Category Archives: Generation Procurement

ISM CEO Tom Derry on Innovating From Your Supply Base

ISM CEO Tom Derry speaks to Procurious
ISM CEO Tom Derry speaks to Procurious

Last week Procurious was fortunate enough to catch up with Tom Derry, the CEO of the Institute for Supply Management. In this, the first-part of our three-part interview, Tom discusses the changes he’s witnessed in the function over recent years and highlights the unique opportunities that make procurement and supply chain such great fields to work in.

Procurious asks: For those of us that aren’t familiar with ISM, perhaps you could provide some background to the organisation and its goals.

Tom Derry: ISM is the world’s first and largest procurement and supply chain network. We’ve recently celebrated our 100th anniversary. We specialise in providing training and development for the procurement and supply chain community.

We provide customised training to organisations to guide them through their procurement and supply chain strategies.

While we’re based in the US, we are a truly global organisation. The second largest group of ISM certifications holders are in China, followed closely by South Korea. Our global growth is impressive with more than 50 per cent of certification now coming from outside of the United States.

Procurious: You’ve held the role of CEO at ISM for three years now, how have you seen the profession progress over that time?

Tom: There are a couple of obvious themes here. The first is that, it’s true that the role of procurement and supply chain professionals has become more strategic. Companies are competing more and more on the basis of how well they run their supply chains. I think it’s fair to say that the 20th century was the century in which marketing was the driving force behind organisational success. More recently, we’ve seen the ability to outcompete in the supply chain space as the critical factor for achieving business success. This is particularly true in our increasingly globalised economy.

Another shift I’ve witnessed is a move away from our focus on pure cost reduction. Over the last 30 years, as global economies have developed, manufacturing has become more globally distributed. The clear motivation for this was to find lower cost producers, lower labour costs, labour inputs and lower cost of materials. It was obvious that, for a time, we were all focussed on cost reduction. We’ve done a great job of capturing that opportunity but now it’s time to shift our focus.

Now, we need to focus on how procurement and supply chain can impact the top line. The answer appears to be through the innovation that lies within our supply bases.

A major change in the way that companies are doing business today is in the way they are organised. Today’s firms aren’t vertically integrated any more. If you’re going to get innovation in a modern business, it’s going to come from your supply base.

Some companies still do it the old fashioned way, but the new model is – we are a marketing company – we’ve got a brand and we don’t manufacture anything – we outsource manufacturing.

In this model, innovation really does have to come from the supply base. To that end, there needs to be a shift away from beating-up suppliers on cost – towards working with them on generating innovation and growth.

Procurious: Now looking to the future, what is it that most excites you about the procurement and supply chain profession? Where do you think our opportunities lie?

Tom: If I was 25 again, I couldn’t think of a field that I would personally find more fascinating than a corporate career in procurement and supply chain.

Here’s an opportunity to be based in almost any region you choose. You’ll learn new cultures and dramatically impact the success of the business that you work for. You’ll be working on some of the most interesting and creative projects your firm is involved in.

In other professions, like accounting, you have a strong understanding of what you’ll be doing every day. In supply chain, one day you’re going to be making the business case for locating a manufacturing facility in a new location. The next day, you may be dealing with political risk and its impact on operations in a given geography or getting an opportunity to talk to a prospective new supplier with some amazing new technology. So you’re really on the forefront of the business, both in its current positioning and also in the way it plans for the future.

This means that new skills need to be deployed. The level of business acumen has to be much higher than it was historically. You have to understand how markets are moving and what is happening with the commodities you source and the services you buy in a global context. You have to understand the trends of foreign exchange. You have to understand where your company is headed, and what markets you want to compete in in the future and position your company to be able to do that in three to five years.

In the past, procurement and supply chain have been seen as backward looking functions. It was our job to get the most effective pricing put in place to support the existing legacy business processes. Now we are thinking about and acting on the future of our businesses. Business acumen, understanding and strategic planning are three skills that I believe are critical for successful procurement professionals.

Look out for Part 2 of our interview with Tom Derry next week.

The War for Talent – Battleground Asia

The Faculty Roundtable lands in Singapore

The Faculty was in Singapore this week for the launch of its Asian Roundtable Meetings. This series of events brings together a carefully selected group of elite procurement leaders to share experiences and insights within the specific context of the Asian procurement environment.

Wednesday’s inaugural event focused primarily on talent attraction and retention, an area of great debate across the region.

Attendees stressed that competition for talent not only occurs between firms but also within the functions of your own business. “Procurement isn’t always the first choice” said one CPO.

Also addressed, was the need for a shift in the competencies of procurement staff. It’s time to move away from traditional purchasing practices and take a more strategic commercial perspective on our business challenges. The assembled procurement leaders agreed that now the function is being seen as a source of ongoing revenue, there is a requirement to shift our competencies in order to fully realise this opportunity.

Attracting top procurement in Asia

One of the key challenges outlined when it comes to attracting top procurement talent in Asia was the need to appeal to a very broad spectrum of employees. One CPO detailed that his team comprised of ten different nationalities, from Chinese Singaporean nationals through to European expats and that each of the groups present in the workplace had a different set of factors that motivated and drove them to succeed at work. There simply isn’t a single management technique that can be effectively applied to all members of such multinational teams.

