than an hour either, meaning that the actual process can be wrapped up quicker, and both business and supplier can get on with what they do best.

Money can be Saved

Many companies these days are under economic pressure to become more streamlined and to reduce costs. In 2014, it was reported that the DLA, the U.S. Defense Logistics Agency, had found that by using reverse auctions they were able to save around $1.6 billion in a year – with $400 million coming from three auctions alone.

Whatever the size of your business, reverse auctions can be a great way of saving lots of money. Pitting suppliers directly against one another will mean that the lowest prices will be offered, and you be able to purchase services at a highly competitive price. Many companies will also tend to buy in bulk, meaning that even greater savings can be made to the bottom line.

The net will be opened up

Reverse auctions provide a great opportunity for smaller and lesser known businesses to get involved, and compete for something they may have otherwise never have had the opportunity to. Depending on the situation, the process can help to create new, long-lasting relationships between the business and the supplier.

In the past, companies may have felt limited to choosing suppliers local to their area. Nowadays, thanks to the growing reliance of technology, this is no longer a major issue. The net has been opened and allows businesses around the world to compete, which in turn allows both the buyer and supplier to network and build connections.

Reverse auctions are not for everyone

However, reverse auctions are not for everyone. It’s important that procurement professionals are able to determine when it’s right to use the service.

As it is a service that is mostly fixated on providing the lowest price, it can be hard to determine the level of quality or service that will come with that low price. In many cases, the lowest bidder may not necessarily be able to provide the highest of quality, and this can end up having a knock on effect on other aspects of the business.

To tackle this issue head on, Market Dojo believes you should use price as a stepping stone only, and not a set rule. Obviously, you want to be able to pay as little as possible, but if you factor in levels of quality and the reputation of the seller, then you are more likely to make a better buying decision.

Finally…

Ultimately, reverse auctions are a great tool for the procurement professional in today’s technology-focused climate. The buyer can spend less resources on purchasing decisions, whilst new suppliers can take part in sales that they wouldn’t otherwise.

To be effective at buying goods through the reverse auction medium, those in the procurement industry need to remain vigilant and try not to focus entirely on price. High quality goods and delivery times also need to be factored in order to make the process efficient and cost-effective. Otherwise, you may just end up paying out more.

About the Author: Adam Maidment is a Content Writer for Portfolio Procurement, specialists in the recruitment of experienced procurement professionals throughout the UK.

Dynamic Solutions to Dynamic Problems

‘Pop up Warehousing’ and ‘Dynamic Warehousing Networks’ are new terms hoping to provide dynamic solutions to solve an old problem – large fluctuations in stock.

Dynamic Solutions - Dynamic Warehousing

Whether predictable or unexpected, most businesses have had to deal with stock maxing out their facilities from time to time. Moreover, as managing average or normal stock levels has become more sophisticated and accurate, the effect of the pinch points becomes more acute.

Of course, any predicted overflow can be accommodated. However, just because it is predictable (for example, seasonal storage gluts), doesn’t mean its impact, or the challenge of solving it, is reduced. Furthermore, not all stock excess is predictable – far from it! Taking advantage of bulk purchase opportunities or running promotions make good business sense, but often create storage headaches.

Historical Solutions

Historically, the solutions that companies resort to cost money and may adversely affect operations. They may rent additional warehousing to accommodate extra stock, or find themselves involved in costly shuffling of inventory across locations, both existing and new.

Outsourcing – getting a third party provider to pick up the slack – is the obvious course to follow, but has traditionally suffered from a lack of transparency and the sense that a better solution might have been missed. After all, an emergency is not always the moment to run a tender process!

Dynamic Solutions

However, the growth in dynamic solutions such as Pop-up Warehousing (the colloquial term for on-demand storage space) is now set to change the game.

This ability to quickly identify available warehouse space and pricing on the internet, represents a step-change in how to deal with over-spill. It means that solutions can be found locally or in strategically relevant hubs – dependent on the user’s need – and that rates are benchmarked by the market.

On top of the transparent pricing and availability that these dynamic solutions provide, they also facilitate a direct dialogue with providers across the country. This means that users can identify, secure, and make use of available warehouse space immediately.

