We‘re throwing open the doors to the world’s first digitally-led conference for the procurement profession: The Procurious Big Ideas Summit 2015.
Planned as a unique think tank event, our Big Ideas Summit will draw on 40 of the world brightest minds from established thought-leaders, senior business leaders and commentators to discuss outside-of-the-box cost solutions.
What’s the Big Idea behind it?
The aim of Big Ideas is to inspire a new generation of business intrapreneurs to drive innovation and change in large organisations. Structured around three topics – RISK, PEOPLE and TECHNOLOGY, the event aims to change the world’s mind about cost and tease out solutions which will drive competitive advantage, agility in unstable markets and long term value for organisations.
The face-to-face component of the event will take place in London on 30 April 2015, however, with ideas and content amplified through Procurious, we’re welcomingmore than 4,500 procurement professionals from across the globe to submit questions to speakers in advance as well as tune in, learn and participate in real time.
Who will be speaking?
We’ve secured a high calibre of thought leaders and keynote speakers, including:
David Noble, Group CEO, CIPS
Chris Sawchuk, Principal and Global Procurement Advisory Practice Leader, The Hackett Group
Professor Jules Goddard, London School of Business
Professor Olinga Ta’eed, Director Centre of Citizenship, Enterprise & Governance
Giles Breault, Founder and Director, The Beyond Group
How you can take part
The Big Ideas Summit is open to all Procurious members. It doesn’t matter where you are in the world – we want you to help shape the agenda – register your attendance at our Procurious Big Ideas Summit Group.
As savvy social networkers you’ll already be of the mind that social media can be used to create a global stir. We want to amplify these Big Ideas throughout the global procurement community, connect with one another, start meaningful conversations, and ultimately drive change.
All keynote sessions will be captured on film and offered exclusively to registered attendees. As a ‘digital delegate’ you’ll also be able to access a rich collection of supporting material including; articles, interviews and video content post 30 April.
Who’s sponsoring it?
For an event that explores the biggest trends impacting procurement we thought it only necessary to bring onboard similarly hot-ticket sponsors. The Big Ideas Summit 2015 is proud to be sponsored by the Chartered Institute of Procurement & Supply (CIPS) and The Hackett Group.
With the revelation that Russia’s dreaming of constructing a superhighway that will span the circumference of the globe – Procurement consultant Natalia Urazova and FMCG Procurement Specialist Vladislav Mandryka have got together with their fellow professionals to tell Procurious about procurement in Russia.
How do you think procurement differs in Russia, as opposed to elsewhere in the world?
Commercial procurement only came into being in Russia in 1991, with purchasing previously based on central planning activities. Procurement in Russia is now growing rapidly due to the increasing numbers of multinational corporations in the domestic market. Comparatively, it’s fair to say that procurement in Russia is at the same stage now as it was in the USA in 1999-2000.
Only around 10 per cent of all Russian companies have a defined procurement strategy, nearly all of which are large companies. Small and medium-sized companies tend to view procurement as a ‘passive administrator’ of production orders. As a result of this, these companies tend to lose 25-45 per cent of their spend value in procurement activities.
Leading Russian companies, those with active procurement strategies, are able to save billions of rubles annually through a number of initiatives like reconfiguration of procurement departments, P2P optimisation, category management, tenders and SRM programs.
These organisations have also understood that centralisation of procurement function provides benefits, so, in most cases, the procurement of key commodity categories with sufficient spend is centralised. However category management, Total Cost of Ownership and standardisation are not widely used concepts.
There’s a bit of a mix too when it comes to Supplier Relationship Management and supplier development. Some companies have made an effort to master lean thinking and create cross-organisational cross-functional teams to reduce losses in the value chain. However, there are many that still view supplier management as a method of aggressive negotiations, in order to achieve their own short-term aims.
Some organisations have a level of automation in their procurement activities, although this tends to be a ‘patchwork’ of ERP and MRP systems. Where systems have been implemented, there have been positive results. The same can be said for e-Procurement and e-Auctions for the most part, although in some cases, the focus on minimum prices has caused major mistakes. In one example, an organisation managed to lower the price of an auction item by 42 per cent, but left themselves with 15-years worth of stock!