Another interesting point raised throughout the day was the reluctance of employees to accept failure. One CPO pointed out that “if innovation and growth are the goal, you have to experiment and experimenting involves failing”. This is not something that sits easily within the context of some Asian cultures.

Guest speaker Tom Verghese, who has contributed to the Procurious blog in the past, went into great detail highlighting the importance of cultural sensitivities within the diverse workplaces of Asia.

Tom stressed that procurement bosses need to be cognisant of the affinity bias (selecting employees from a similar background to one’s self) when constructing teams. Operating in a culturally diverse market requires forming opinions based on the inputs of a culturally diverse team.

Mentoring too was highlighted as an area of critical importance for the development of talent within the Asian procurement space. The Faculty has committed to work with the attendees of the Asian Roundtable to establish a mentoring network that will ensure the development of the next generations of Asian procurement leaders.

The Faculty Asian Roundtable will be returning to Singapore in September to kick off its mentoring program and once again connect the region’s brightest procurement minds. To find out how your organisation can get involved get in touch with Max Goonan or Chris Roe at The Faculty.

6 things you need to know before taking a procurement job in Singapore

The chance to live in Singapore as a CM within an IPO for a MNC (Category Manager in an International Procurement Office for a Multi-National Corporation) is flattering and could be the making of your career, but you need to consider the opportunity with your eyes wide open.

Last week, I had the pleasure of attending The Faculty’s first Asia Roundtable Meeting in Singapore. The event was a huge success and a fantastic step in the development of our business in Asia.

Amongst the knowledge sharing and general camaraderie of the event, I had the opportunity to speak with some of the region’s leading procurement minds and understand what it’s like to work in procurement in this great city.

Here are some thoughts you should consider before taking a role in the Lion City: 

  1. This is where it’s all happening. Singapore has long been dubbed the gateway to Asia and when you’re here, you get the distinct feeling that you are on the frontier of global sourcing. Some of the most exciting and experienced procurement professionals in the world are based here. A lot of the future growth and innovation in our profession will pass through this city. 
  1. You’re going to need cash. This is an expensive city, especially if you are chasing the 5 C’s of Singapore – Cash, Credit Card, Condo, Country Club and Car. Cars are expensive, but what’s more expensive is the license/tax to drive it. All up, a 3 Series BMW with an open market value of $32,000 USD will set you back a cool $160,000 USD in Singapore. If you have children, beware… Tuition fees at private international schools can cost up to $35,000 USD a year. Most CPOs I spoke to were not on “ex-pat” packages so these costs were not included as part their salaries. We were also told on this trip that procurement roles in other countries within the region, such as Indonesia or China, are paying 2 to 3 times what the global companies are paying in Singapore… This is certainly something to be considered and negotiated before accepting your new role.
  1. You’re going to need energy. The old adage of work hard, play hard is alive and kicking in Singapore. These professionals are in truly global roles. Working in a global sourcing hub, you’ll be connecting with colleagues and suppliers in all time zones. This means early mornings and late nights on teleconferences. It also means you will be travelling a lot. Which brings me to my next point…
  1. You’re going to need to understand this isn’t a region. Asia-Pac is a diverse group of countries with more than a dozen different cultures many with their own language, beliefs and practices. When you are being “sold” the job from Global HQ, they probably won’t understand the complexity and geographical spread of this ‘region’ – so make sure you do! One CPO today told me it takes 5 hours for him to fly into China or Japan and 12 hours to get to his team in New Zealand – those flight times are like flying between Greenland, Ghana, and Guatemala for a London based CPO. In fact, it takes less time to fly from London to Beijing than it does to fly from Singapore to Auckland.
  1. You’re going to have to learn to keep quiet. One of the things we learnt in our cultural awareness workshop with Dr Tom Verghese, was how people from some Asian cultures have a tendency to be very quiet in meetings/business interactions. This means, those procurement leaders from western cultures need to ensure they actively create an environment of trust and encourage people into the conversation to share their views. One of our Roundtable members highlighted how this presented a real challenge when trying to foster a culture of innovation and experimentation. It was suggested that certain cultures in the region are hesitant to try something new if it may lead to a loss of face.
  1. Have an open mind and learn! Singapore presents a fantastic opportunity to learn how to work with and manage just about every culture in the world – a brilliant training ground for future leaders. The CPOs at the Asia Roundtable were a truly multinational bunch with representation from France, Canada, Britain, Malaysia, Singapore, Australia and Italy. They had lived in just about every country in the world and had managed people from all over Asia and the around globe. What a great opportunity to learn about the nuances and needs of all these cultures!

If you are interested in learning more about The Faculty Asia Roundtable Meetings held in Singapore, get in touch with Max Goonan at The Faculty. [email protected]

Procurious talks to Kylie Towie – ‘Procurement Leader of the Year’ 2015

Procurement Leaders 'Procurement Leader of the Year' Kylie Towie

They say that Texas is big. If you’ve been to Western Australia (WA) you’ll know that ‘big’ is a relative term. Western Australia’s size is so vast that Texas would fit within its boundaries three times, with still enough room left over for California and Connecticut to come visit. For the Europeans out there, Western Australia is as big as France, Germany, Spain, Poland, Italy, Greece, Portugal and Ireland combined.

