Celebrating Supply Chain – The Organisation’s Unsung Hero

It exists in the background. When it works seamlessly, you wouldn’t know it was there at all. But the supply chain really is the unsung hero of the organisation.

Unsung Hero

Alice Catherine Evans. Dr. Megan Coffee. Gunner the Dog. Rick Rescorla. Heard of any of these individuals? They are just some of the unsung heroes from the past 150 years. They have all made a huge difference to the world, and arguably deserve much more recognition.

While maybe not at the same level, the same could be said for the organisational supply chain. It exists in the background. If it works seamlessly, then people don’t really take any notice of it. But, without it, organisations would grind to a halt. It really is the unsung hero of an organisation (as are all the people working in it!).

This week, supply chains have been in the news for the right reasons. The US Aerospace and Defence Industry and Domino’s Pizza were just a couple of organisations to highlight the good work their supply chains were doing.

However, it wasn’t all good news, as supply chains came under fire again for not doing enough to combat modern slavery.

SMEs the Unsung Hero for A&D

The Farnborough International Airshow, held in the past week, presents a fantastic opportunity of organisations further down the supply chain to present their new technologies and ideas. This year it also allowed the US A&D Industry the chance to celebrate its SMEs.

According to data from the Aerospace Industries Association (AIA), the US A&D Industry has exports totalling $142 billion last year. Of that, the supply chain generated 58 per cent of the exports, a whopping $78 billion.

The numbers go to show the strength of the supply chain companies, as well as the global partnerships they have built across the world. The importance of the supply chain SMEs is clear to the US A&D industry too. They have led the way in building a solid reputation of US technology and innovation across tens of thousands of projects worldwide.

AIA CEO David Melcher also sees a bright future of the SMEs. With trade agreements in place, Melcher argued that “small- and medium-sized companies can generate exports for decades more to keep this equipment operating effectively and efficiently.”

Supply Chain Success

Another unsung hero, at least until this week, was the supply chain for Domino’s pizza. The fast-food giant announced a 12 per cent increase in sales in the second quarter of 2016, beating profit and revenue forecasts.

The company attributed increased supply chain sales, including increased volumes and store growth, as a key reason for this. The supply chain sales themselves also saw a 12 per cent increase in the quarter.

Heroes Required

However, the week wouldn’t be complete without stories of what organisations need to do to combat slavery in their supply chains. A report released this week showed that the ICT industry has plenty to do in this area.

KnowTheChain compared 20 ICT companies, including Apple, HP and Samsung, on their supply chain practices. The results were not pretty, with the majority of the organisations scoring under 50 (out of 100) for efforts to eradicate forced labour, and how transparent their efforts were in doing this.

However, according to a business leader in the cosmetics industry, eradicating forced labour and slavery completely is an on-going battle. Simon Constantine, of British retailer Lush, stated that even though Lush is willing to pay more for ethically sourced goods, the company has still struggled to keep up.

Constantine said, “With the amount of work you need to do to stay on top of things, and everything changing so rapidly…I would never be comfortable saying our supply chain is 100 per cent clean.”

But with new regulations increasingly putting the onus on companies to ensure their supply chains are clean, it’s a battle that is set to be fought just as hard as ever.

Is your supply chain an unsung hero? Why not let us know and we can help you tell your story?

We’ve been pouring over the news and digital media to make sure you don’t miss the key headlines this week…

Brexit Causes “Dramatic Deterioration” in UK Economy
  • The decision by UK voters to leave the EU has led to a “dramatic deterioration” in economic activity in Britain.
  • Markit’s Purchasing Managers Index shows a fall in economic output to 47.7 in July, the lowest since the end of the Global Financial Crisis.
  • Both manufacturing and service sectors saw a decline, though exports were up due to the weakening pound.
  • Chris Williamson, Chief Economist at IHS Markit, said the downturn has been “most commonly attributed in one way or another to ‘Brexit’.”

Read more at The BBC

Turkish Procurement Programme Delays
  • The failed coup attempt to overthrow the national Government in Turkey will delay multi-billion dollar procurement programmes.
  • Members of the coup took senior army officials hostage last weekend, with their actions leading to over 200 deaths.
  • Although incomparable to loss of life, senior officials have admitted that procurement is “nowhere in the military command’s priority list.”
  • It has raised concerns that this will leave the army short of operational resources in the fight against ISIS.

Read more at Defense News

Rio Olympics Highlights Cross-Border Procurement Risks
  • The Rio Olympics, due to start in a few weeks, represents a massive opportunity for cross-border commerce.
  • The organising committee has already procured more than 30 million goods, including sports equipment and accommodation items.
  • However, organisations still need to be aware of the potential risks, such as logistical issues, and currency exchange rate fluctuation.
  • Reggie Peterson, Director of Indirect Supply Programmes at AmeriQuest, highlighted the importance of carrying out due diligence for organisations before getting involved.

Read more at PYMNTS.com

Facebook Drones Close to Taking Flight
  • Drones, built with the purpose of bringing connectivity to remote regions of the world, are closer to taking flight.
  • Facebook-owned British company, Ascenta, has run a successful test of its drones in the skies above Arizona.
  • The the solar-powered drones will be airborne for months at a time, beaming signals down to users on the ground.
  • The project is in competition with Google’s ‘Project Loon’, which aims to use high altitude balloons for the same purpose.