This level of choice can mean the economic benefits of bulk buying or customer promotions are not diluted further down the P&L, and the added flexibility can also allow companies to be more daring in their development – testing new products, markets or distribution strategies with less inherent cost (and risk) and modelling the impact of more permanent solutions to their business without making significant investments or sweeping changes.

Speed and Flexibility

The ability to quickly react and adapt can be particularly beneficial to fast growing or new e-commerce businesses. These business are often unclear about what mid- or long-term capacity they need, and the resources required to support fixed logistics costs.

Dynamic warehousing allows them to upscale logistics in line with their growth rate, without overwhelming resource and cost implications, nor the distraction and risk of running a fast-growing logistics function.

With end to end logistics costs averaging 12 per cent of sales value, not doing it as efficiently as possible can make a material difference to competitiveness. For a third party logistics provider, that 12 per cent is their 100 per cent, and they have the vertical and horizontal experience of logistics to build skills and capabilities from shared experience. Outsourcing logistics can, therefore, make a lot of sense for younger companies – as long as the most appropriate providers can be found easily.

Whilst outsourcing is not a new concept, the catalyst for the recent upsurge in interest has been the development of interactive online platforms by companies such as Flexe Inc in the US and, more recently Zupplychain in the UK.

These websites provide a degree of aggregation and transparency that means all businesses, whether large or small, mature or a start-up, can benefit from a level of flexibility. This means users can be more responsive and make better decisions for the present and future health of their company.

Zupplychain employs algorithmic matching of customer’s search requirements to warehouse availability to show warehouse pricing, along with an automated and structured process to progress enquiries and a cloud based system to manage customer stock in provider’s warehouses.

Leading Australian Political Journalist Unravels Political Landscape

Australia’s political landscape is a complex beast. We ask senior Fairfax political editor Laura Tingle to unravel these complexities for procurement professionals.

Political Landscape - Laura Tingle

No matter which political party you back, there’s no doubt that the political landscape can have major ramifications on the procurement function within your business.

So, we asked Fairfax Media‘s Political Editor, Laura Tingle, to unravel the elements of politics, as Australia wades through this longest of all election campaigns, and try to understand what sort of government it faces after July 2.

“It’s Complicated”

Laura explains that Australia heads into the upcoming election with Labor currently holding a ‘notional’ 57 seats and the Coalition – after Tony Abbott’s big victory – holding a ‘notional’ 89 seats.

“The national polls currently suggest – on a swing of about 2.5 per cent against the Coalition since the last election – that we have started the election campaign in the realms of an outcome where the government would just get back into office, or where there might be a hung parliament.

“That is, there are 13 Coalition seats held with a margin of less than 2.5 per cent, just one seat less than would need to change hands for the Coalition to lose its absolute majority,” Tingle says.

But, as the saying goes, ‘it’s always complicated’, and in fact, at this election it is particularly complicated, she says.

“And I can’t think of an election where there are so many unknown factors at play, which could create some quite wild outcomes.”

Election Zeitgeist

Speaking at the 2016 9th Asia-Pacific CPO Forum in Melbourne to an audience of about 50 leading procurement professionals, Tingle spoke swiftly, explaining how she saw things.

Another complication, on both sides of the political fence, is the unprecedented number of retirements of sitting members (21), meaning the loss of personal margins of longstanding MPs.

Laura explains, “My apologies for bombarding you with numbers. But they all play in to the zeitgeist of the current election campaign, and the unprecedented uncertainty around the likely outcome.

“When you say ‘uncertainty’ in politics, people think that that is, by definition, a very bad thing – that the country is heading in to some unknown period of terrible instability in the political landscape.

“When I say uncertainty, I mean it in the sense that, more than is usually the case, we really don’t know what the election outcome will be if we judge it purely by the numbers. If we judge it by gut instinct – do voters think one leader has nicer teeth – and other less scientific outcomes, there actually seems a little bit more certainty.”