Procurement is also complicated by the size of Russia and the extended time zones in the country. For example, if you have a regional office in Ust-Ilimsk (essentially in the centre of the country), it requires 2 flights and a 5-6 hour car journey to get there from Moscow. Equally, if you have an issue in a subsidiary in Khabarovsk (nearly the Eastern most city in the country) that requires an answer from a business unit in Voronezh (in the far West), at 9 a.m. you only have two hours for a solution, because there is a 7-hour time difference.
How did you get started in procurement?
In 1999, I was asked by my business to find a specialist to train the procurement department. There was a lack of such specialists in the market at the time, so I designed a small workshop myself. I have adored procurement since then – it’s the most interesting and best part of the business!
I’m now involved in the implementation of lean thinking in procurement activities across all my research and consulting projects.
What do you see in procurement’s future in your country and how can social media play a role?
Procurement professionals are increasingly becoming change leaders in organisations and have the ability to dramatically increase the efficiency of the entire value chain.
Social media isn’t used as much in procurement at the moment. But I hope that we can use it to get involved in conversations with procurement professionals from around the world and share information and experience about procurement best practice.
Why did you join Procurious?
I rarely use social media in my day-to-day procurement activities and to share procurement best practices and I saw Procurious as an opportunity to change that.
What are you hoping to get out of the network?
To get involved in conversations with other procurement professionals and share information and procurement best practice.
How are you going to get your peers involved?
By inviting them via my network, particularly those who shared their experiences in order to help me write this article!
With over 300 questions and over 1000 answers, the Procurious Discussion forum is one of the most active on social media. But there is always room for more. If you have a question, please hop over to the forum and post it up!
By way of thanking you for your continuing support, we’ve picked a particularly popular topic from the last month:
Who’s responsible for writing a specification or brief?
Procurement has been tagged as the responsible party for the generation of a specification or brief but I believe this to be incorrect. What has been your experience?
This was an interesting question from Sarah Lees, providing some diverse answers from the community. Responsibility for writing specifications or briefs can vary depending on industry, company or how it has been done in the past.
Although there was no overall consensus on the responsibility, there was agreement that procurement needed to play a role in the process, whether that was facilitation, clarification or writing the document.
A number of the responses highlighted the need for a cross-functional or multiple stakeholder led approach, where procurement facilitated a group including the end user, requester, departments such as engineering or sales, as well as potentially preferred suppliers.
Involving the supplier can allow for clarification on requirements before quotation and supply, while also opening up opportunities for innovation or alternative solutions. Suppliers may play a role as a key stakeholder and, as such, it is worth considering them to be part of the group.
Key to the discussion was the idea that ‘they got what they asked for’ was no longer an acceptable excuse. In order to ensure that the right product is sourced first time, procurement can question and evaluate requirements – does the product need to be bespoke, will an off the shelf version work, is this actually required – and ensure that suppliers are getting a specification that they can understand and respond to.
If you’re still unsure, check out Procurious’ video on developing a Scope of Work. This shows the SOW and Specification as two distinct documents, gives an overview on formats of specifications (functional or descriptive) and highlights what role procurement plays.
The world’s largest cruise company has announced that Julia M. Brown will become the company’s CPO. The role of CPO is a newly created one for Carnival and it’s hoped that Brown will be able to strengthen strategic partnerships with the company’s network of suppliers around the world.
Brown will be tasked with improving efficiencies and driving strategic sourcing across the company’s nine brands, which are spread across the globe. It’s thought that combining the purchasing power of these brands will lead to significant costs and efficiency savings.
On the announcement of the new CPO Arnold Donald, president & CEO for Carnival Corporation & plc said: “We are excited to have Julia join us as part of our global management team and take on this new role that will be critical in helping us further leverage our scale, accelerating our drive to double-digit returns on invested capital.”
Brown comes into the position with a solid background in procurement having previously held the role of CPO at Mondelez and Kraft, as well as strategic roles with Diageo, Gillette and Clorox.
Speaking on the need for the new role of CPO Carnival Corporation’s Chief Operations Officer Alan Buckelew said: “As we have become increasingly global, the role of coordinating our procurement and supply chains has become more and more complex. At the same time, our global sourcing function creates opportunities for us to improve guest experiences onboard our ships and collaborate across our brands to operate more efficiently. Julia brings a depth of leadership and experience that will help us capitalise on those opportunities, as we build on the success our teams have already achieved.”