Read more on The BBC

Cloudy Future for ERP Based Procurement

Traditional ERP systems just don’t do the job for procurement. However, an integrated, Cloud-based approach could be the answer the profession is looking for.

Cloud & ERP

This article was written by Daniel Ball, director at eProcurement specialist, Wax Digital.

The benefits offered by best-of-breed eProcurement technology are well documented. Procurement professionals don’t need much convincing of the advantages of using them.

However, for some organisations, stepping away from using their Enterprise Resource Planning (ERP) system’s in-built purchasing tools isn’t always an easy option.

Modern ERP systems offer organisations a way to manage, collect and interpret data from a variety of business activities across seemingly all business functions, from purchasing and finance to HR and customer service. They also integrate all internal data-collection systems so that all business functions rely on one single database.

This one source of real-time data can help businesses to make decisions based on facts rather than assumptions. To coin a well-used phrase, they could be considered something of a panacea capable of eradicating all business process ills.

There is another way…                                                                                                             

However, for all of the many benefits ERP offers to the organisation as a whole, it’s not uncommon for procurement teams, amongst others, to be frustrated by its rigidity and functional limitations. While core functions such as Finance, Manufacturing and HR are well supported by ERP systems, Procurement, it would seem, is often less so.

Procurement teams will therefore inevitably face the choice between continuing to use ERP, or move to an alternative best-of-bread solution. Today this almost invariably means a cloud-based system that needs to integrate seamlessly with ERP.

The Integration Challenge

But how can procurement convince the rest of the business, and especially the IT department, that the existing functionality on offer to them is no longer adequate for their needs and that moving to a cloud-based system that can be integrated with ERP can be done easily and securely?

We’ve seen many of our customers seek to replace the procurement modules offered to them by their ERP systems but who have been stopped by the integration challenge. They have faced concern from IT managers that integrating with a remotely-hosted, third-party system may pose a risk to the organisation, especially when business-critical master data and finance systems are concerned.

However, the tide is now turning. Some cloud-based eProcurement solutions can securely integrate with ERP and their finance systems. This offers users freedom of choice and the ability to automate, improve, and better manage many of their day-to-day procurement processes.

Feasibility of Integrated Systems

A platform which comes with its own ready configured Integration Platform as a Service (iPaaS) is certainly a major step forward in convincing the finance and IT departments and using a separate but integrated system is not just possible, but advantageous.

We’ve worked with many procurement teams in leading organisations who’ve decided to reject the functionality on offer to them from ERP, and integrate cloud-based eProcurement.

One of our customers uses JD Edwards’ (JDE) ERP system for finance, and had used its procurement module for over ten years to raise purchase orders and approve invoices.

The system wasn’t very efficient or easy-to-use so certain departments chose to bypass it all together, preferring instead to manually process their orders.

However, the complexity and limited functionality of the existing system was preventing the organisation from making wide-scale purchasing efficiencies and not giving a clear view on organisational-wide spend.

Deciding to integrate a new eProcurement system with the JDE finance system that would enable a number of efficiencies including better spend control, more efficient order processing and payments, the organisation decided on a hybrid cloud approach allowing us to host our cloud-based service from within its data centres.

Wide Reaching Benefits

At another of our customers the procurement team was keen to make efficiencies to the management of its indirect spend across Europe.

Multiple systems were being used across the region for indirect purchasing, and these were largely manual, paper-based processes that did not provide full visibility and control over expenditure.

As a result, collaboration between the purchasing teams and finance, as well as with suppliers, was not integrated and could have lead to duplication on spend, or even the business purchasing goods or services it didn’t need.

In order to improve indirect purchasing across Europe, the organisation chose to move its entire European operations to a single, cloud-based eProcurement system to integrate with SAP.

Best-of-breed cloud-based, eProcurement solutions offer a host of benefits across the business, that are far reaching and extend beyond the walls of the procurement department.

Big Ideas Summit 2016: Big Idea #6 – Strategic Brand Value

Tom Derry believes procurement needs to move away from a traditional cost focus, and create a more strategic brand value for the profession.

At the Big Ideas Summit 2016, we challenged our thought leaders to share their Big Ideas for the future of procurement.

From ideas that have the potential to change the very nature of the procurement profession, to ones that got the assembled minds thinking about the profession’s impact outside of the organisation, the response we received was amazing.

Tom Derry, CEO of the Institute of Supply Management (ISM), believes that it’s time for procurement to have a more strategic brand value, and transition away from a traditional focus on cost, to support the greater dimensions of value for organisations.

As CEOs are becoming more concerned about risk profiles (brand risk; risk of disruption), the brand of procurement is being enhanced by offering value in risk management and mitigation, as well as adding value and managing cost.

Catch up with all the thought leadership and ours delegates’ Big Ideas from the 2016 Summit at the Procurious Learning Hub.

If you want to find out more about Big Ideas 2016, and what we have planned for 2017, you can visit our dedicated website!

If you like this (and you haven’t done so already) join Procurious for free today, and connect with over 15,500 like-minded procurement professionals from across the world.

5 Key Trends Driving Supplier Management and Due Diligence

Can you afford to take the risk? We assess the key drivers behind increasing supplier management and due diligence activities in supply chains.