“The questions comes down to whether the electorate really wants yet another change in prime minister? And whether Bill Shorten created – or can create in the next two months – a sense of momentum for change, as well as a strong relationship with voters who, until very recently, utterly dismissed him?

“And has the electorate’s view of the Coalition become so firmly entrenched in the negative that it just wants to get rid of the government?” she says.

“Think about the election result in those terms and your gut says – well at least my gut says – ‘no’ to all three questions.”

Policy Towards Business

Bill Shorten deserves full credit for leading a team that has gone on the front foot on policy and who has managed to bury the perceptions of disunity within the Labor Caucus, Tingle told the audience.

He’s a good campaigner and has started the formal campaign well. The more voters have seen of him in the past couple of weeks, in particular, the more they have liked him, she says.

Tingle told the audience that the Coalition has been thrown off course in the past couple of years, first by its utter political incompetence and lack of policy savvy. The 2014 budget has become the byword for this, but there was much that proceeded it in terms of policy towards business even before the budget was brought down.

“Having made such a mess of things, and then under intense political pressure, the government – still under Tony Abbott – tried to clean up, for which you could use the 2015 budget as the guide.

“But there was still a lot of mess, a lot of conflicting signals, and a lot of policy that is still on the books which is bad or politically untenable,” she says.

“Issues like health funding, schools funding, universities funding are massively complicated now for both sides of politics. They involve the goodwill and assistance of the states in all cases.

“And I have to say that, while I perhaps have more reason to be cynical than a lot of you, having spent 30 years to close to the political action, I actually think we have got a better bunch of competent people – professional politicians who are actually interested in policy as much as just winning – than we have had for a very long time.”

Tingle finished by warning that a number of things could go pear shaped in the world’s political landscape in the next three years.

“I would like to leave you today with the optimistic message that I believe both candidates for the prime ministership are capable people, with capable teams, not driven by ideology but by pragmatism,” she says.

In Search of Influence – What the Literature Says

Searching for the true meaning of influence, and how procurement professionals can, and need to, become better doing it.

Influence

I have recently completed my masters, and my dissertation looked at influencing within procurement and how to develop these skills.

This article looks at the published literature around influencing. The next article will review the opinions of top influencers and consider what their key traits are, and how these skills can be developed.

Much has been written about the need for the professional skill sets required by procurement professionals to change. According to CIPS over the last 5 years, the skills required have changed as the table below: [i]

Skills Table - GD

For Procurement to achieve its goals, more work needs to be done to align to key stakeholders and understand the business operations, in order to become a true strategic partner.

This means moving up the value chain to ensure that the function is involved much earlier in the decision-making processes and clearly demonstrating how active involvement adds tangible value to both the bottom and the top lines.

In order to do this, Procurement as a function needs to expand its ability to influence, and procurement practitioners need to expand their own personal influencing skills (along with other soft skills).

So what do we mean by influencing and what are the different ways we can influence?

What is Influence?

Influencing skills, have been defined as the ability to get people to do what you want[ii], or changing people’s behaviour to act in your favour through the use of persuasion[iii], or wielding effective tactics of persuasion[iv].

How can we Influence

We all have differing influencing styles which generally will fall into any of the following:

  • Asserting – where you insist on your ideas being heard, and you challenge the ideas of others.
  • Convincing – where you put forward ideas and offer logical reasoning, which convinces others of your point of view.
  • Negotiating – where you look for compromises and make concessions, in order that you can reach an outcome that satisfies your greater interest.
  • Bridging – where you build relationships and connect with others, using listening and understanding to build coalitions.
  • Inspiring – where you advocate a position and then encourages others to come round to the idea by sharing a sense of purpose.

Dale Carnegie[v] wrote, that in order to become effective influencers, we need to influence people at an individual level. He also argued that the steps for effective influencing are:

  • If you want to make a good first impression, smile.
  • If you want others to like you, don’t criticise them.
  • If you want others to gladly do you favours, show your appreciation frequently.
  • If you want to be interesting yourself, be interested in others.
  • Show your appreciation for others by talking about what’s important to them.
  • We like people who show their appreciation and remember things about us, like our names.
  • Avoid all arguments – they cannot be won.
  • Never tell others they are wrong, they will only resent you.
  • Whenever you are wrong, admit it immediately and clearly.
  • To be convincing, get others to say “yes” as often as possible.

