Category Archives: In The Press

Paris Climate Conference Emits Cautious Optimism

As the twenty-first session of the Conference of the Parties (COP) rolls into its second week, there is a sense of cautious optimism that the meeting in Paris may produce a global agreement on climate change.

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The meeting kicked off last week with 190 countries in attendance, with the aim of coming to a universal agreement on climate change and how to handle it. This might seem like a big, if not impossible, ask, but it’s important to remember that this is a world problem and ten years of collaboration has produced some positive results.

Positive Steps

In the past, outputs from the Climate Conference have suffered due to the high number of diverse interests from different countries. When the meeting was held in Copenhagen in 2009, strong differences between the US and China on commitments to minimise rising global temperatures caused a breakdown in negotiations.

However, many observers have said that the countries are in a much better position this year than in many previous years, but also that there is greater collaboration between cities, collectively known as the C40, who are sharing information and achieving outcomes on issues such as food waste collection and urban climate change.

Michael Bloomberg, former Mayor of New York City and UN Special Envoy for Cities and Climate Change, stated, “We’re in better shape going into Paris than we were going into Copenhagen, largely because of the progress cities have made, and C40 cities have helped lead the way. It’s a great example of the power of cooperation.”

And this spirit of collaboration has been seen in the talks between the key countries, with representatives already issuing a first draft of the agreement, leaving a full week for negotiations to take place and the agreement to be finalised.

The ministerial negotiations are where the real challenge lies, as each country approaches them with different goals in mind. Negotiations will focus on helping poorer countries reduce their emissions, how richer countries can contribute financially to make this work, and how global temperature rises can be capped or reduced.

Action Stations

What has been agreed upon is that it is time to act. The meeting has representatives from Kiribati and the Marshall Islands, both countries where rising sea levels have submerged large areas of land. With a focus on the future, it’s now down to see what the actions need to look like.

Alexander Howard, Senior Editor for Technology and Society at The Huffington Post,  notes that much of the focus thus far has been on ‘response’ (e.g. developing crisis management systems), rather working towards low-carbon cities. He acknowledges that this is a difficult goal which could potentially mean, amongst other things, spending a fortune to incentivise the public to alter their lifestyles.

This week will be vital in ensuring the future of countries’ actions against climate change, as any agreement will still have to be implemented. And this is where procurement should come into play.

Howard goes on to explain how “…tech giants like Apple have worked to shift to renewable energy sources. Cities can do the same. Mayors and city councils can use procurement reform to ensure that vendors compete to host the next generation of digital city services in greener data centres powered by clean energy sources instead of coal-fired plants.”

There is potentially a major role for procurement organisations to play in any implementation. It’s now time for procurement to be looking fully ahead to the future and ensuring that sustainability is embedded in processes, helping to support ongoing initiatives.

What are your thoughts on the issue of Climate Change and how it relates to procurement? Get involved on Procurious today!

We’ve also compiled a short selection of the top headlines in procurement and supply chain this week to share with your friends over morning coffee…

Trinidad and Tobago Under Pressure to Reform Procurement Laws

  • Purchasing legislation introduced by Trinidad and Tobago’s government less than a year ago has already faced criticism due to its perceived loopholes and limitations
  • The law, which aimed to create a “comprehensive database of information on public procurement” and “set training standards and competence levels for procurement professionals” was implemented by former Prime minister Kamla Persad-Bissessar, but has since been challenged by the People’s National Movement
  • The amended bill will be put to a committee, with revisions seeking to establish a Public Procurement Review Board, with the role of reviewing decisions made by the Office of Procurement Regulation
  • It is hoped that changes will help to strengthen the existing laws

Read more at Supply Management

LAX Announces $5 billion Procurement Programme

  • The procurement programme seeks to modernise the Los Angeles airport, the fifth busiest in the world
  • The Landside Access Modernisation Programme will include an automated people mover covering 2.25 miles, which will connect the central terminal area with a car rental area and a station connecting the airport to the LA Metro
  • The eight-year programme aims to relieve traffic congestion within the terminal area and on surrounding streets
  • It is hoped that using a strategy of “Design, Build, Finance, Operate, Maintain” (DBFOM) will help with efficiencies in running the project

Read more at Airports International

Department for Transport (DfT) Receives CIPS Certification

  • The DfT recently transformed their procurement function which has seen procurement’s profile raised across the DfT
  • A “Procurement Centre of Excellence”, which operates across the entire department, was also created and procurement governance processes were strengthened, with new guidance issued across the organisation.
  • Melinda Johnson, director of group commercial services at the department said the ‘achievement of this certification has enabled us to assure our ‘best practice’ guidance, make changes as necessary and given us pointers for further improvement.’