It is from this vast part of the world that the 2015 Procurement Leader of the Year hails.

Kylie Towie is the Chief Procurement Officer of WA Health, the government agency responsible for providing health care to this enormous state and was recently awarded the prestigious title of ‘Procurement Leader of the Year’ at the Procurement Leaders Forum in London.

Kylie graciously took some time to catch up with Procurious to discuss her achievement.

Procurious: Kylie, first of all, congratulations. It is a huge honour to have been recognised as the Procurement Leader of the Year. Can you tell us what it means to you to take out this coveted award?

Kylie: Thank you. To be completely honest, it was a huge honour just to be nominated for the award. The other nominees (Kellogg’s, ITV), along with companies in the room such as Kimberley Clark, Unilever and IBM are global industry leaders and to be mentioned in the same breath as such high calibre organisations was a great achievement.

In terms of the award itself, it is a fantastic feeling to know that the work we’ve been doing at WA Health not only positions us as a leader in the Australian public sector (the department has also been recognised for it’s performance domestically), but is seen by the profession globally as something that is contemporary and leading the way in transformational procurement.

Procurious: Can you give us some background to the projects you’ve been working on at WA Health?

Kylie: My tenure at WA Health hasn’t been a long one. I was parachuted in, back in January 2014, to address some identified issues with the department’s procurement processes.

My first task was to establish a picture of the WA Health procurement landscape. Despite an organisational budget in excess of $8 billion (AUD); there wasn’t a clear view of what was happening from a procurement perspective within the organisation.

The department was also in the midst of constructing two new world-class hospital facilities at a cost of seven billion dollars. So procurement and spending was at the front of everyone’s mind.

When you’ve got programs of that magnitude, it clearly puts pressure on the procurement environment. For us, it was a matter of understanding and determining the levers and mechanisms we could utilise, to ensure the business’s strategic goals would be achieved.

Procurious: You’ve just mentioned that you were able to link procurement activities directly to organisational goals; can you expand on that? 

Kylie: At WA Health, we refer to procurement as business leaders and strategy leaders rather than procurement leaders. We aim to act as enablers to ensure the organisation meets its business objectives.

I have found that if you spend too much time ‘talking procurement’ you quickly get labelled as ‘back office’ rather than being viewed as a strategic leader.

The way that I see it, procurement underpins any business decision you make. Any business strategy requires a solid procurement strategy to sit beneath it.

As procurement professionals, it’s our job to lift the conversation up a level. If you start to talk about business levers, value propositions and achieving strategic objectives rather than discussing supply, invoicing and cost savings, you’ll quickly change perspectives about the function and the value it can bring to an organisation. By making simple changes to your dialogue, you’ll find that business partners will see you in a very different light.

Procurious: How did you go about delivering the transformational change program at Western Australian Health?

Kylie: Stakeholder engagement was critical. Doctors, nurses and clinicians are rightfully concerned with one thing: Better patient outcomes. At times, business and procurement processes can be seen as a burden or a roadblock to health professionals getting what they need to do their jobs. Obviously in health, the ability to get the right equipment or product at the right time has the potential to save lives. It was critical, that in order to be seen as enabler, rather than a roadblock, we engaged closely with these practitioners.

At the beginning of the transformation process, I met with a number of the most senior clinicians from across the state to discuss their problems and determine how, with smart procurement, we could help to solve them.

I found that by shifting our conversations back to the patient, I got immediate buy-in. Everyone at WA Health is working towards better patient outcomes and a healthier Western Australia, that’s our modus operandi. So now, as a procurement function, every time we make a decision, we ask ourselves “how does this serve our patients and our community?”

By asking these questions we are immediately aligning ourselves with our organisations goals and our community’s expectations.

Once we had an overview of what needed to be done, I set out to instil four fundamental procurement pillars that would guide our team through the transformation. The pillars we revolved our operations around were, governance, capability and capacity, training and education, and monitoring and evaluation. I have used the same framework to great effect in every procurement transformation I’ve run.

Off the back of these pillars, we identified 24 strategic recommendations, which resulted in 62 separate procurement improvement projects. We took a systemic approach to addressing these projects and finally delivered all 62 by the 19th of July this year (a remarkable 12 month turn around).

The transformation process means that WA Health now has a very robust foundation for procurement processes and activities with clearly defined roles and responsibilities. It’s also helped us improve our relationships with our providers and vendors.

Procurious: How is Procurement now perceived within WA Health?

Kylie: I think the critical success factor here is that we now have a seat at the executive table and are viewed as essential in the strategic planning of the organisation. This shows that we’ve earned the trust of the organisation. We earned this trust by pointing out where the department was exposed from a legislative point of view, but more importantly, by pointing out the holes in their fiscal buckets and, providing value through robust strategic business advice through procurement solutions that meet our organisations goals.

We were quickly able to point out where financial leakages were occurring. But more than that, we were able to suggest minor changes that stopped these leakages. We also quantified the dollar impact that implementing the changes had made to the organisation. Needless to say, after this, we found that we very quickly got the buy-in we needed.