Supplier Due Diligence

This article was first published on Greenstone.

First, we would like to take the opportunity to thank the Procurious members who took part in this survey. Your input is very much appreciated.

In the current non-financial reporting landscape there is a heightened focus on understanding your supply chain. As a result, organisations are increasingly evaluating the performance of their suppliers against a wide spectrum of non-financial criteria and monitoring the associated risks.

In order to better understand what is driving this behaviour and how companies are identifying and mitigating supply chain risk, Greenstone conducted the ‘State of Supplier Management 2016 survey.

We asked 1000 senior decision makers from mid-to-large organisations about the perception of supply chain risk and due diligence at their organisation. We also asked about the drivers for collecting supplier information and key factors in shaping their supplier engagement programmes.

We have identified five key insights into the state of supplier management from this study. These are listed below and expanded on in this report.

  • Supplier due diligence processes are a growing requirement for most businesses.
  • The majority of businesses are collecting non-financial information from their suppliers at some level.
  • Regulation and reputational risk are the strongest drivers for collecting supplier information and help to shape supplier engagement programmes.
  • Procurement teams are much more likely to be responsible for the collection of supplier data than Sustainability teams.
  • There is a growing trend of companies adopting online solutions to gather and analyse supplier management data.
Supplier Due Diligence

As you might expect, given the increasing global focus on supply chains, more than three quarters of respondents see supply chain risk, and the resultant need for supplier management and due diligence processes, as a growing requirement in their business.

Supplier Management Survey - Fig 1

In line with this perception, 72 per cent of responding companies are already trying to address supply chain risk by collecting non-financial information from their suppliers.

Supplier Management Survey - Fig 2

Data Collection

The necessity to collect non-financial information from suppliers appears to have become accepted across multiple sectors. However, the level of detail, method, and frequency of data collection differs greatly.

It was found that 43 per cent of respondents only collect supplier information as part of a tender process, or in the initial stages of supplier contracting. Therefore, these organisations are not conducting ongoing supplier due diligence. They cannot be sure that suppliers remain compliant throughout the period in which they deliver services.

However, a similar number of organisations do keep track of ongoing supplier performance. 17 per cent are sending out questionnaires by email or post, and 22 per cent are using an online supplier management tool.

Where supplier information is being gathered, there are common topic areas of compliance focus. Environment, health and safety and commercial information (e.g. insurance certification etc.) are the top three areas covered in supplier questionnaires.

However, what the study also shows is that a wide range of information is being requested.  As a result, increasingly diverse areas of both the buyer and supplier organisations are required to engage in the process and have access to the data. 

Supplier Management Survey - Fig 3

Drivers for Supplier Engagement

The research demonstrated that non-financial supplier risk and compliance have become key topics for organisations but what is driving this shift in behaviour?

When asked which factors are driving the collection of supplier information, 43 per cent of all respondents point to regulation and legislation being the strongest motivating force, followed closely by reputational concerns (32 per cent).

Supplier Management Survey - Fig 4

When asked what factors were important in shaping the structure and focus of organisations’ supplier engagement programmes, risk reduction, corporate sustainability, reputational risk and regulation were all sighted as significant motivating forces.

Specific legislative and reporting framework drivers mentioned by respondents included: Bribery Act, the UK Modern Slavery Act, UN Global Compact and ILO Core labour Standards as the top four frameworks or guidelines used to inform their supply chain practices and reporting processes.

Responsibility for Supplier Risk and Compliance

While non-financial reporting has long been the responsibility of CSR or sustainability teams, the increasing momentum of supply chain reporting is engaging new areas of organisation.

This is partly due to the outward looking nature of this issue and the need to engage with multiple supplier organisations. It is also due to the breadth of topics covered by the requests for information.

The study shows 83 per cent of respondents stated that procurement is the area that manages the entire process, from contacting suppliers, through to analysis of the data.

This is most likely due to the fact that procurement ‘own’ the relationships with the suppliers, have a clear idea of contract status and the commercial scale of the contracts and can therefore identify which suppliers meet the buyers defined risk and compliance criteria.

The level of resource allocated to supplier programmes varied significantly with 40 per cent saying that managing this process was the part-time responsibility of a full time employee and 38 per cent saying that multiple individuals in the business have full time responsibility.

What this does show is that there are clearly defined responsibilities within organisations for identifying third party risk and dealing with non-compliance.

Moving Beyond Manual Processes

The complexity and scope of collecting, analysing and reporting supplier information often calls for solutions beyond the manual processes and repository functions of lifeless spreadsheets.

For those organisations that have not yet automated the process, 61 per cent say they are considering adopting an online solution to gather and analyse supplier information.

It is evident organisations recognise the need for automation in the process, as it is not feasible to manually evaluate hundreds or thousands of supplier responses, and monitor their ongoing compliance.

In addition, the increasing legislative and reporting requirements place an additional emphasis on transparency and audit capabilities.

For more on the ‘State of Supplier Management 2016‘, visit the Greenstone website.

Greenstone’s SupplierPortal solution enables buyers to effectively manage supplier risk and compliance through a secure and private online platform. Buyers have the flexibility to distribute standard framework questionnaires, as well as proprietary questionnaires, to their suppliers and can then manage and analyse this information through a comprehensive suite of analytical tools.