Shipping losses lowest for 10 years but mega-ships and cyber-attacks pose new threats for maritime sector.
Shipping losses continued their long-term downward trend with 75 reported worldwide in 2014, making it the safest year in shipping for 10 years, according to Allianz Global Corporate & Specialty SE’s (AGCS) third annual Safety and Shipping Review 2015.
The British Isles, North Sea, English Channel and Bay of Biscay has been the location of the most shipping casualties since 2005 (4,381). Nearly one in five of all incidents (18 per cent) have occurred in this region. It was also the scene of the second highest number of casualties during 2014 (465), up 29 per cent year-on-year. The East Mediterranean & Black Sea region was the top hotspot (490), up 5 per cent year-on-year. Total losses in the British Isles and surrounding waters doubled year-on-year during 2014.
Over reliance on electronic navigation aids has caused a number of incidents in 2014. Captain Rahul Khanna said: “Inadequate training at grass roots level is to blame for this overdependence on e-navigation tools. The minimum standards have been met, but this is not good enough. We need to go above and beyond them to give robust training.”
The most common cause of total losses is foundering (sinking/submerging), accounting for 65 per cent of losses in 2014 (49). With 13 ships wrecked or stranded, grounding was the second most common cause with fires/explosions (4) third, but significantly down year-on-year.
According to the report, there were 2,773 shipping incidents (casualties) globally (including total losses) during 2014. December is the worst month for losses in the Northern Hemisphere and August in the Southern Hemisphere. For every total loss in the Southern Hemisphere there are 7 in the Northern Hemisphere.
The most significant risks identified in the 2015 Safety & Shipping Review include:
Increased threat from cyber-attacks
Cyber risks are another new threat for a shipping sector which is highly interconnected and increasingly reliant on automation.
“Cyber risk may be in its infancy in the sector today, but ships and ports could become enticing targets for hackers in future. Companies must simulate potential scenarios and identify appropriate mitigation strategies,” said Khanna. “A cyber-attack targeting technology on board, in particular electronic navigation systems, could possibly lead to a total loss or even involve several vessels from one company,” said Gerhard.
Other scenarios include cyber criminals targeting a major port, closing terminals, or interfering with containers or confidential data. Such attacks could also result in significant business interruption costs, notwithstanding liability or reputational losses.
Condition of ship and crew
While the long-term downward trend in shipping losses is encouraging, recent casualties such as Sewol and Norman Atlantic have once again raised significant concerns over training and emergency preparedness on passenger ships three years after the Costa Concordia disaster. Seven passenger ships were lost during 2014, accounting for almost 10 per cent of total losses. “In many cases construction of the vessel is not the only weak point. These two incidents underline a worrying gap in crew training when it comes to emergency operations on ro-ro ferries or passenger ships,” says Sven Gerhard, Global Product Leader Hull & Marine Liabilities, AGCS.
The general shipping trend for smaller crews means seafarers are being asked to do more with less. Minimum manning levels reduce the ability to train people onboard, which can provide invaluable insight and should not become the normal day-to-day level for safe operations.
Rise in geopolitical uncertainty
The recent rise in geo-political tension around the world is concerning. The increase in human trafficking of refugees by sea creates search and rescue issues. More than 207,000 migrants crossed the Mediterranean in 2014, driven by the civil war in Syria.
The International Maritime Organization estimates at least 600 merchant ships were diverted in 2014 to rescue people, stretching resources and rescue infrastructure. Conflicts in the Middle East also put increasing pressure on the supply chain. Ships should not underestimate the security risks.
Piracy risks move from Africa to Asia
Although there has been good progress tackling activity in Somalia and the Gulf of Guinea, ensuring global attacks (245) are down for a fourth year in a row, piracy thrives elsewhere. Attacks in South East Asian waters are up year-on-year, as are incidents in the Indian subcontinent, with Bangladesh a new hotspot.
Last Thursday, UK Chancellor George Osborne outlined his fifth and final budget for the current parliament. Many analysts viewed this budget as pivotal as it helps to highlight the state of the economy in the run up to the General Election in May.