As I mentioned earlier, another critical factor that lifted our perception was changing the way we spoke about our work. We’ve lifted the level of our conversations up to a point where we are now addressing real business problems faced by the department. By speaking their language, we’ve earned their trust. The procurement department is now seen as a trusted business partner at WA Health.

Kylie, once again, we would like to congratulate you again on this fantastic achievement and thank you for taking the time to share your story with Procurious. This there anything else you’d like to add?

Kylie: I would like to give some praise to my team here at WA Health. They have been remarkable; there is no other word for it.

We are only a small team, but they are the most outstanding, passionate, committed, driven group of individuals you are ever likely to meet. You simply can’t achieve things like this alone; you need people who share your passion and your drive. I really can’t speak highly enough of them.

Why are CPO’s scared of Social Media?

Noel Gallagher, he of Oasis fame, said earlier this year that musicians are “S**t scared of social media”. I think CPO’s are too.

This morning I carried out some rudimental research into the Twitter presence of the CPO’s of the world’s ‘market leading” brands. The results were telling. I searched Twitter for the CPO’s (or equivalent) at Apple, Procter and Gamble, Unilever, Coca Cola, GlaxoSmithKline, LG, Reed Elsevier and Shell and couldn’t find a Twitter account for any of them.

Its not just CPO’s either, it seems the whole C-suite really don’t care for social media. Research conducted by CEO.com and DOMO suggests that only 8 per cent of CEOs have a Twitter account and that a staggering 68 per cent of CEO’s have no social media presence at all! A CEO without so much as a LinkedIn account? Are you kidding?

Interestingly, Mark Zuckerberg is the only CEO in the Fortune 500 who is present across the five leading social media platforms, Twitter, LinkedIn, Google+, Facebook and Instagram (given he owns the last two, I guess he had a head start).

So why are CPO’s so anti-social (media)?

Sure, social media is a generational thing. Younger people ‘get it’ because they grew up with it and older people tend to struggle to understand it. Now let’s be honest, most CPO’s fall on the older end of the youth spectrum and hence are operating from a disadvantaged position. This however, is no excuse to ignore social media.

Like it or lump it, social media has become a critical part of our social fabric. It’s where we go to interact with people, inform ourselves and most importantly for businesses, it’s where we go to make our judgements and voice our opinions on brands.

We are judging you

While a traditional procurement leader may not see it, people are forming opinions based on their social media activity (or rather, lack thereof).

In the same way that recruiters will look at a candidate’s Facebook page to get an understanding of who they are; employees, suppliers, customers and shareholders are researching corporate executives to determine if they’ll make a good boss, business partner or are worthy of investment. Those that are not present on social media, miss the opportunity to put their best foot forward.

In the case of the companies I listed above, I’ve already established an opinion (a negative one) about them based on the fact that they don’t have a socially active CPO. In all likelihood, the opinion I have formed is incorrect and uninformed, but the lack of social presence has led me to subconsciously make certain assumptions about those departments and businesses.

The importance of socially connected leaders

To state the bleeding obvious, the business world has changed. Gone are the days of unknown senior executives ‘connecting’ with people through ads in local newspapers. The modern business environment is hyper-connected and driven by information.

Business executives are now seen as celebrities and the advent of social media has led people to expect access to celebrities. Richard Branson, Tim Cook and Mark Zuckerberg are the faces of their brands. The fact that their celebrity shines so bright also means they are incredibly effective marketing vehicles.

A company’s brand, as well as its understanding of its customer base and the market it operates in, now depend on its social presence. Put bluntly, there is an expectation, from customers, shareholders and the press that leaders will be active and accessible on social media.

Socially active leaders are better leaders

Not only is there an expectation that leaders will be active on social media, there is strong research to suggest that socially active leaders are better at their jobs. Brandfrog, a professional branding company, released a study in 2014 highlighting the importance of social media in the perception of company leaders. Below are some of the high level findings.

  • 75 per cent of US respondents agreed that CEO participation in social media leads to better leadership. This figure is up from only 45 per cent in the previous year.
  • 77 per cent of US respondents agreed that C-Suite executives that actively engage on social media create more transparency for the brand.
  • 83 per cent of US respondents agreed that leaders who actively participate in social media build better connections with customers, employees and investors.
  • 82 per cent of US respondents agreed that executive use of social media establishes brand awareness.
  • This one is particularly relevant to my Twitter research this morning; 77 per cent of US respondents believe that social media is a powerful tool for building thought leadership and enhancing the credibility of C-Suite executives with stakeholders.

The report lists many more stats, similar to these, that clearly spell out the case for CPO’s and others in the C-suite to start interacting on social media.

Get involved already!

Social Media won’t be optional in the near future – it’s not a passing trend. CPOs need to understand that in order to gain the respect of their clients, their industry and their staff, they simply must be present and active on social media. The good news is that the bar for CPO social media participation has been set so low that there is a huge opportunity to get in early and capitalise!

So here is my call out to the CPO’s – Sign up! Twitter, LinkedIn, Procurious, Google+, Facebook, Instagram. Who knows, you might even enjoy it, everyone else does!

5 Things Procurement Organisations Should Start Doing Now

By Kay Ree Lee, The Hackett Group 

Stop paying lip-service to your internal customers: Here are five things Procurement organisations should start doing now to meet and exceed internal customer requirements.