Emotional Intelligence

Emotional intelligence is the capacity of people’s ability to recognise their own, and to understand and recognise others’, emotions, and use that information to guide behaviour and therefore influence.

Daniel Goleman argues that just having one persuasion skill alone, and deploying just one, may not be good enough to gain influence. He argues that being influential is having the ability to sense what other kinds of appeals will persuade key decision makers.

Critically, Goleman argues, it is noticing when one tactic isn’t working and when to switch to a different one which adds impact to an individual.

So what are the persuasion skills?

Persuasion

Manningham and Robertson[vi] identified 6 persuasion strategies from their research:

  • Reason – the use of logic or facts to justify a request
  • Assertion – making a direct request and using emotion to underline our need
  • Exchange – the trading of one thing for another
  • Courting favour – being friendly or positive with people
  • Coercion – the implication of negative outcomes on not agreeing
  • Partnership – gaining the support of people both within and outside the organisation.

In developing this research on persuasion tools, Reynolds developed the Persuasion Tools Model[vii], based on work by the psychologist Kenneth Berrien. It links negotiation and persuasion style, to emotional intelligence (EI), and in some ways echoes the work of Manning and Robertson

The Persuasion Tools Model
The Persuasion Tools Model

In this model, the horizontal axis represents influencing, which Reynolds states is a measure of your overall persuasion capability. The vertical axis represents the level of intuition required.

Summary

Two main thoughts are drawn from this research:

  1. That deploying one persuasion tactic as part of a plan is not enough; and
  2. Influencing, when it happens, happens with one person at a time.

In the next article, we will identify the traits of top influencers and how we may develop these skills.

[i] CIPS (2015) Advanced Diploma in Procurement and Supply; Chapter 4 Skills for Category Management

[ii] Mullins, L. (1996). Management and organization. 4th ed.  Pitman

[iii] Manning T; Robertson B; (2003),”Influencing and negotiating skills: Part I: influencing strategies and styles”, Industrial and Commercial Training, Vol. 35 Iss 1 pp. 11 – 15;

[iv] Goleman D (1998) Emotional Intelligence: Why It Can Matter More Than IQ; Bloomsbury Publishing

[v] Carnegie D; (1937) How to win friends and influence people: Simon and Schuster

[vi] Manning T; Robertson B; (2003),”Influencing and negotiating skills; Part II: influencing styles and negotiating skills”, Industrial and Commercial Training, Vol. 35 Iss 2 pp. 60 – 66;

[vii] Reynolds, A. (2003) ‘Emotional Intelligence and Negotiation,’ Hampshire: Tommo Press

5 Keys to Unlocking Successful Integrated Business Planning

Many companies still struggle with executing a strategic integrated business planning (IBP) process that effectively integrates demand planning, supply planning, and financial planning.

Successful Integrated Business Planning

Most simply put, the process should drive decisions on how to best meet demand (customer/consumer sales for existing and new products) within supply constraints in order to optimise financial return. Yet answers to the questions of each planning component of IBP (See Figure 1) can be dramatically different, and lead to very different results if addressed in silos versus an integrated fashion.

Put more bluntly, companies that successfully execute IBP achieve greater operational and financial benefits than those that do not. A key requirement for that success is collaboration, including a disciplined, repeatable process that drives integrated decision making, and a balanced scorecard for performance measurement.

Integrated Business Planning_Slide 2

Figure 1: Components of Integrated Business Planning

Based on our experience, we at The Hackett Group believe unlocking IBP can deliver the following competitive advantages and benefits:

  • Visibility into the financial implications of decisions and actions related to demand and supply.
  • Significant cost improvements driven by a more efficient and effective supply chain.
  • Improved top-line revenue growth.
  • Inventory deployment improvements, e.g. “the right product in the right place at the right time” based on customer demand, which reduce excess deployment costs.
  • Increased customer satisfaction as a result of more accurate demand planning and inventory availability which reduce out of stocks and back order issues.