For many others, however, the pre-election budget amounts to no more than political positioning and posturing – a chance to take a free swing at opposition policy. The policies are subject to the outcome of the election and many are never implemented.
However, taking the Budget at face value and assuming that some of these policies will be implemented, what does it mean for procurement and supply chains? Procurious aims to talk you through some of the detail here.
The Budget – Key Points
First we need to summarise a selection of the key announcements. For a more detailed run-down, click here.
UK economy grew 2.6 per cent in 2014, faster than any other advanced economy
Record employment in the UK, with jobless rate to fall to 5.3 per cent this year
Trade deficit figures “the best for 15 years”
Inflation projected to fall to 0.2 per cent in 2015
Borrowing set to fall from £97.5bn to £12.8bn in 2017-8
Beer and cider duty cut; spirits and petrol duty both frozen
The tax-free personal allowance to rise to £11,000 in 2017-8
From a business point of view, the news somewhat mixed.
Tax on “diverted profits” to come into effect next month
Annual bank levy to rise to 0.21 per cent, raising an extra £900m
Supplementary charge on North Sea oil producers to be cut from 30 per cent to 20 per cent while petroleum revenue tax to fall from 50 per cent to 35 per cent.
New tax allowance to encourage investment in North Sea
Review of business rates but no details
Behind the Figures
Experts were largely positive in response. James Sproule, Chief Economist at the Institute of Directors, stated that although the economic recovery was taking longer than anticipated, “the immediate news was encouraging with employment rising to record levels”.
Also, despite concerns about the UK’s debt position, Sproule said, “the degree to which government and businesses are beginning to pay down their debt is an encouraging trend”.
However, it would be naïve to assume that it was all good news for the UK. Despite a more positive outlook and plans to end the public spending ‘squeeze’ a year earlier than planned, an additional £30bn in savings still needs to be found over the course of the next parliament. This means austerity measures and spending cuts will have to continue.
From a business point of view, this mean less business in the private sector, tighter budgets and the requirement to look further afield for new opportunities.
George Osborne pointed towards this when highlighting China as a major export market in the coming years. With an export target of £1 trillion by 2020, an increase in funding to the UKTI is a good start. But Allie Renison, Head of EU and Trade Policy at IoD, argues that a focus on one economy is not necessarily a good idea.
“Focusing the extra funds on China raises questions about the wisdom of prioritising one geographical market over another. The Chinese economy is changing, and consumer preferences are shifting with it. We have not yet seen the expected boom in demand for services materialise, at least not in the financial and associated business services sector.”
Impact on Procurement and Supply Chains
What does this all mean for procurement and supply chain in the long run?
Mentions of procurement were mostly limited to the public sector and increasing efficiency requirements. Without any details provided, there was talk of cuts to NHS procurement, something that is currently under examination by Lord Carter, the chair of the NHS procurement and efficiency board.
The long-term future may also hold more autonomy on spend in public sector procurement. Councils in Greater Manchester are being given more administrative power over income, with many seeing this as a test case for more regional powers.
The freeze on fuel duty will provide relief for logistics organisations too, as well as removing cost from many supply chains. This should provide more opportunity for supply chains to focus on increasing efficiency and diversity, assessing appropriate routes for both import and export, as well as where further improvements can be made.
The government has been challenged to help supply chains more when it comes to identification of these opportunities. Allie Renison argues “much more emphasis is needed on specific sector supply chains, to help identify where gaps exist, both in terms of research and practical support.”
In the coming weeks, we will return to this debate as policy announcements are made by the leading political parties. Procurious will look to assess these policies, their impact on procurement and what the overall impact of the General Election will be.
In the meantime, here are some of the other major procurement stories making the news this week.
Supply chain changes could cut food waste
Changes to the supply chain could save millions in food waste by increasing the life of products, according to a study. WRAP estimated an increase of one day on product life across a range of foods could prevent around 250,000 tonnes of food waste each year.
The study, Reducing food waste by extending product life, examines how ‘use-by’ and ‘best before’ dates are set by food manufacturers, brands and retailers, for foods that typically have a high level of waste. They included sliced ham, potatoes, apples, minced beef, juice, chilled pizza/chilled ready meals, bread, chicken breasts, bagged salad and milk.
It estimated the potential overall tonnage and financial savings by scaling-up data from these products to all food groceries.