Read more at Supply Management

Samsung/Apple Patent Dispute Continues

  • Samsung has agreed to pay Apple $548 million in court ordered damages in their long-running patent dispute
  • It is the first meaningful transfer of money as part of the dispute, which began when Apple sued Samsung for perceived copyright infringements relating to the iPhone
  • Following a jury ruling in Apple’s favour, the US-based organisation were awarded over $1 billion in damages
  • There is a further case pending next year, worth $400 million, relating to the same charges

Read more at The Wall Street Journal

Small Firms Plan Grand Designs on Overseas Markets

58 per cent of UK small to medium-sized firms are planning to enter new markets in the next two years.

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In a further sign of economic optimism, well over half of UK small to medium-sized firms (SMEs) plan to enter new markets in the next two years with the manufacturing sector leading the way, according to a new study by Albion Ventures, one of the largest independent venture capital investors in the UK.

Evidence of an export-led recovery is provided by the fact that one-in-three (34 per cent) SMEs are looking to break into new markets overseas of which 19 per cent are casting outside the EU and 15 per cent within the single market.  This is higher than the 30 per cent targeting untapped domestic markets.  A further one-in-six (15 per cent) small businesses plan to grow through launching new products and improving their online services. 

New Markets for Manufacturing

The third Albion Growth Report, designed to shed light on the factors that both create and impede growth among over 1,000 SMEs, shows that medium-sized companies are more likely to be looking to expand into new markets (77 per cent) than small businesses (53 per cent).

In sector terms, three-quarters (75 per cent) of manufacturing firms are planning to enter new markets, the highest of any sector and also top for expansion within the EU at 28 per cent. Businesses in media, marketing and advertising (68 per cent) and IT/ telecoms (56 per cent) were second and third respectively.

Entering new markets is not without its challenges; in fact over half (52 per cent) of firms who have taken the plunge reported experiencing problems, the biggest were lack of expertise (13 per cent); too many regulatory obstacles (13 per cent); strong competition (12 per cent); and lack of demand (12 per cent).

Companies in the education sector were the most likely to encounter problems (61 per cent) when trying to enter new markets, followed by those in manufacturing and transportation & distribution (59 per cent and 57 per cent respectively).

Focus Outside the UK

Patrick Reeve, Managing Partner at Albion Ventures, said: “The search for new markets among small businesses is gathering pace with much of the effort focused outside the UK.  Given the EU’s continuing economic travails, it’s of little surprise that other overseas markets are proving more popular. 

“Breaking into new markets is easier said than done and all too often small firms lack the necessary expertise to overcome established competitors.  This is an area where external equity investors such as Albion can provide valuable hands-on support; for those small firms who get it right, conquering new markets can have a transformational impact.” 

On a regional basis, London-based SMEs are the most likely to enter new markets in the next two years with 66 per cent followed by those in the South West (62 per cent) and Scotland and the North East (59 per cent). Small firms in Wales are the least inclined to break into new markets with only 50 per cent planning to do so.

Disruption, Scandal and Upheaval – A Week in Procurement

The past week in procurement and supply chain has been a busy one, and so it’s been hard to pin down just one story to kick the new week off. 

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Over the past seven days, a marketing procurement function for a major global brand has been scrapped, Nigeria has been gripped by a massive procurement scandal and global freight and logistics has been hit by global unrest.

So, just in case you missed all of this, we’ve decided to wrap these three of the major stories for a change.

Marketing Procurement – Beginning of the End?

One story that took many people by surprise was the news that PepsiCo had taken the decision to scrap its marketing procurement function. The firm explained the move as a way of remaining “competitive in an environment where cost cutting and value building are paramount”.

The idea that this has been done to reduce costs and increase efficiency might seem a touch strange, as this is often what procurement are tasked with doing. However, the decision by PepsiCo immediately got the procurement world wondering if this would be the first of many.