However, with all the evidence that implementing IBP leads to important benefits in an increasingly competitive environment, why do many companies continue to miss out on the potential rewards of IBP?

We believe there are five keys questions that companies can use to open the doors to an effective and efficient IBP process. The first two questions deal with the market place and competitive environment in which the business operates, while the final three questions help assess internal improvement opportunities based on best practices for process, people, and data, systems and technology capabilities tied to IBP.

  1. What are the big-picture IBP trends in the marketplace?

Here are three examples of what leading companies are doing:

  • Streamlined annual planning and budgeting processes.
  • Balanced scorecards, with cascading metrics.
  • Unified data models and better integration of technology platforms to support advanced planning and analytic capabilities.
  1. How do our supply chain cost and metrics compare to other companies?

Benchmarking can serve as a useful tool for measuring performance against the competition. Armed with valuable key performance metrics for cost, process and resources, supply chain leaders are equipped to make critical decisions and address areas of opportunity.

As an example, the metric “Demand/supply planning costs per $1000 revenue” is an excellent indicator of overall efficiency (see Figure 2):

Demand & Supply Costs

Figure 2: Demand/supply planning costs per $1000 revenue across industries. Source: APQC 

  1. Are optimal planning processes in place throughout the organisation?

Establishing a best-in-class IBP process is the foundation for maximising the efficiency and effectiveness of any organisation. Example best practices include:

  • IBP goals and objectives are clear and well understood.
  • The IBP process evaluates gap resolution and business optimisation options.
  • Materials and reports supporting IBP are exception based. 
  1. Do we have the right people at all levels of the organisation, to own the plan, make decisions, and ultimately be held accountable for the plan’s execution?

Equally as important as the right processes, is having the right organisational talent and accountability mechanisms in place. Example best practices include:

  • Adequately staffed resources with required knowledge and skills.
  • Clear ownership and accountability.
  • Discipline to adhere to decisions made as part of the IBP process.
  1. Finally, are we equipped with the appropriate technology (tools and systems) necessary to fully support integrated business?

To enhance supply chain technology capabilities that both support and optimise the integrated business planning process, best-in-class organisations successfully employ supply chain systems and tools to maximise their IBP process.

Importantly, the firm must have the tools and systems needed to bring together and reconcile demand, supply, and financial plans in order to identify gaps and imbalances.

Read the full Hackett Group Supply Chain Insight Report here to learn more trends, best practices, and metrics which help supply chain successfully transition to Integrated Business Planning

Hanna Hamburger, a Director in the Strategy & Operations practice at The Hackett Group, has over 25 years of industry and consulting experience. She has worked extensively with consumer products and retail companies as well as life sciences companies in the areas of sales, marketing and supply chain process, technology and tools, and organisation performance improvement. A longer version of this article is available on The Hackett Group’s website.

Less is More – The Power of a Good KPI

It is not every day that procurement can learn from a fashion icon, but in my (and Coco Chanel’s) view – “less is definitely more” when it comes to a good KPI for procurement.

Coco Chanel - Good KPI

Think about your role in procurement. Think about the huge number of outcomes you work hard to deliver every day, from the repetitive (but necessary) daily tasks, to the huge projects with looming deadlines. Now, I want you to distil your entire, complex, multi-faceted role into just five KPIs.

That’s right – five KPIs only.

Passion for KPIs

I didn’t realise how passionate I was about KPIs until the conversation came up on the agenda at The Beyond Group’s “Productivity in Pharma” (PiP) Think Tank in Basel last month.

The room was full of heavy-hitters from the big pharmaceutical houses, including Novartis, Roche and Bristol Myers Squibb. Not necessarily CPOs, but heads of indirects, clinical research and engineering procurement. The facilitator, Sammy Rashed, led a spirited debate on what a good KPI should look like, how KPIs should work, and how they can benefit a business.

Wow! As the conversation evolved, I realised I had some strong views on how my beloved profession should be measured.