“Procurement needs to be more proactive versus the Business initiating projects”

“Procurement needs to be an integral part of the team”

“Consult the Business before implementing any process improvement”

“Procurement needs to issue the POs in a timely manner. Waiting 3 days on a PO is unacceptable”

These are some comments we’ve recently heard when conducting a Stakeholder Survey (Voice of the Customer) as part of a broader Procurement benchmark for different clients. We often hear that Procurement is focused on meeting and exceeding customer requirements, but benchmarks from Hackett’s Procurement database shows otherwise.

The chart below shares that 30 per cent of Non-World-Class (Non-WC) organisations rated Procurement as an Administrator while only 15 per cent of Non-WC organisations rated Procurement as a Valued Business Partner. So, if this is the stakeholder’s perception of the Procurement organisation, what are some things you can do quickly to change this perception?

What is the Current role of Procurement in supporting business success in your area?

Other than changes to the organisation structure, there are five things that we believe Procurement can quickly do to improve internal customer perception and exceed internal customer requirements:

  1. All Procurement resources should be customer focused and empowered
  2. Dedicate specific Procurement resources to Help Desk activities
  3. Start conducting monthly training to educate internal customers
  4. Create a monthly/quarterly newsletter and share recent projects, success stories and upcoming projects
  5. Create an internal website to share Procurement information: FAQs, contact information, approved suppliers, success stories, process documents, etc.

1. All Procurement resources should be customer focused and empowered

We often hear the comment that perception is reality – unfortunately, there is some truth in this. As Procurement resources are typically focused on assisting end-users with different processes in Procurement, all Procurement individuals (whether they are internal client-facing or not) should be customer focused which means being helpful in problem solving and troubleshooting, being proactive, being a good listener, and feeling empowered to fix processes that are broken.

The term ‘fit-for-purpose’ or ‘fit-for-risk’ comes to mind when addressing broken processes. As Procurement works to address issues identified by its internal customers, it should determine whether the process is adequate or overkill for what the internal customer is trying to accomplish based on the value and appropriate risk appetite of the organisation.

2. Dedicate specific Procurement resources to Help Desk activities

Procurement activities are a complex string of processes. As such, we should expect our internal customers to have plenty of questions related to the process, status of transactions, etc. Dedicating specific Procurement resources to answer questions from internal customers is one of many ways Procurement can help address and resolve questions in a timely fashion. However, it is important to note that the more knowledge the Help Desk resources have about the usage of Procurement technology, status of sourcing events, process for sourcing, and a broad understanding of Procurement, the better they will be at being able to provide first-contact resolution.

3. Start conducting monthly training to educate internal customers.

Conducting monthly/ongoing training to internal customers will help provide them with the knowledge and latest information to perform their jobs. Ultimately, this will also help Procurement. There are various types of training that can be provided to include:

  • How to create transactions
  • How to create spend analysis reports
  • How to identify approved suppliers
  • How to use e-catalogs
  • How to manoeuvre the ERP maze

During these sessions, it would also be helpful to document the various issues that each of the internal customers faces. By addressing these issues, Procurement will be able to 1) ensure that internal customer requirements are met and 2) improve internal processes.

4. Create a monthly/quarterly newsletter and share recent projects, success stories and upcoming projects

Most of Procurement’s work goes behind the scenes and rarely do we share our success stories for one reason or another. However, creating a monthly/quarterly newsletter will help provide our Internal Customers with additional information on how the Procurement organisation is able to assist, help identify new projects and bring to light creative ideas from previous projects. In addition, it is also a way of demonstrating value that Procurement organisations bring along with some shameless self-promotion.

5. Create an internal website

While the monthly newsletter is focused on sharing the latest news, an internal website is another way of allowing our Internal Customers to perform self-service. There are various reasons to create an internal website including:

  • Sharing of information with our internal customers
  • Providing them a portal to log issues
  • Providing them ability to self-diagnose and resolve issues

As a member of the Procurement organisation, our role is to help support internal customers by listening, understanding, meeting and exceeding their expectations. Being front and center to our internal customers is important. Hopefully, these 5 activities can quickly help your Procurement organisation change your internal customers’ perception.

Five Tips For Effective Dispute Resolution

“If the dispute negotiation fails then we can always litigate, right?”

As courts are backlogged there is an increasing trend for matters to be referred to alternative dispute resolution (‘ADR’). However, your commercial contract may commit parties to engage in several steps of ADR. Georgia Brandi provides insights to effective application of dispute resolution with five tips she hopes you’ll never need.

1. Include a dispute resolution clause in contracts

First, check whether your company’s contracts have a dispute resolution clause and become familiar with its elements. Multi-tiered dispute resolution clauses are popular setting out timing for each stage of the process as each party’s obligations increase. Examples can be found at the International Chamber of Commerce and local dispute resolution bodies.

Multi-tiered dispute resolution clauses typically require senior individuals in the organisation to meet. If that is not successful then the matter is referred to mediation. If unresolved the matter is referred to arbitration. Only if that fails can the matter be referred to litigation. Each step is a pre-condition for the next.

2. Know the difference between methods of alternative dispute resolution

Two popular ADR methods are mediation and arbitration so it’s prudent to know how they differ.