It also urged manufacturers and retailers to challenge the safety quality ‘buffers’ to find opportunities to extend product life. It calls for a standardised approach to ‘open life’ guidance – the time food is deemed safe or retains its best quality once opened – and that it should be used only for food safety rather than quality.
Oil producers outside OPEC must cooperate to boost falling crude prices as the cartel refuses to take responsibility alone, the Saudi oil minister has said. “We refuse to take responsibility alone because (OPEC) produces 30 per cent of market output and 70 per cent comes from outside,” Ali al-Naimi said in remarks carried Monday by the Saudi Press Agency (SPA).
Crude prices slumped by about 60 per cent between June and February, weighed down by a glut of global supplies and concerns about stalling demand. The slide was exacerbated in November when Organization of the Petroleum Exporting Countries (OPEC) refused to cut production to rescue falling prices, saying it wanted to maintain its market share.
The 12-member group, led by top producer Saudi Arabia, pumps around a third of the world’s oil but other major producers, such as Russia, are not tied by its decisions. Asked whether OPEC would be willing to work with non-members, Naimi pointed to the crash of 1998 when the cartel cooperated with other producers to cut output and support oil prices.
With Intel having recently lowered its revenue forecast for the first quarter, sources from the upstream supply chain have pointed out that channel demand remains weak and order visibility until the third quarter is still unclear. Despite the fact that Microsoft is planning to release Windows 10 in August and offer free upgrades, the sources are concerned that the move may not boost PC sales much in the third quarter.
Demand for PCs has been weak in the first quarter as related players have not been able to come up with attractive new features for their products, causing a slow digestion of channel inventory and forcing Intel to reduce its financial forecasts.
Although PC players are expected to reduce their inventories to safe levels by the second quarter, weak demand from the channel, especially in Europe is expected to continue impacting PC sales in the quarter
UK government publishes details of new public sector procurement apprenticeship
The UK government has published details of a new public sector procurement apprenticeship. The two-year apprenticeship standard covers “all three aspects of the commercial life cycle: pre-procurement, sourcing and contract management”, with an assessment at the end and a requirement to achieve the CIPS Level 4 Diploma in Procurement and Supply.
The apprenticeship covers early market engagement, sourcing, contract agreements, supplier management and category management. A description of the role of “public sector commercial professional” said: “In the public sector a commercial professional’s role is to support the transformation of the way that the best quality public services are delivered, while securing value for taxpayers’ money. Experience will be gained working on high-profile, high-value, high-risk projects that affect millions of people and are worth billions of pounds each year.”
The government said the standard was not yet ready to use but will replace current apprenticeship frameworks by 2017/18.Read more at Supply Management
Following on from our examination into the Siemens bribery scandal, we’ve compiled some of the excellent community discussion on the subject of trust in the supply chain.
How do you define trust in the supply chain?
Trust is a major factor when choosing suppliers, as well as staying with them for years. In a prior discussion on Procurious, trust, follow through and understanding of your industry were some of the top factors you all shared choosing and staying with your suppliers.
So how do you define trust? And what components of trust are most important when it comes to setting up your supply chain?
Thanks to Hannah Broaddus for this question, following up on one previously asked (and wrapped) on Procurious. Trust as a concept is hard to define, can take months or years to build up within relationships, and can be destroyed by one stray comment or action.
As seen in the recent situation in Australia with Nanna’s Frozen Berries, consumer trust can be lost through issues in a supply chain and will take time to be earned back.
The idea that trust had to be earned on both sides was cited more than once. Trust is built through interactions and discussions over a period of time. At the beginning, there needs to be the belief that both parties are working towards the same goals and that the other party has your company’s or customers’ interests in mind.
Trust is built by being open and honest. Companies that are good at generating trust will share information freely. This can be sales and operations data, forecasts or critical data that will ultimately benefit both sides.
One answer highlighted Mari Sako, professor at the University of Oxford. Sako states that there are three types of trust that we must all go through & earn from the other party.
Contractual Trust – prove you can do what you say you can (we both look for failure here)
Competence Trust – when I believe that you can do what you say you will
Goodwill Trust – we both do things for the good of the relationship
Finally, we’d like to leave you with the immortal words of Ernest Hemingway, “The best way to find out if you can trust somebody is to trust them.”