However, before all of you who work in marketing procurement start dusting off your CVs, it looks unlikely that this is the case. A survey carried out by the Association of National Advertisers (ANA) found that 68 per cent of surveyed members didn’t view PepsiCo’s actions as the start of an industry trend.

However, it does serve to highlight the frequently high tension between the procurement and marketing functions. Procurement’s role as the intermediary between the organisation and the agencies is often seen as one of cost cutting, rather than value adding.

A survey by the ANA earlier this year found that the vast majority of individuals on both sides of the agency/client relationship were unconvinced about the value that procurement added to the process.

The PepsiCo situation may serve as a warning to other marketing procurement teams, but also afford them an opportunity to shift their focus. Instead of a focus on costs, it’s perhaps time for a more strategic approach, forging stronger relationships with agencies, and establishing how to add value on both sides of the aisle.

Nigeria Hit by Arms Procurement Scandal

Early last week, the news broke of the outcome of a major procurement fraud investigation in Nigeria, implicating some of the country’s former leaders and senior figures.

Based on the investigation, Nigerian President Muhammadu Buhari ordered the arrest of Sambo Dasuki, the country’s former National Security Advisor, who has been implicated in the fraud scandal, thought to be worth in the region of $2 billion.

It has been alleged that Dasuki awarded over $2 billion worth of “phantom” contracts for vehicles, weapons and munitions, which were to be used in Nigeria’s on going fight against terrorist group, Boko Harem.

An additional sum of $142.6m was also allegedly transferred to a company with accounts in the USA, UK and West Africa, without contracts being in place, and without any goods or services being supplied.

Mr Dasuki has claimed that all due process and military procurement regulations were followed in all transactions, and indicated that, given the value of the contracts, they could only have been approved by Nigeria’s former President, Goodluck Jonathan.

Former President Jonathan has also denied any involvement, and, when questioned at an event in Washington, D.C. last week, was quoted as querying whether the contracts ever existed. Keep an eye on the Procurious news for more on this in the coming weeks.

Global Unrest Disrupting Supply Chains

Events in the past week in Paris and Lebanon, as well as the on going influx of migrants into Europe, has freight and logistics organisations counting the cost of disrupted supply chains.

In their most recent Security Risk Index, US-based supply chain consultants BSI have highlighted border closures and slower than normal freight clearances as two of the major issues in Europe.

Delays at Calais costing UK shippers an estimated $1.2 million per day, plus losses from contaminated food and pharmaceutical products, have industry experts stating that that further disruptions could mean job losses across the continent.

Supply chain issues are not limited to Europe either. In China, thieves have been targeting moving trucks and removing goods from them on the road, while in South Africa, truck hijackings have increased by 29.1 per cent over 2014.

CIPS have also argued that increasingly global supply chains has increased complexity and that disruptions could have a damaging impact for the end customers.

Increasing risk in the supply chain is the topic of a webinar that Procurious founder Tania Seary is taking part in next week. Risk analysis in procurement is a key skill, particularly in light of current disruptions to supply chains.

Get all the information on the webinar and register here.

We’ve also kept an eye on other breaking news over the weekend and here are some of the key headlines to share over a morning cup of coffee.

UK Government Boosts Defence Spend

  • UK Prime Minister, David Cameron, will announce an additional £12 billion investment in equipment spend this week
  • As part of the Government’s National Security Strategy and Strategic Defence and Security Review (SDSR), Mr Cameron will outline the UK’s strategy for the coming decade
  • This includes a new fleet of maritime patrol aircraft and two new rapid-reaction “strike brigades” to add to existing capabilities
  • The news is good for American firm Boeing, who won an industry bidding war to provide nine aircraft to the UK RAF

Read more at The Belfast Telegraph

Google Glass Used in Heart Surgery

  • A team of cardiologists from the Institute of Cardiology, Warsaw, used the new generation Google Glass as part of a heart surgery procedure
  • The doctors used the device to help control and restore the blood flow in a blocked artery in a 49-year-old male patient
  • The Glass enabled the doctors to visualise the operation, as well as control the images with voice control, allowing them both hands free to operate
  • It is hoped that more wearable technology will now be adapted for use in the medical industry

Read more at Market Business News

BBC Announce Women of 2015 List

  • The BBC’s 100 Women season has returned, and the corporation has chosen its list of inspirational women for 2015
  • The list this year focuses on “octogenarians sharing life lessons; ‘good girl’ film-makers discussing expectations; nursing; five high-profile women; and ’30 under 30′ entrepreneurs”
  • The list highlights women from around the world who have given a positive inspiration to others with their actions over the past 12 months

See who made the list at BBC News

US Government Faces Criticism Over IT Outsourcing Spend

A recent report has highlighted a lack of management on US Government IT spend.