Why Wait? Come to Training in Your Pyjamas

Have you ever had that nightmare where you’re wearing your pyjamas in class? With new training from ISM, your nightmare can be a reality (in a good way!).

Training in Pyjamas

I’m in training. I’ve got my laptop open on the table in front of me, a nice warm drink, and I’m waiting for the trainer to appear. A striking-looking instructor comes into view, walking slowly and deliberately in heels.

She’s wearing her ginger-coloured hair pulled back in a ponytail, quite a lot of blue eyeshadow and vivid red lipstick. She appears to have had eyelash extensions.

I sit up a bit straighter in my chair, before glancing down and realising with a shock that I’m wearing my pyjamas.

What is Micro-Learning?

But that’s okay, because it’s 9pm and I’m comfortably ensconced in a warm study in my own home. The kids have finally gone to bed and the dishes are done, so I’ve taken the opportunity to squeeze in one of ISM’s Just-in-Time Learning sessions, led by a flame-haired, animated instructor.

I’ve chosen a session called “Sourcing Strategy based on Forecasted Data”. At 8 minutes and 30 seconds, it removes my usual excuse about being too time-poor to invest in training. According to ISM’s Senior VP of Programs and Product Development M.L. Peck, this is what micro-learning is all about.

“People are craving content that address specific needs at specific times”, says Peck. “Micro-learning takes a ‘just-for-me, just-in-time, and just-enough’ approach”.

Training Essentials

This works for me, as my attention span seems to be diminishing rapidly as I grow older. The animated instructor’s voice has a slightly robotic quality, but she’s convincing enough.

She moves around the screen, gesticulating with one hands with the other resting on her hip. She (I’m not sure if the instructor has a name) even blinks and waggles her eyebrows as she drives each point home.

The instructor rapidly takes me through the advantages and disadvantages of the various types of sourcing – spot buying, buying to requirements, forward buying and speculative buying. As she talks, animated graphics appear and disappear next to her.

The content itself is drawn from ISM’s impressive global network of subject matter experts, who have created a remarkable library of digital knowledge.

The animation is interspersed with a video of Kevin from ISM, a (human) instructor who gives a real-world example of a restaurant owner who uses each of the four buying types as circumstances demand.

Sharing Essential Skills & Knowledge

Each Just-in-Time learning video has a different style. Some feature animated characters such as this, while others are led entirely by real instructors.

There are whiteboard animations, live interviews with executives and leaders in the profession, short lectures from industry experts, fun activities, games and flashcards.

This style of learning isn’t designed to be a deep-dive, but is a fast and effective overview of essential procurement skills and knowledge. Viewers can choose to explore further through eISM’s Guided Learning and Self-Paced learning options.

This particular video, however, is packed with fast facts, statistics, definitions from the ISM Glossary. It also includes real-world examples about sourcing strategies. By the end of the eight-and-a-half minute video, I have three pages of notes.

And what’s more, I even have time to sneak in another training video before my drink goes cold!

Learn More (in Pyjamas if you Want!)

Procurious now hosts three of the eISM Just-in-Time learning videos here on the website. Simply click on the “Learning” tab, or follow the links below to view:

For the full suite of eISM learning options, visit the ISM website.

Taking the Global Pulse of Procurement

How do you take the global  pulse of procurement and understand key current trends? Here’s a survey that helps do just that.

Global Pulse of Procurement

Zycus recently published their 2016 Pulse of Procurement report, an annual survey and report that highlights key procurement trends around the world.

The report draws on the thoughts and inputs of 650 procurement leaders worldwide, helping to draw valid, statistical conclusions across a number of topics.

The key areas of discussion in the 2016 report include:

  • The present state of procurement
  • The role of procurement technology
  • Hot current trends of procurement
  • The future of procurement

With participation in the survey increasing year on year, and the consumption of the report also increasing, it’s becoming one of the key information sources for procurement leaders. Procurious caught up with Richard Waugh, VP Corporate Development at Zycus, to talk through some of the key messages in 2016.

Procurement Technology 
Adoption vs. Satisfaction

One of the key findings Richard highlighted in this year’s report was the disparity between the high adoption of, but low satisfaction with, procurement technology.

In European countries all of the components of procurement technology have more than 50 per cent adoption. Core technologies such as P2P, eSourcing, Contract Management and Spend Analysis above 70 per cent.

However, only 1 in 5 survey respondents believed their technology solution was best in class or state of the art. One of the key reasons behind this, is that procurement are often left with a version of a legacy system, leading to low satisfaction.

Richard stated that, “These ‘best of breed’ procurement systems do exist, but it’s really only in the e-Sourcing area that state of the art tools are more prevalent.

“There is still a pent up demand for these best in class tools. These would help organisations make a step-change in performance, but many organisations are forced to make do with what they have.”

Supplier Performance Management

Richard believes that having the tools and technology available to enable closer collaboration with suppliers, will in turn drive innovation. These tools can help to measure the value of contributions that suppliers can bring to the table.

Richard stated that the more advanced procurement teams are already using technology to get closer to their supply base, and bring forward the best ideas for profit enhancement.