I shouldn’t have been surprised. Just after I finished my MBA, I spent a couple of years working with Alcoa’s corporate finance team on how we should measure procurement’s value, and then educating the procurement team globally about how to report the calculations. I’m also married to the global CFO of a FTSE 10 company, so I know the kind of metrics that he deems as solid, and those that are “fluff”.

What Gets Measured…

On that point, let me tell you a little bit about what I know about the mind of a Finance Director. It goes without saying that they are absolute geniuses: kind, considerate, and definitely make the very best life partners.

BUT, as I am sure you have witnessed in your own organisations, the mind of a CFO is fairly mono-dimensional. Value has to be defined and quantified in hard terms.

I put in a quick trans-Atlantic call to my husband to ask his opinion on KPIs, and was rewarded with this gem: “You can’t improve what you can’t measure”. It’s actually a variation on a common saying of his, which is “what gets measured, gets done” – but there you go. CFOs are full of surprises.

KPIs can be lagging, leading, soft, or hard – but whatever you do (according to this CFO) they must be linked to the corporate objectives, which is where I will start with my five rules of thumb for a good KPI.

1. Each KPI needs to be clearly linked to an overall business objective.

This is one of the most important issues for procurement to consider. You see, if procurement KPIs aren’t linked to the business strategy, then your team’s activities will not be seen as relevant to getting the business to where it wants to go.

I think this is why I get fired up on this topic. We talk about a ‘seat at the table’ and ‘speaking the language of the business’ – well, in the c-suite, KPIs are the language of the business. As a procurement professional, the KPIs you choose actually define your role in the business. Don’t underestimate the power of a good KPI to secure your seat at the table.

We were all in agreement at the PiP Think Tank that for procurement to be relevant and valued, it must be aligned with the business strategy. Your KPIs are the ultimate reinforcement to senior management that your team “get it” and understand how they can contribute to the overall business success.

KPIs that deliver profit (through cost-downs), free up cash, contribute to top-line growth through innovation and protect the corporate reputation will resonate strongly with your senior leadership team.

There is another important reason for linking your KPIs to the corporate objectives. Shared objectives help create teamwork and a sense of connection for everybody and the greater organisation.

2. Your KPIs need to be uncomplicated and measurable (ideally in hard dollar terms)

Procurement receives a lot of “constructive feedback” (I’m trying to be positive here) for using too many unique terms and not speaking the language of the business. Make sure your KPIs can’t be criticised for the same reasons!

A good KPI can be measured relatively easily and understood by the business. There’s no problem with spending some time with Finance to make sure you are a little creative in defining how value is being delivered, but the end result must be something that is widely understood and helps build credibility rather than undermine it.

You will also open yourself up to criticism if your team, or other parts of the business, need to spend a lot of time on calculating KPIs, so be careful and keep it simple.

3. KPIs should measure outcomes, not inputs or internal processes

Number of meetings, number of ideas, strategies being developed – none of these count in my book. They are all measurements of the inputs your team will make with the objective of achieving an outcome.

Your KPIs should capture the value this type of activity will actually deliver to the business. They have to resonate with the senior level by measuring outcomes rather than cataloguing your own activity.

4. Don’t have too many KPIs

Going back to what I said at the beginning, this should be a maximum of 5 KPIs. It takes courage, real discipline (and a lot of debate), but try to get your KPIs down to a small handful of measurable outcomes. It will give everyone clarity and focus.

5. KPIs must be achievable

More than anything, your team will need to believe that they can actually deliver on their KPIs. In a way, they need to be inspirational. They should engage the team to focus on the results that will make their function truly valued!

What is your criteria for a good KPI?

The Productivity in Pharma Think Tank brings together a conclave of senior procurement leaders from the Pharmaceutical industry, creating a unique, mini-MBA style environment, where the most pressing issues facing the function are explored in detail and, from which, key insights and applicable takeaways are derived.

You can find out more about this event at The Beyond Group website, and connect with the event hosts and facilitators Giles Breault (@GilesBreault) and Sammy Rashed (@RashedSammy) on social media.

How Walmart, Hanesbrands and Mattel Reduced Supply Chain Risk

It’s the million dollar question. How can corporates minimise supply chain risk, without significant disruption to their core business?