Mediation uses an impartial third party to facilitate an interests based discussion. The mediator does not provide advice or determine an outcome. The discussion is confidential and the parties reach their own agreement and it is self-enforced.

Arbitration is however determinative and may not be confidential, subject to the relevant body’s arbitration rules. For cross border disputes, also note whether the country is party to the New York Convention for enforcement of arbitral awards.

3. Know when a dispute is a dispute and track time

Usually receiving a letter with ‘DISPUTE NOTICE’ stamped on it is a good indicator. It may not be that obvious as another party may assume their communication is a dispute notice by its content. Does the supplier think a late invoice demand notice satisfied criteria for a dispute notice? Seek clarification if you’re unsure because once a dispute notice is received time will start ticking, so know when you need to respond. Also know who needs to be advised e.g., legal counsel, CPO.

4. Agree on the basics

It would be awful to trigger further debate on who pays the mediator/arbitrator fees or what language the process will be conducted. Draw your mind to the basics such as allocation of costs, location, dispute resolution body and language of proceedings within the contract. Courts may sever elements of a dispute resolution clause for uncertainty.

5. Understand dispute resolution trends in the jurisdiction selected

If your clause elects a dispute resolution body, look at their rules. There may be provisions for a combined method of mediation and arbitration such as ‘arb-med-arb’ in Singapore and ‘med-arb’ which is trending in Hong Kong and China. Although both parties need to consent, understand the reason for the trend and what benefits are available. For example, mediation in Japan offers the benefit of confidentiality where there is otherwise no without prejudice privilege.[1]

Many disputes can be diffused with an interests based discussion[2] and practically may not be suitable for litigation where the core issue is commercial. However I encourage you to become familiar your company’s dispute resolution clause and approach to managing disputes. And ensure your company’s legal counsel is always consulted.

[1] The Japan Commercial Arbitration Association International Commercial Mediation Rules, Rule 12.

[2] See e.g., Fisher and Ury “Getting to YES: Negotiating Agreement Without Giving In”.

Centralization of purchasing in business networks (Part 2)

How are the business networks towards the centralization of purchasing operated?

  • Formal consolidation of the relationship with partners who have for years been part of a single supply chain, putting together a greater production, marketing, commercial and sales capacity.
  • Once the primary objective has been consolidated, it is important to look at the secondary objectives, best exploiting the indirect advantages of being part of a business network: what can be improved and optimised by working together? Clearly, suggestions in this respect can be obtained by looking at how big companies and/or industrial groups operate.
  • During this phase, the contribution by the network manager, who is responsible for performing this analysis and suggesting the right strategy by which to exploit the indirect advantages of the network becomes essential. Of these, one of the most natural, highest-impacting actions is without doubt the introduction of centralised purchasing.
  • For the centralization process to be a success, it is important to introduce it gradually, starting with the product markets that are most immediately and easily able to be centralised.
  • Finally, specific professional skills will be needed in the field of purchasing for managing the relevant activities, issuing the contracts/orders open and managing them (in some cases, the networked companies are of different sizes and the most structured may already have staff with specific professional purchasing skills who can therefore be used for the management of centralised activities, alongside the network manager).

Difference between business networks according to logistics

  • Same region
    • Greater attention may be paid to local suppliers for more categories
  • Multi-region
    • National/international supplier categories will mainly be used

E-procurement and the use of a platform to manage purchasing

The tool that helps us in centralization is an e-procurement platform. This is a question of equipping the business network with a “shared” computer system, based on the latest web technologies and used by all networked businesses.

The introduction of innovative purchasing tools such as e-procurement is one of the most important subject matters by which to improve the overall efficiency of the procurement processes of a complex organisation like a business network. The electronic negotiation of purchasing (e-procurement), in fact consists of enabling those using it to manage all relations with its suppliers over the internet, using a “dedicated purchase” IT platform that enables processes like the selection of the contractor, receipt of offers, submission of orders and catalogue consultation to take place on-line. For example, in the purchasing of consumable goods or in any case of repeated purchasing, the choice of a centralised procedure that defines a series of conventions with a series of suppliers makes it possible to include on-line catalogues available to the various different network structures by which to make direct purchasing at competitive prices, insofar as they had already been established in the conventions.

Current IT technologies also enable a simple interfacing and sharing of data, virtually in real time, with all the various managerial information systems (MRPs) of the individual networked businesses.

Methods for the use of the e-procurement platform and possible market offers:

  • purchase of licences by which to obtain a platform in Saas (Software as a service, i.e. hired, not purchased) mode for each buyer-operator;
  • hire or payment of an annual tariff for each utility activated for the use of a partner company platform;
  • delegation of the entire purchasing activity or part of it (through the e-procurement platform) outsourced to partner companies (maintaining complete visibility and sharing of all specialised processes in this activity.