In addition to this, automation and procurement technology can help to significantly reduce manual, transactional activities, helping procurement get more from their resources, and at the same time enable the profession to be more strategic.

Spend, Perception & Risk
Spend Under Management

The Pulse of Procurement report also highlighted encouraging signs in the management of enterprise spend by procurement. In 2016, 26 per cent of the respondents have achieved an average of 80 per cent of spend under management.

These best in class performers have gone down the path of better stakeholder management and involvement. This allows them to access traditional ‘sacred cows’ of marketing, legal and IT spend.

However, according to Richard, there is still room for improvement. “The weighted average is only 57 per cent spend under management. If you’re average, you’re barely getting over 50 per cent of your spend managed.”

Perception

The report supports the idea that procurement is more of a strategic partner for the business now in many regions. This positive perception, and better visibility with stakeholders is more important, particularly in light of budget pressures.

In Europe, 9 out 10 leaders highlighted a positive perception of procurement by the C-suite. However, this region also has the greatest budget pressure. The majority of European respondents said that procurement budgets for 2016 were either flat or declining. This has led to teams being asked to do more with the same, or more with less.

In Asia-Pacific, the strategic role of procurement is still developing. Richard said, “There is an opportunity for Asia-Pacific to catch up this lag. As you start to manage the spend, the possibilities for savings are better. In fact, the savings goals for procurement are actually highest in this region as they address these categories for the first time.”

Risk

For the first time, supplier risk management fell out of the top 5 priorities for procurement in North America, although it remained in the top 5 in Europe. While this is probably reflective of the current macro-economic conditions in Europe (Brexit; political instability), it does show a potentially short-sighted approach in North America.

In better economic conditions, it’s easy to let risk fall down the ladder. And with less volatility in America, even with a Presidential election coming up, organisations may have changed their focus. However, as Richard states, now is not the time to take your eye off the ball on risk.

“The more mature procurement organisations are doing a better job of managing supply risk. They realise the cyclical nature of risk and the potential for a downturn, and understand the need to be more prepared. However, there is still a significant component who are tactically focused, and dealing with the current reality, rather than looking ahead.”

Pulse of Procurement

Finally, we asked Richard why procurement professionals should download the Pulse of Procurement report. For Richard, it was as simple as saving yourself time with data analysis, and getting a better view of the world outside your organisation.

“For most organisations, everyone is stretched, doing more with less. People tend to have a myopic view of what’s going on in their organisation, without seeing the bigger picture. They can’t readily benchmark themselves against the wider function.

“The Pulse of Procurement report gives you the chance to have data synthesised for you, and to gain some context as to how you compare to the function overall. This then allows you to see where you are leading and lagging in comparison.”

You can download the Pulse of Procurement report on the Zycus website. For more information on how to be involved with the next Pulse of Procurement survey, contact Zycus.

Australia’s Love of Credit Set to Continue

Australia’s love of credit isn’t likely to fade anytime soon, a conference in Sydney was told last week. But that’s no bad thing.

Love of Credit

The Banking and Financial Stability Conference, hosted by the University of Sydney Business School, brought together senior representatives of the US Federal Reserve Bank, the Reserve Bank of Australia, the Australian Prudential Regulation Authority, the Bank for International Settlements, and The Bank of Finland.

The one-day conference also discussed:

  • The current global obsession with monetary policy;
  • The constant pressure banks face from new fintech players; and
  • The Brexit vote and what its broader impact could be.
“Over-exuberant Lending”

The Reserve Bank of Australia’s Head of Financial Stability Department, Luci Ellis, spoke on the topic of ‘Financial Stability and the Banking Sector’.

Ellis told the conference that Australia’s ongoing need for credit can mean that the value of a well-functioning creditor sector is sometimes under-appreciated.

“Especially since the (global financial) crisis, the dangers of too much credit have become all too apparent. Over-exuberant lending and borrowing can mean that some people are getting loans that they have little prospect of being able to repay, even in good times.”

Importance of Credit

Less well appreciated are the costs of having too little credit available, Ellis added.

“The point here is simply that in recognising that too much credit can be dangerous, we should not instead fall into the trap of thinking of all borrowing as illegitimate, or somehow immoral. Less credit isn’t always better,” she said.

“The low credit levels available in regulated past decades are not the benchmark we should be evaluating ourselves against now, when trying to assess risk in the system. Some activities can and should be financed with at least some debt, even in bad times. And even thought there are plenty of others that should not.”

While Australia doesn’t have this problem, some recent examples overseas show the damage that can be done when there isn’t enough credit available, Ellis told the audience.

“Australia is one of the more bank-orientated financial systems when it comes to providing credit, but it is hardly alone. Some of the countries at the lower end of the range, such as the United States and Canada, are there partly because their governments support the securitisation market in various ways.

“These interventions allow banks to take some exposures, particularly mortgage exposures, off their balance sheets. In some cases they also allow some non-bank loan originators to operate at larger scale than might otherwise be possible,” Ellis says.

Broader Brexit Impact

Conference Co-Chair and Associate Professor in Finance at Sydney Business School, Eliza Wu, says pull-back in bank lending to Asia-Pacific by global, and in particular European, banks can be expected as a result of the Brexit. This is a major concern for the region’s investment and growth.

“This trend started with the GFC, continued into the European debt crisis, and now with Brexit,” Wu says.

