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What’s the real impact of the UK 2015 budget on procurement?

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.

George Osbourne delivering the UK Budget

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.

Read more at Supply Management

OPEC won’t take fall for low oil prices

  • 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.

Read more at Industry Week

PC supply chain has weak order visibility

  • 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

Read more at Digitimes

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

How do you define trust in the supply chain?

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.

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:

  1. Speak to influencers and key senior management figures – ask them what are their pains are
  2. Conduct a group presentation to all of them to demonstrate how your plans can help meet their goals
  3. Leave the emotive categories alone for now. These include stationery, car leases and most of all, travel.

Coca-Cola announces new CPO

coca-cola new CPO

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.”

Is the electronic market the answer to procurement headaches?

Are e-auctions the future for procurement?

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.

Innovation in the public sector: the rise of the smart, super connected city

High speed Broadband

How are we innovating in the public sector?

Procurious is here at Procurement Week 2015 in Cardiff. We have heard from Jim Smart – Head of Digital Cardiff, on the challenges that public procurement is facing in order to lay down the infrastructure that leads to innovation.

Cardiff is a city primed for growth, and it’s certainly no stranger to innovation – it’s a city that’s prospered not just economically, but socially and culturally over the last few decades.

By procuring broadband and bringing WiFi to the streets of the largest city in Wales, Cardiff will become a real smart city. The welcoming of this first class digital infrastructure will mean Cardiff benefits from the best penetration of superfast broadband throughout the UK Core Cities. It will also offer free to access WiFi on buses across the city and public buildings.

Joined-up procurement is healthy procurement

In this modern age, broadband access and a working Internet connection is taken for granted. But we often forget about the complexities required to get us online in the first place. It’s not just a case of plugging in to connect.

A number of pre-requisites are required to make Cardiff’s wireless dream a reality. The ingredients you will need: an Internet Exchange in the city centre, and a new highly secure Data Centre development. The Exchange itself is worthy of note, it not only represents an important £3.5m investment but it’s one of only four Internet Exchanges in the UK.

Such a monumental piece of work means a joined-up approach is needed in the city. You can’t have one procurement team not talking to the other, every party is required to pull together and champion transparency throughout the tendering processes. Superfast broadband is an enabler for innovation – the procurement itself should champion the super connected ethos, the one infrastructure, that will be borne out of this work.

At this stage it is also one of the first projects that will come in on time and under budget. Music to the ears of anyone involved in the initiative – procurement professional or otherwise!

Once the work is complete, the emphasis will be put back on the infrastructure. BT, Virgin, and Sky (to name but a few) all stand to benefit from the innovation Cardiff is being injected with.

cardiffbay

Cardiff – the ‘One City Planet’

Outside of the work that Jim and his team are involved in, thirty councils have been selected to carry out feasibility studies for something called the ‘Future Cities Demonstrator Programme’- and of those is Cardiff.

Cardiff, like many cities around the world, is facing challenges managing its growth in a sustainable and prosperous way. The project will see the development of a virtual 3D city model to collect and manipulate data in order to monitor and control vital city functions such as, energy, transport, health, water, waste etc, in a holistic manner and develop a full understanding of how they interconnect and inter-depend.

The project will focus in particular on the role of Cardiff City centre as the heart of a rapidly growing city and as the retail, leisure, commercial and transport hub for city-region of 1.4m people. It will work with businesses, universities, third sector and citizens to ensure the delivery of a vibrant, prosperous, low carbon, healthy and happy city, and will form the platform upon which Cardiff can achieve its ambition of becoming a ‘One City Planet’ by 2050.

How can we procure in a smarter way?

The need for smarter procurement

Procurious is in Cardiff for Procurement Week 2015. We sat in on the 4th FAPPE (Faster Adoption of Public Procurement in Europe) Meeting where the group discussed  pertinent issues that need addressing when deciding on a roadmap for smarter procurement.

We’ve taken these concerns and have chosen to present them to you in the form of an infographic.

Smarter procurement infographic
Smarter procurement infographic

FAPPE is the brainchild of Rui Patricio – the Managing Director (Procurement & Innovation Management Consulting) of Digitalflow. Digitalflow is a Portuguese boutique consulting firm that offers a full range of services to support the implementation of business-to-government processes making use of electronic platforms.

Internet retailer Amazon on putting people first

File of a box from Amazon.com is pictured on the porch of a house in Golden, Colorado

Work hard, have fun, make history

Procurious is at Procurement Week 2015 in Cardiff – ahead of our exclusive interview with Amazon’s Gary Elsey – Operations Manager for Amazon.co.uk, we present some bite-size tidbits into Amazon’s people-centric philosophy.

Amazon in 1995 – started life an online bookstore (VHS, DVDs, CDs etc. came later), but at that time there was no discernible way of searching through the product listings. A far cry to the behemoth that stands before us today.

Amazon on customers

Amazon’s vision is simple – no matter what it’s doing, what products it’s launching – the customer is always the end goal.

As a company Amazon has always strived to work backwards from the customer. ‘What can we do differently, how can we distinguish ourselves and innovate?’ These are all essential touch-points that the Seattle-born retailer has obsessed over since day one.

For an example of Amazon’s customer-centricity, look no further than the release of Microsoft’s Windows 7 operating system. When it went on sale, as soon as Amazon sold through all its original allocation, it made the ballsy move to direct customers to competitors websites. No ‘out of stock’, or ‘awaiting stock’ messages here… Amazon is an altogether different beast.