The advantages of using such a platform include:

  • standardisation of the buying process using a single, common tool for all networked companies;
  • possibility of creating on-line catalogues for use by the individual customers of each company, whose list prices will be negotiated upstream, according to the forecast total quantities required by the network as a whole;
  • in the expenditure cycle activities, it enables the correct management and attribution of invoices for the individual company involved in the purchasing process. The platform will be easily integrated with the ERPs of the individual businesses (each business receives invoices from the supplier for its part or in any case as envisaged by the network contract rules);
  • use of electronic invoicing;
  • single roll of network suppliers available to each individual networked business;
  • objective supplier assessment system for the continuous improvement of performance;
  • each company can easily pool purchasing experiences (suppliers that are valid and others that are not, price references for individual expense categories, etc.), with clear reciprocal benefits;
  • standardisation of the technical specifications for purchases with the best practices of the networked businesses with consequent improvements in the price/performance of the goods and services purchased. It is easy to imagine enhanced efficiency in the purchasing of common materials such as Personal Protection Equipment, stationary, cleaning services and facility management, etc.

Procedures and controls

A choice to centralise purchasing entails special attention paid to the procedures regulating the purchasing procedure. In actual fact:

  • In the case of structures that are mutually independent, the procedures used by the individual networked companies vary considerably and may be more or less complex, depending on the dimensions of the structure (micro/small/medium-sized business) and the purchasing budget. In most cases, we find ourselves looking at a lack of written procedures insofar as the purchasing methods are connected with the common sense of the person implementing them.
  • In this type of situation, moving towards centralised purchasing entails paying special attention to the drafting of a purchasing procedure. This procedure, according to the expenses involved, must be:
    • coherent with the objectives of reducing costs and procurement time
    • coherent with the incoming quality and efficiency objectives
    • compliant with the ethical standards established for purchasing
    • shared and approved by way of protection of expenses managed by each individual structure participating in the purchasing group.

Again by way of protection of the interests of the individual networked companies, there must be a control of the operative application of said procedure by an appointed person/audit structure for the network (e.g. network manager).

Closing remarks

Considering that the priority objective for the centralization of purchasing can certainly be identified as the exploitation of scale economies by which to reduce the unit prices of the goods and services to purchase, it is important to see if that objective looks to include a standardisation of said goods and services or, additionally, the identification of the goods and services with the best cost-benefit ratio. In actual fact, these objectives need three different operating approaches, the consequences of which need to be carefully assessed, particularly according to the time frame involved in order to obtain results. In actual fact:

  1. it is relatively simple to obtain scale economies to reduce the unitary costs by bringing previous specifications together, but this can at most have a positive financial effect in the short-term. Already at the second tender, with the same logic, it is difficult to obtain significant additional discounts;
  2. If we add an objective of standardising goods and services to the positive effect of scale economies, we are then facing a more complex work in which all the individual structures must be involved (data collection and assessment/sharing/choice of standards), but at the same time, we are also looking at greater economic benefits;
  3. Finally, identifying the goods and services with the best cost-benefit ratio is an extremely complex matter, as it requires lengthy technical analysis and the concentration and sharing of data with the internal applicants. This, however, represents the launch of a virtuous process of the introduction of logics and instruments governing the business network, ensuring a comparison of peers and the construction of organic partnerships with suppliers, which may represent a carrier for long-term organisational development.

Finally, if the competences in terms of purchasing are limited to within the network of businesses, one solution may be to appoint external procurement professionals who, alongside the Network Manager, can start the centralization of purchasing process and, potentially, thereafter manage the activities by e-procurement, with the use of an appropriate platform. This choice would have effects that are so immediate that the costs of the solution would rapidly be repaid by the immediate returns enjoyed in terms of the reduction of the TCO.

Centralization of purchasing in business networks (Part 1)

What do we mean by the centralization of the purchasing or purchasing group?

A PG (Purchasing Group) can be defined as an entity that groups two or more independent purchasing organisations that join together formally or informally or through a third independent organisation. Doing this combines their individual needs with the volume in the purchasing of materials, services and goods on capital account. Thereby exploiting the greater contractual strength in order to obtain the added value from suppliers in terms of best prices, best service and best technologies, which could not have been obtained individually by each organisation.

Advantages of the purchasing group

1. Scale economies or “purchasing power”

The first, most obvious advantage of a purchasing group is the scale economy. The volume of the aggregated purchase demands, for example of a network of businesses of reasonable size, gives the individual businesses that scale economy and consequent purchasing power that they could not hope to obtain alone.

2. Lower prices/Greater negotiating power

By increasing the forecast purchase volume, the PG is generally able to negotiate lower prices for the goods or services purchased with respect to what could be obtained, alone, by the individual companies. These savings are usually considerable, ranging from 10% to 35% according to the competence level of the structure dealing with making the centralised purchasing.

3. Reduction of transaction costs

By adhering to a PG, the organisations can effectively simplify the procurement processes. This not only reduces the unitary cost but also the total transaction costs, due to the reduced number of contracts (to be negotiated, prepared and managed).

4. Process economies

By sharing information acquired on suppliers, new technologies and market knowledge, as well as past purchasing experiences, not only is all redundancy successfully avoided, but transaction costs are also reduced and far greater process economies achieved than would have been possible by each individual organisation by itself.

5. Reduced workload

Given that the PG manages all stages for the issue and related management of contracts on behalf of the network, the individual businesses benefit from a significant reduction in their workload and are free to focus on their core business, which is therefore more strategic for them.