Wise words to live by, even if this is perhaps easier said than done in business.
Here’s something else the community has discussing at length:
Is your company’s procurement department strategic, or purely operational?
What is the best way to add value and make your Management aware of its strategic importance?
The question of whether procurement has a seat at the executive table is often asked. What is less apparent is whether procurement departments are conducting purely operational work in organisations. This question from Pedro Semprine asks just that.
A widely held belief is that most senior executives spend less than 3 per cent of their time on strategic tasks. One answer in this discussion highlighted an 80/20 split in time – where procurement leaders spend 80 per cent of their time on strategic matters and 20 per cent on the daily tasks, while juniors were the opposite.
A common thought was that procurement, depending on the task, had to be both strategic and tactical. Day-to-day materials would require a tactical approach, whereas critical or bottleneck items would require a more strategic focus. Tactical procurement activities contribute towards the overall strategic goals of both the procurement department and the organisation.
There was also the idea that all activities might be viewed as operational, unless procurement was seen as a strategic advisor in the organisation. One option to counter this was to be proactive, writing strategy documents and quantifying examples with data, for example cost savings or production times, so management would be able to see the value added.
Procurement could utilise a results oriented approach, publicising successes where value had been generated for the organisation. Organisation impacting activities, such as core product changes, cost reduction and process improvement could be laid out with future plans in order to show continuing value generation.
The tips were nicely summed up into three points:
Speak to influencers and key senior management figures – ask them what are their pains are
Conduct a group presentation to all of them to demonstrate how your plans can help meet their goals
Leave the emotive categories alone for now. These include stationery, car leases and most of all, travel.
There is movement at the top of the Coca-Cola procurement organisation.
The company announced earlier this week that Darlene Nicosia will take over the role of CPO of the Coca-Cola Company from Ronald Lewis who is moving into a new role as the senior vice president of Coca-Cola Enterprises (a subsidiary of the Coca-Cola Company). The changes will take effect on April 1st.
Speaking on the appointment of Nicosia, Ed Hays, who was recently named Coke’s next chief technical and innovation officer said:
“Darlene brings a deep understanding and appreciation of procurement strategy and execution within our Company and across our system. In her most recent role, Darlene was responsible for leading the procurement COE with a focus on capability development and execution of Global Sustainable Procurement’s Collaborative Procurement Model, and the implementation of Procure To Pay in collaboration with GBS.”
Ronald Lewis re-joins Coca-Cola enterprises having previously held roles as the organisation’s CPO and vice president of North American supply chain.
John Brock, CEO of Coca-Cola Enterprises, said: “Ron has an excellent track record of delivering results, extensive experience in the Coca-Cola bottling system, and an intimate understanding of the complexities of leading large supply chain operations in Europe and globally.”
Procurious has been in Cardiff attending Procurement Week 2015. We heard from Simone Davina General Counsel & Company Secretary at Siemens Netherlands, on the challenges of rooting out bribery and rebuilding trust.
Inspired by Simone’s words, we set about charting Siemens’ course on its road to recovery. Read on to see how it reversed the damage done.
Siemens on transforming a bribery-entrenched culture
We don’t want to teach you how to suck eggs, so there’s no need to school you on on the big ‘C’ – Corruption. Suffice to say that this threat is a scourge for all mankind, and has devastating effects on even the world’s strongest economies.
Fined in 2008 to a tune of $1.6bn – this record legal settlement served as a (highly-costly, overtly public) wake-up call to the German conglomerate.
US authorities charged eight former executives in connection with a $100m (ú64m) foreign bribery scheme. The bribes related to a $1bn contract to produce national identity cards in Argentina.
This was not the first time Siemens’ was thrust into the bribery spotlight. Allegations around deals between Siemens AG and Greek government officials during the 2004 Summer Olympic Games in Athens regarding security systems and purchases by OTE in the 1990s.
…As a result Siemens set about building a self-cleaning initiative.
How do you turn around a company like this?
If Siemens’ was going to get a second chance it would require an almighty effort. Collaboration with investigators, compensation for damages, guarantees that the situation won’t happen again – achieve all that and you’re just scraping the surface…
Challenges to scale this work across countries. Not so much of a problem in the Netherlands, but harder when it comes to China, the Americas etc. But if a company of such a size as Siemens can’t do it, then who can? That was the question Siemens’ CEO Peter Löscher was posed.