With seperate online properties operating in United States, United Kingdom & Ireland, France, Canada, Germany, The Netherlands, Italy, Spain, Australia, Brazil, Japan, China, India and Mexico, ultimately logistically problems do arise… But here is where Amazon plays its trump card, as the retailer offers almost-instantaneous conflict resolution. If you choose not to opt for online chat or a response by email, an Amazon representative will offer to phone you back.

In Amazon’s history there have even been examples of purchases being personally delivered when the situation dictates…

…On passing back savings

Unlike most, Amazon employees don’t carry business cards. Why? They’re an unjustifiable spend. Amazon always asks, ‘does the customer need this?’ If the answer is no, then the outcome is quite clear (no business cards…) It shouldn’t surprise you to learn that every decision is examined in this way. Amazon always seeks to maintain low operating costs, so it can pass the savings back to the customer.

…On hiring

Amazon’s ethos is very much: ‘I’d rather interview 50 people and not hire anyone than hire the wrong person’

…On inspirational leadership

‘My own view is that every company requires a long-term view’ – Jeff Bezos. It is worthy to note that making a profit is not one of Amazon’s goals. Instead it employs elements of Simon Sinek’s Golden Circle Theory: ‘What, how, why’.

It is said that Amazon’s CEO – Jeff Bezos, spends a couple of days every year on the service desks to field customer feedback. Even better than that, send him an email and he’ll personally see to it that someone from Amazon responds to your query.

Nurturing new talent – the lure of the graduate

The graduates are coming

Procurious is in Cardiff for Procurement Week. Are you attending?Come and join our #PW2015 group!

Today we’ve heard from Chris Nye of Axiom. Axiom is a service-driven business, specialising in the medical, industrial, and military fields.

In just a couple of years Axiom has doubled its workforce and trebled its turnover – and as any organisation knows
keeping this momentum is paramount to the success of the business.

And of course there are always challenges – for Axiom, number one was the realisation that its recruitment strategy needed a little help.

Axiom woke up to the idea that graduates can fill the skills gap.

What improvements can be made?

Axiom previously had trainees come and go, it was classically recruiting the wrong individuals. What it needed was a blank
canvas (with the right skill-set), and saw determined graduate trainees to be the best fit.

Graduates represent young, intelligent, questioning minds, and more importantly a lack of baggage. By hiring graduates
you can allow them to find their own skills and own career fit. Give them the opportunity to find themselves within the
business, to see what sticks and what interests them.

Axiom’s approach is not overly prescriptive – an entrenched view falls prey to shortsightedness, and errors can be locked into a vicious cycle. Instead you shouldn’t dictate the graduate’s path, encourage independence and let them find their own way. It is important that after the training period ends, graduates are deployed into only what they enjoy and
excel at – the fields they have chosen to specialise in and want to develop these skills further. The path should be continuously monitored and adapted as necessary to ensure the graduate is shaping the role.By adopting this approach it is possible to maintain the graduate’s youthful enthusiasm throughout the development plan.

The new power generation

By training (and inevitably employing) graduates you will often find this exercise opens-up new opportunities, and  you’ll be able to fill newly-created roles. What’s more graduates can be thought of as thought-provoking and questioning assets to any team. By mixing up your team and employing new blood, it encourages an honesty when it comes to looking for solutions. It’s all about balance – the graduates provide the business with a different view. Sometimes all it takes is fresh eyes…

Axiom put this into practice a couple of years ago – now, 2 years on it has welcomed 5 graduates through its doors.

By looking towards graduates you’ll be furnished with bright, young minds who possess an unquenchable thirst to continuously improve. The graduate solution is indeed a brave new world, the only constant being change…

Gravitas skills are key to unlocking door to boardrooms for women

Less than 25 per cent of board members of FTSE 100 companies are women…

Getting women into the boardroom

Britain’s boardrooms would change from ‘male and pale’ if more would-be leaders learnt to develop the skill of gravitas, according to author and leadership communications coach, Antoinette Dale Henderson. 

Antoinette regularly speaks on leadership identity, influencing with integrity, building inner confidence and communication excellence. In 2007, she launched Zomi Communications to commit to that mission, working with people to identify their purpose and define their unique leadership voice.

“Women, younger people and people from ethnic minorities often face particular challenges in tackling misconceptions about gravitas needed for the boardroom and that needs to stop” – says Antoinette.

“Gravitas is not an inherent trait – but it is an essential skill for successful leaders. My aim is to turn the old-school image of gravitas on its head and demonstrate that it’s a skill that can be developed by anyone who wants to fulfil their potential as a manager or leader. This book will help anyone, no matter what level of experience to use their own individuality to command respect and make a lasting impression. “

Leading with Gravitas is based on research conducted with a broad range of leaders including politicians, business and community executives, small business owners and entrepreneurs.

Her book aims to demystify the concept of ‘gravitas’ through exploring what it means for Britain’s successful leaders. Using a six-key model, it explores what the reader can do to develop their own gravitas and leadership style through practical exercises and tools.

Developing your own gravitas and leadership style

There are a number of practical exercises and tools which will allow you to develop your own gravitas.

The following is encouraged:

•Gain a clear understanding of the vital components of gravitas by analysing how you currently perform and what you can do to improve
•Increase awareness of your unique expertise and qualities as an authentic leader
•Access a range of powerful techniques to help communicate and present with impact
•Enhance your confidence, influence and ability to inspire others and deliver results
•Harness your passion and individuality to maximise leadership presence and project your best self

More information about Antoinette and her learnings can be found at www.leadingwithgravitas.com