Wu told the conference that, “enhancing financial stability in the face of unprecedented monetary policy regimes, and new risks that have developed, will remain a major challenge for policy makers and conference attendees alike.”

Associate Professor within the Discipline of Finance, Professor Suk-Joong Kim, added: “The most immediate concern is the increased level of uncertainty and volatility expected, and experienced, in the international financial markets due to the Brexit vote. Brexit has cast doubt over London as the world’s most important financial centre, and the future of the international banks that operate there.”

Regulation & Supervision

Luci Ellis also spoke on the role that major banks will play in the future. In a world where banks are central to financial stability, they will always need to be regulated and supervised.

“The Australian financial system has managed to weather the external shocks of the past two decades reasonably well. Strong prudential supervision has helped achieve that positive outcome.”

However, supervision goes far beyond ensuing that banks have enough capital, she added. History shows that banks can have much higher shares of capital in their liabilities than we see nowadays.

“We should remember that the policy measures that safeguard the liquidity of bank deposit liabilities, such as deposit insurance and liquidity provision by the central bank, can create incentives for banks to take those risks,” Ellis said.

“If the ultimate goal of financial stability policy is the real economy, it isn’t enough to require banks to hold enough capital to absorb losses, while disregarding the scale of those losses. The losses themselves can represent distress in the economy. The holders of capital are often part of the same economy, so absorbing the losses does not make them go away,” she says.

“Absorbing the losses, and thus avoiding a collapse of the banking system, prevents knock-on effects to other parts of the economy, which is better than nothing. But it would be irresponsible to disregard the risk profile of the banking system’s assets, as long as banks have enough capital to cover those risks,” Ellis says.

Is Indirect Procurement Really So Complex?

You could be forgiven for thinking the management of indirect procurement is akin to rocket science. Is it really so complex?

Indirect Procurement Rocket Science

Sourcing and contracting indirect goods and services in categories like I.T., consulting, HR and travel is important to keep the business running.

You could be forgiven for thinking that the procurement of such services is akin to rocket science, especially if you listen to those many external “solution providers” whose income stream may depend on you.

It may be tempting to consider outsourcing some or all of the management of your indirect spend. In many organisations it is often poorly recorded, loosely managed, widely dispersed, and, generally, messy or neglected. But first let’s consider the issues, and how this indirect spend could be managed internally.

Direct and Indirect Procurement 

Direct (or core) procurement traditionally focuses mainly on the sourcing of goods, and some allied services, that are used in the manufacturing or production of goods for sale. These items are usually clearly specified, often with a pre-defined supplier base.

Indirect procurement is different. It is essentially the sourcing of services (and maybe some goods) to support day-to-day operations.

The indirect spend may make up around 30 per cent of all third-party spend, but there are significantly more suppliers and the buying community is more decentralised. Add to that, a higher potential for maverick spend and sensitive stakeholders, and there is the added complexity.

What is happening now is that the percentage of indirect spend-under-management is growing in many companies. Difficult areas such as advertising, insurance and consulting fees are slowly being brought into the category structure.

It is often said that indirect procurement is not strategic. However, some high spend categories, such as sponsorship and employee benefits, could definitely qualify.

Key issues in Indirect Procurement
  • Buying decisions are often dispersed throughout an organisation into diverse and competing business units or locations.
  • Stakeholders can, and will, resist any changes on which they have not been consulted.
  • Managing an indirect category such as marketing services or consulting requires assembling the historical data and providing reliable spend information. Often transactions are miscoded – sometimes on purpose – which creates the wrong picture.
  • Suppliers can only be a resource for continuous improvement if the communication channels are open in both directions.
Strategies for Indirect Procurement  

The first step in a category strategy should be to aggregate the spend and understand it and its sub-categories. Next, present this information, in a digestible form, to stakeholders to elicit their input.

It is never too early to talk to stakeholders about the data or the proposed Scope of Work. After the Request for Proposal has been issued, it is too late.

Two of the success criteria in indirect procurement are a robust Scope of Work and a detailed Service Level Agreement with workable measurements.  Without these, any contract can fail.    

Indirect Procurement as a Career Choice

The requisite technical skills for individual success in procurement have been well-documented. One of the key skills of the future is to be numerate and have analytical ability, but not necessarily be a mathematician.

Managing indirect categories requires a different skill set from that which is needed for working in direct procurement. Behavioural skills, which can also be acquired, come into the spotlight here.

Particularly important is the need to collaborate with stakeholders. An aspiring category manager needs Influencing and listening skills, empathy, and the ability to take the initiative as well as being decisive when the need arises.

Indirect categories (when the tail-end spend is excluded) do not easily lend themselves to automation or the use of the e-procurement tools, such as e-catalogues or vendor management systems.

This creates a dilemma for external service providers who have these tools, but readily admit that there are nuances and emotions at play that may be beyond their control.

The organisational culture and landscape on the indirect side has many nuances that do not exist on the direct side. Procurement executives will therefore need to traverse the waters of indirect spend with unique strategies to ensure success.

Indirect procurement is all about building trust with stakeholders and suppliers to ensure continuity of supply and smooth operations.

Just try to procure the same make and model of smartphone for everyone, or change the catering company without considering end-users.