Supply Chain Risk

Global retail giants, headquartered in the US, have had to address their supply chain risk in a bid to forge ahead in the new world of corporate social responsibility. It hasn’t been an easy exercise, that’s for sure.

Retail giant Walmart, apparel brand Hanesbrands, and toy manufacturer Mattel, are among the countless others to bring about major changes within downstream manufacturing to ensure corporate risk is above board. Each turned to brand protection firm ICIX to implement a new way forward.

Management Wake-Up Call

Company founder Matt Smith explains that supply chain risk was starting to enter the corporate vocabulary in 1999.

“Companies were starting to get jittery about their corporate responsibility. Emails and back then, faxes, were being sent from management looking to address this issue, as they started to wake up to the fact that there were major risks within the supply chain that they had to actually take responsibility for. Before this time, it hadn’t really dawned on management that supply chain risk had anything to do with them,” Smith says.

Suddenly, the race was on to find a way to outsource the task of conducting factory audits and ask the hard questions. Fast forward more than a decade, and the events of 9/11 shone an even brighter spotlight on these issues and what it means for corporate entities.

Smith was at the coalface, watching the opportunity emerge. He set about creating a solution, and today ICIX remains the leading operator in this space. ICIX was born in 2004, initially to respond to the challenges faced by the food industry in securing the food supply chain, and addressing increased safety requirements of the Bioterrorism Act of 2002.

During this time, Smith worked with some of the world’s largest retailers to help them address issues of supply chain transparency and inefficient information sharing. ICIX worked to connect all trading partners into a single network to centralise collaboration, making it one of the earliest cloud-based SaaS companies.

Risk a “Complex Beast”

The company grew early food customers into other retail segments, including general merchandise and apparel and footwear. It also extended its solutions to include not just safety, but also quality, compliance and corporate social responsibility.

Today, ICIX helps companies understand where its products are coming from, streamline collaboration with trading partners, drive compliance and safety, and as a result, secure and maintain customer trust.

Smith says that those working on the risk side of a business are often frowned upon by those working on the business side, which makes it a complex beast to juggle. Frequently, the CIO within a business isn’t necessarily on the same page as someone in the CEO chair.

“I could see a really big opportunity opening up in the US, with several major retailers over here scrambling to find a solution.

“And today, businesses are spending more on managing risk than ever before. Those in procurement are battling for budget and attention, until something bad happens like people get sick or someone dies because of their product. That’s when the purse strings always open up. That’s what it often takes for people to want to solve the supply chain risk related issues.

“We realised that tackling this as a network was going to bring about far greater efficiencies, however retail is a complex industry in which to do this, which complicated the process,” Smith continues.

Role of Technology

For example, barcodes don’t match purchase orders or product numbers, and without that universal product identifier, it can be a complex process. Technology has played a huge part in bringing scale to the organisation, with cloud technology supporting a new way to assess and identify potential risk.

“Supply chain risk management is a huge area, and we were looking for ways to take that network architecture and make it accessible to everyone.”

ICIX does this by taking various feeds of information and assessing it. This could include shipping feeds, purchase feeds, ethical and responsible sourcing data and much more, and then cross-referencing all of these to determine supply chain risk.

The sheer size of retail giant Walmart put it under the consumer spotlight and forced it to look at improving supply chain transparency. Company management was eager to speak to Smith to bring about better efficiencies.

The catalyst for the changes at Walmart were the issues with Mattel matchbox cars in 2007, when consumers got wind of the fact that the children’s toys contained lead paint. New government regulations introduced as a result, required companies to act and take responsibility.

“Firstly, we see whether the vendor is meeting all their safety and testing requirements, then we can fast forward a few steps. And if they’re missing a test report, we can request that information on their behalf and rectify the situation and re-test,” Smith says.

Such solutions provide assurances that companies are ‘doing the right thing’ – that they are providing, safe, quality products that are ethically sourced and compliant. With ever increasing customer demands for transparency, information and responsibility, such programs are critical not only for companies to protect their brands and enhance their customer trust, but to survive.