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IT services outsourcing cost the US government $30 billion USD in 2013. However according to a recent report released by the Government Accounting Office (GAO), the lion’s share of this spend was not adequately managed.

The GAO’s report highlights that while leading private firms ‘manage’ up to 90 per cent of their IT services spend, the government agencies analysed manage only a fraction of this number.

The departments in question – the Department of Defense (DoD), the Department of Homeland Security (DHS), and the National Aeronautics and Space Administration (NASA) – accounted for more than half of reported federal third-party IT services spending in 2013.

Also highlighted in the report were the branches of the US Armed Forces and the percentage of their spend that was “strategically managed”, revealing some worrying figures:

  • US Navy – 10 per cent of $3.3 billion
  • US Air Force – 17 per cent of $1.4 million
  • US Army – 27 per cent of $3.5 billion

Duplicated Contracts

The report went on to suggest that, despite recent improvements in the procurement process, including appointing individuals to identify and action strategic sourcing opportunities, the departments’ IT sourcing was still being carried out using “potentially duplicative contracts“.

These practices served to reduce the power that the departments, and the Government, could wield in sourcing activities. In addition, the report found that the departments could save as much as 15 per cent on their IT spend every year, if they were to take a more strategic approach to the way they purchase these services, similar to the approach of leading organisations.

Commenting on the report’s findings Phil Fersht, CEO of outsourcing analyst firm HfS Research stated; “This data just reinforces how alarmingly poorly run U.S. government agencies are with their IT spend.”

Fersht went on to say, “Why only a fraction of external IT service spending is actually managed via an established contracting model in this day and age is baffling—and indicates a huge amount of unnecessary wastage of taxpayer dollars. Also remember that external IT spend is only a fraction of total IT spend. In some cases, the total spend per agency could amount to two or three times the external IT spend.”

A number of government-wide efforts have been kicked off to streamline the inefficiencies pointed out in this report to ensure the government receives better value from its IT contracts.

Is Trouble Brewing for Apple Following Supply Chain Order Reduction?

A recent report from Credit Suisse has suggested that Apple’s Asian supply chain is weakening following a reduction in orders. Is the tech giant struggling? Or is it just standard market forces at work?

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According to the report, Apple has reduced orders by up to 10 per cent, with this figure expected to grow to 20 per cent in the first quarter of 2016. As a result of this, Credit Suisse has downgraded its sales estimates for the iPhone 6S from 242 million units, to 222 million units.

While this might not seem like a major decrease, the period covered runs through Thanksgiving, Black Friday, Cyber Monday and Christmas, which would be a big story for any organisation, let alone one that has dominated the technology scene for over a decade.

What’s more, the company’s share price fell 2.5 per cent on the back of the announcement, which came just 24 hours before the launch of the iPad Pro.

Knock-on Effect in Asia

Lower orders in the Asian supply chain, where Apple has traditionally done a decent proportion of its manufacturing, will inevitably have a knock-on effect on the organisations in the region.

Organisations such as San Disk Corp., AAC Technologies (Hong Kong), Largan Precision (Taiwan) and Texas Instruments, all of which have exposure to Apple’s Asian supply chain, also saw their shares fall following the announcement.

An on-going decrease in orders across the supply chain could lead to a much wider impact, particularly if concerns about falling sales of the iPhone become a reality. However, many experts have said that the situation is not as bad as it seems.

Reasons to be Positive

Tim Cook, the Apple CEO, remains confident and has been quoted as saying that Apple is still receiving strong demand for the iPhone 6S from China. Other reports have suggested that the appetite for the 6S may be on the wane due to rumours of a new and improved iPhone 7 being released next year.