The Art of Cross-Cultural Negotiation

Negotiations can be tricky. A cross-cultural negotiation presents an entirely different challenge, one with countless pitfalls and potential faux-pas.

Cross-Cultural Negotiation Roundtable

Negotiations in a business setting can be difficult at the best of times. Throw cross-cultural diversity into the mix, and the difficulty level rises again.

The way you speak, behave, control your body language, and operate can change hugely from culture to culture. This increases the chance of making a mistake, or accidentally offending the other party.

Some people may also make the mistake of assuming that when we talk about culture, we are limiting this to a purely geographical standpoint.

When referring to a cross-cultural negotiation we often talk about different nationalities as a primary characterisation. But this is not the only element that affects culture.

Culture is the unique characteristics of a social group, and the values and norms shared by its members. This social group may be a country, a corporation, a religion, gender, an organisational function, or one of many others.

Dealing with Cross-Cultural Negotiation

How can you prepare for a cross-cultural negotiation? What do you need to know? What do you need to prepare in advance? And how should you approach negotiating with different cultures? This is where expert advice can help.

Procurious were lucky enough to be invited to listen in on a cross-cultural negotiation roundtable, organised by Giuseppe Conti, Founder of Conti Advanced Business Learning. Participants came from a range of businesses and diverse backgrounds, and comprised 8 different nationalities. The discussion was fascinating, and provided some great insights into a complex subject.

In this series of articles, we will examine key factors to be taken into consideration during cross-cultural negotiations, and see some real-world examples straight from the experts.

Power Dynamics and Balance

Giuseppe kicked off the discussion by asking the participants to talk about their own experiences of cross-cultural negotiations.

Jonathan Hatfield, Director of Purchasing, EMEA at PPG Industries, talked about his first trip to Russia to purchase chemicals.

Supplier power played a large part in the negotiations. Jonathan visited factories in Siberia, where no-one spoke any English. In line with the strong hierarchical culture of the country, he was also dealt with several junior product managers before he could access more senior people.

While Jonathan’s aim was to create a relationship with the supplier, the supplier cut straight to the point. They only wanted to know what he wanted to buy, where it was going, and what the price would be.

Jonathan left Russia not even knowing if he had managed to secure any materials (happily he did!). It taught him about power balance, and also to make sure that he had approvals lined up in advance.

Language Barriers and Coffee

Two other participants gave examples highlighting the difficulties of language barriers and body language.

Thierry Blomet, Senior Vice President at Kemira, took part in a negotiation with an Indian customer, who appeared to be shaking their head from side to side at every argument that was presented. This left Thierry feeling that none of his ideas had been accepted.

When he questioned this with his local representative however, he was told that he was doing fine. The shake of the head was actually a sign of agreement with what he was saying.

Matthias Manegold, Head of Procurement and Supply Chain Practice at Kinetic Consulting, talked about a situation where language barriers played a major role.

He was negotiating with an Asian business to bring new technology to Europe. Each statement in the negotiation was met with a “Hai” (Japanese for yes), but it wasn’t until later on that Matthias was told that this actually meant, “Yes, we hear you, but we don’t necessarily agree”.

Jean-Noel Puissant
Jean-Noel Puissant

One final example came from Jean-Noël Puissant, Head of Procurement EMEA at Monsanto International. Jean-Noël highlighted the difference in how negotiations start in different cultures.

In one negotiation in the South of Italy, the owner of the supplier arrived with his wife, listened to the agenda being laid out, then suggested everyone get a coffee.

It was his way of starting the negotiation by getting to know the other party better with some conversation before the business discussions kicked off.

Company Cultures

The participants also reflected on company cultures, and how current or former employers’ cultures had shaped their own negotiation approaches.

Stephane Guelat, Senior Director – Supply Chain at Pentair Valves and Controls, spoke about one of the key factors for procurement and supply chain – ethics.

Stephane said that, while many organisations will put employees through ethics training, the ethical standards may be different across cultures. For instance, the exchange of services or gifts may be perceived as completely unethical in Western Europe, while fully normal in India.

Xin-jian Carlier Fu, Strategic Sourcing Commodity Manager at Honeywell, argued that there are likely to be many different cultures within the same organisation.

This was confirmed by Jonathan Hatfield, who said that this is ever more the case as organisations from different cultures and countries merge. He added that it was something buyers needed to be cognisant of when dealing with companies which had been taken over.

Finally, Giuseppe highlighted how his first job with a large multinational with a very competitive culture shaped his initial approach to negotiation.

When working later in his career with a smaller, family-owned organisation, he learned to adapt and broaden his approach to negotiation. According to Jean-Noël, we cannot assume one-size-fits-all. We need to understand the specific culture of each large or small organisation.

There’s much more to come on this topic, including tips on negotiating with different nationalities, and applications of cross-cultural research in negotiations. Come back next week for more.

This roundtable was organised by Conti Advanced Business Learning (www.cabl.ch), a Swiss training company that specialises in Negotiation & Influencing training. Giuseppe Conti, has over 20 years of Procurement experience and 10 years of negotiation teaching experience at leading Business Schools (including Oxford, HEC Paris, IMD and ESADE).

Gotta Catch Them All! But Is Pokémon Go a Cyber Crime Target?