6. Improvement in best practices over time

The organisation that manages the PG enables the network businesses to improve their results by sharing the best practices in some business processes, exploiting competences in specific functional areas. In actual fact, most of the modern organisations that handle the PGs use sector experts for each individual product market managed. These sector experts constantly search out ever more effective methods aimed at improving the processes, quality and efficiency of the supplier in order to guarantee the optimisation of processes at increasingly competitive prices (improvement in the TCO – Total Cost of Ownership).

7. Technical savings and improved TCO

The organisation that manages the PGs in the future will offer all the advantages connected with its purchasing skills in the individual categories that will go beyond the initial advantage connected with scale economy alone. In actual fact, once the initial phase is complete, in which maximum use will be made of scale economy to lower prices, the organisation managing the PG will use its experience to help the networked businesses allow buying technology to progress, reducing waste and optimising the use of goods and services purchased.

8. Positive impact on the profits for each individual networked company

We know that a reduction in purchasing costs, for example of 5%, produces an increase in profits of more than 2% and that to obtain the same result, sales would need to increase by more than 20%…! Therefore, the saving generated by a centralization of purchasing in a network of businesses, increases profits in each individual network company.

Business networks contract in Italy: a great solution for SMEs

The business network contract is a private agreement between two or more enterprises to jointly perform one or more economic activities to increase their potentials for innovation and competitiveness. The network contract therefore enables companies (usually SMEs) to combine two key elements of business growth, which seldom coexist: enterprises can collaborate on large scale projects without losing their legal independence and their autonomy in the business activities not included in the contract.

Critical Issues affecting Business networks in Italy

The PG applied to the business networks, although having these undeniable advantages, also has critical issues that are often underestimated and that need to be managed in the right way:

  • Local supplier vs national supplier vs international supplier
    • Use of centralised purchasing by a group of networked companies, considering the increased quantities and related purchasing power, inevitably results in the involvement of national and international suppliers, as well as local ones. In this comparison/assessment of suppliers, it is important to pay attention to ensure that the right consideration is paid not only to the final price but also to the quality of the product and the services relating to the supply (lead terms, after-sales activities, etc.). It is also important to consider the characteristic aspects of long-standing (valid) suppliers linked to knowledge of the client, which results in greater flexibility in the customer-supplier relationship as well as the avoidance of the inevitable discontinuity typical when changing supplier. Naturally, alongside the attention paid to all the aspects highlighted, there must also be a new “Vision” towards the market, connected with the fact that now one is no longer alone, but rather part of a group of businesses, hence the choices to be made must be the best for the whole network of businesses.
  • Resistance to change (old supplier (history, knowledge, customs))
    • As for any process that results in a change in procedures/consolidated habits, etc., the centralization of purchasing will also be initially resisted. It is therefore important to pay close attention to dealing with this change gradually, so as to help the people involved to make it the best possible experience.

10 tips for procurement professionals from a brand wizard

What Procurement can learn from CPA Australia

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According to Murray Chenery, Executive Marketing Manager, Brand, CPA Australia, procurement professionals cannot afford to ignore their business’ brand.

Speaking at the 8th Asia-Pacific CPO Forum, Chenery who for 12 years was marketing director of Target, one of the country’s most recognisable brands, guiding the retailer through the process of Coles Group selling to Wesfarmers, detailed that ignoring a business’ brand affects a company’s ability to do business.

Chenery highlighted that managing a business’ brand can help grow an organisation into a global player and detailed that this process has a direct effect on recruitment pipelines. Bad decisions in procurement can deal enormous damage to a companies’ brand, meaning brand risk needs to be constantly top-of-mind for every decision made.

It’s no accident that CPA Australia is a brand powerhouse. Under Chenery’s guidance, the accounting body has followed a clearly defined roadmap to success. Chenery highlighted the most important points of what he called “building brand DNA”: know your core business, protect it, nurture it and resource it. Define the brand by understanding your purpose, points of difference, your organisation’s personality and the customer promise.

Chenery stressed the importance of brand differentiation and the value of putting time into finding, understanding and amplifying what makes you stand out from your competitors. Importantly, your competitive advantage must be sustainable to establish and maintain your edge. CPA also places a big focus on customer centricity with an enviable growth market in young professionals between 24 and 32 years of age. His advice on “being where your customers are” to connect with this generation is 100 per cent relevant for the procurement profession and its ongoing challenge of securing the talent bank of future business leaders. Chenery also shared some valuable advice on the need to avoid internal-gazing, the importance of creativity and the immense opportunities for Australian businesses to push into the Asian market, where CPA Australia currently boasts 40,000 members.

To close his speech, Chenery gave the audience his top ten tips for good procurement practice. He’s not a CPO, but his background as a risk-averse brand expert makes his advice valuable and extremely relevant to the assembled procurement professionals.

  1. Recognise that marketing is a creative process.
  2. Treat suppliers as strategic partners.
  3. Understand your brand’s DNA and strategy.
  4. Understand the dynamics of the market in which you are buying.
  5. Appreciate the history of relationships.
  6. Be as clear as possible in your briefings.
  7. Understand the processes being bought.
  8. If you don’t measure, things don’t get done.
  9. Evaluate partners by visiting their operations.
  10. Use flexible, longer contracts to build partner loyalty leading to better deals.

The 9th Asia-Pacific CPO Forum will be held in May 2016. To ensure you receive an invitation, register your interest in attending here ([email protected])