Peter Solmssen – Siemens general counsel, also believed that global cooperation was key. “If we, the major companies and, really, anyone in private industry, link arms, we can drive corruption out of our markets. I call it the Cartel of the Good. If we cooperate, then there is no bribery.”
In years before, Siemens’ operated in 190 countries across the world (with these distilled further into 70 clusters). Löscher reorganised this sprawling cluster system by condensing down to 20, and creating a steering committee to manage on a quarterly basis.
Out with the old – a seismic change in culture
In senior management 80 per cent were moved outside of Siemens. The old boys network had to be disbanded. In order to break the cycle, the peer-pressure, the whole culture needed a shake-up. Reinvigoration.
This was just the beginning – you could say that “bribery was Siemens’ business model”. An investigator from around the time of the scandal pointed out that internally Siemens referred to bribes as “nützliche Aufwendungen,” – a German accounting euphemism that meant “useful money”. But we must remember that until 1999, the act of turning a bribe was considered legal practice in Germany. German corporations were freely allowed to deduct bribes from taxable income. However, this was a new millennium and corruption was still very much at the core. Löscher realised in order to successfully weed-out the detritus he would need help from the very individuals with dirt on their hands.
The Guardian reported: Löscher offered his workers a deal: He promised that anyone who came forward to admit their involvement in bribery would get full amnesty. Not only wouldn’t they be fired, but the company promised to help with any legal problems stemming from these admissions. On the other hand, those employees who didn’t come forward, but were later found guilty of bribery, would be fired. Solmssen estimates that “about 130” employees came forward to admit their role in bribery and to explain where the money had gone.
In an interview with Harvard Business Review (Nov 2012) Löscher would later muse: “The scandal created a sense of urgency without which change would have been much more difficult to achieve, regardless of who was CEO. Siemens is a very proud company with a history of innovation and success. In the absence of a catalyst like this, people would have asked themselves, ‘Why alter anything?'”
In the period between the offence (2008) and that HBR interview, Siemens would invest in a 500-strong compliance team, instill a former Interpol official to head-up the newly-created investigations unit and put the company-wide compliance programs into place. An online portal would also be used to begin integrity dialogs, allowing staff to evaluate risk when starting tenders with companies. Siemens wanted to be in a position to end agreements if it suspected non-compliance – even going as far as carrying out audits at desks.
This welcomed in a new era of transparency for Siemens – for the first time it was placing itself very much in full view, demonstrating its meteoric changes to a quiet, questioning public.
By 2008 almost half of its 400,000 staff had undertaken training in anti-corruption issues.
Procurious is in Cardiff for Procurement Week 2015.
Answering our call of ‘what are other countries doing to innovate in procurement?’ We were given the opportunity to hear from Michal Ohrabio from Anasoft. In Slovakia procurers are looking towards the Slovak Electronic Market (or the ‘Gov eBay’ as it’s more commonly referred to ). This online portal functions as an alternative buying hub, and encourages procurers to think about the buying process in an innovative and refreshing way.
How can we make the processes more efficient and automate them?
The challenge this project tries to address is the procuring of common goods and services below the threshold, while maintaining good prices. Authorities and state institutions (ministries, state-run business, local governments) can bid at this portal for the purchase of smaller goods and services and construction work.
So what we’ve got is a catalog of subject matters: simplified procedure, anonymous CA, and suppliers during the tender. After closing the contract everything is made public and process is published.
The new portal will reduce the procurement process from 3 to 4 months to one week. Furthermore, it is an important anti-corruption instrument due to the fact that national and local governmental organisations will be purchasing live and online. It is hoped that this will help to improve the fairness to suppliers as well as government purchasers.
For state procurers, the value range of available goods and services is from 1,000 EUR to 134,000 EUR; for other procurers, the range is from 1,000 EUR to 207,000 EUR. The upper limit for construction work is 5,186,000 EUR. Registered companies can offer their goods, services and construction work.
The pilot was launched in September 2014, and roll-out began in earnest in Feb 2015. To-date the portal has signed-up 6500 suppliers.