Pokémon Go is the new craze sweeping the world. It’s just a game, but how does it relate to real-life laws? And could it really be a target for cyber criminals?

Pokémon Go

Last week, Nintendo launched its new ‘augmented reality’ game, Pokémon Go, across the world. Nintendo spread the launch dates out, with the USA, Australia and New Zealand first, and Europe and other parts of Asia launches in the following days.

For the uninitiated (and you’ll be hard pushed to be one of those with the blanket media coverage), the game blends digital characters from the successful Pokémon franchise, with GPS and location based technologies on smart phones.

Global Craze…and Growing

Within 24 hours of its US release last Tuesday, Pokémon Go had already overtaken its competition to be the biggest game of 2016. It moved to number 1 on App Store, and after 3 days had become the biggest mobile game in US history.

The game surpassed Twitter in terms of daily active users, and Facebook in terms of user engagement on its app. It’s also estimated that it may overtake Google Maps as the largest user of Alphabet’s mapping data.

The incredible growth has also helped Nintendo’s market value jump. It marks the end of a difficult period for Nintendo, who’s market value has been in decline since October 2015.

Nintendo’s market value increase by 10 per cent when the game went viral in the first week of July, with a further 25 per cent added by last Tuesday. This equates to nearly $9 billion added to the market value in less than a week.

Safety First!

The new craze has not been without its hiccups, however. In addition to people walking into walls and falling down holes while glued to their phones, there have also been reports of muggings and armed robbery facilitated by the game’s geolocation software.

Police in Australia have also issued a couple of public announcements in light of these incidents. They have asked the public to be aware of their surroundings while hunting Pokémon, that they shouldn’t use the app while driving, and that “I was collecting Pokémon” is not a defence for trespassing.

The final point brings into focus the issue of how augmented reality games will cope with country laws. As users are collecting characters in the real-world, the potential for trespass grows.

How this will be handled by businesses (some of whom are taking advantage of the craze) and locations (like Arlington National Cemetery) in the future will be interesting to see.

Pokémon Go a Cyber Target?

A number of experts have also argued that Nintendo’s launch could leave some users potentially vulnerable to cyber criminals. With a staggered launch, some users may have been tempted to download a version of the app from unverified third-party app stores. This could subsequently leave them vulnerable to malicious apps and malware.

These apps could then allow criminals to access smartphone data, spy on users, or even control phones remotely. Another report by security software company, Trend Micro, highlighted the risk posed by the game to individuals’ data.

Gamers who downloaded Pokémon Go and registered using a gmail account, could inadvertently give third parties access to private data. However, this issue could be mitigated by ensuring the correct privacy settings in the app.

Connected Devices

While the cyber crime risk for Pokémon Go seems fairly low, it may signify the start of a larger issue. The growth of augmented reality games, smartphone technology, and connected devices via the Internet of Things, does pose a cyber security risk.

But what is certain is that as the technology leaps forward, security provisions and investment needs to move forward too.

Have you jumped on the Pokémon Go bandwagon? Do you think talk about cyber crime for these games is realistic? Let us know. 

We’ve dragged ourselves away from virtual creature capture long enough this week to bring you the weekly headlines…

General Motors Deal with Bankrupt Supplier
  • GM’s contract dispute with Clark-Cutler-McDermott Co. (CCM) has forced the parts supplier into bankruptcy protection, with plans to sell its remaining assets.
  • CCM has argued that unprofitable contracts have led them to lose $12 million since 2013.
  • GM will purchase a quantity of critical factory equipment and parts necessary to continue production across their North American factories.
  • The well-publicised dispute in the bankruptcy court has shed light on the uneven power dynamic between car makers and parts suppliers.

Read more at the Wall Street Journal

Retailers Struggling with Reverse Supply Chain
  • Customer returns and product recalls are becoming increasingly common, with the most notable recent event being IKEA’s massive recall of 36 million dressers worldwide.
  • Returns and recalls pose a significant challenge for the retail sector to build a ‘reverse supply chain’.
  • This term can be misleading, as it is not simply the usual supply chain run backwards, but a complex network of transportation and resellers.
  • Retail Industry Leaders Association VP Adam Siegel warns: “You’re not going to succeed if you’re losing money on your reverse supply chain because, inevitably, the reverse supply chain is going to grow.”

Read more at PYMNTS.com

Palm Oil Industry Rife with Human Rights Abuses
  • The palm oil industry has come under further scrutiny for human rights abuses.
  • The Rainforest Action Network (RAN) has released an animated video that highlights the organisation’s largest criticisms of the palm oil industry.
  • The video focuses on the non-compliance of a PepsiCo joint venture and endemic labour abuses in Indonesia. 
  • RAN claims workers at palm oil plantations have been subjected to excessively long work hours for low wages, dangerous exposure to agricultural chemicals, confiscation of passports, and child labour.

Read more at Triple Pundit

IBM Pushes Blockchain in Supply Chain
  • IBM has launched a platform for companies to test “blockchain” record-keeping technology in their supply chains.
  • The service is an attempt to expand the use of blockchain beyond the financial services industry.
  • IBM’s new service lets supply chain customers build and test blockchains using a version of the company’s LinuxOne system.
  • The service is aimed at companies that need to track high-value items through complex supply chains.

Read more at the Wall Street Journal