Another US-based investment firm, FBR, also disagreed with Credit Suisse’s announcement, arguing that it was expecting to see “a very strong December quarter/holiday quarter on healthy iPhone 6s demand and legacy iPhone 6 shipments.”

That, combined with a number of new products that Apple has lined up to released during 2016, including a new streaming service and a peer-to-peer payment service, keep the organisation in a very healthy position.

Customer Loyalty

The other thing that stands Apple in good stead going forward is its fiercely loyal customer base. While sales of the iPhone were inevitably going to plateau and then tail off, Apple retains its users through the high-specification of its products.

Apple has also developed its “Apple iPhone Upgrade Program”, which allows consumers to buy phones directly from Apple on a two-year instalment plan, then upgrade after a year or extend the terms for a further 12 months. It is anticipated that the results of this service will show in September 2016, plus drive long-term sales.

Good or bad over the next 6-12 months, Apple is here to stay. It takes a brave investor to back against them, particularly as the company has a reputation for pulling innovative products out of the bag when required.

However, not even Apple are immune to a volatile market and changing trends, so it will be interesting to see if the predictions pan out, and how Apple will react if and when that happens.

What do you think about Apple’s situation? Is it something to be worried about or a flash in the pan? Let us know your thought

Social Media – Breaking News and Misinformation

Social media was awash this weekend with information, news and an overwhelming outpouring of sympathy in the wake of the atrocities in Paris on Friday night.
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The Procurious team would like to take this opportunity to offer our most sincere condolences and sympathies to people of Paris, and all those affected by this horrendous act of terrorism. We would also offer the same sympathies to the people of Beirut, Syria, Iraq and Egypt, who have all suffered similar attacks in recent days and weeks.

Social media has changed how the world sees events such as the ones in Paris. Breaking news, information and pictures all appear on the Internet during the events, with people uploading their first-hand accounts on the ground.

But, while social media can be a force for good, and a fantastic tool to help victims and their families, there is also a darker side, with misinformation, vitriol and rhetoric all spread in equal measure, often taking the focus away from the real story.

The Good

As the attacks in Paris unfolded on Friday night, many people turned to their phones to get an understanding of what was going on. With the news cycles taking time to unfold, social media was able to fill that gap with the headlines as they broke.

As well as providing access to the breaking news, social media accounts were being used to communicate with families and friends, to let others know that people were safe. Facebook immediately launched its “I’m Safe” button, which was first used during the Nepalese earthquake earlier this year, allowing a simple way to notify hundreds of people at once.

Not for the first time, a Twitter hashtag trended in the wake of the attacks. The #porteouverte hashtag offered a place to stay for those affected by the events, similar to the #illridewithyou hashtag, which trended in December last year following terror attacks in Sydney.

A sign of sympathy, a sign of solidarity, showcasing all the good that social media can accomplish in these situations.

The Bad

For all the good that social media can do, there is a dark side to the power that is wielded by its users. Giving everyone a voice allows for the support and sympathy, but also gives a voice to misinformation and ignorance.

For the most part, the misinformed stories that appear in the aftermath of such events are not malicious. A small story or throwaway quote can be exaggerated out of all proportion, taking on a ring of ‘truth’ as it spreads across social media.

Stories of the Eiffel Tower lights being turned off as a mark of respect (the lights are always turned off at a certain time of night) and of fires at the Calais refugee camp due to an act of retaliation (the cause is still unknown, but pictures were from a fire in November), are just some of the ‘facts’ that grew legs thanks to the virality of social media.

Where the misinformation is malicious, it can lead to hatred and prejudice being spread, and innocent people being targeted as a result. Already there have been arrests in the UK as a result of social media posts over the weekend.

Unifying Force

The power for good of social media outweighs the power for bad in most cases. The volume of news and information we all have access to means we can be better informed and more up to date on all the breaking stories. It would be a shame to see a tool that has the potential for being a conduit for social good be lost to the many, as a result of the actions of the few.

We have the responsibility to use this wealth of information appropriately, and keep our posts factual, especially when it comes to breaking news and events like Friday night (please still have your own opinions – this is part of the beauty of social media too!).

Let’s ensure that we use social media as a unifying force across the world, share quality information (and the occasional cat video…), shine a light in dark corners and allow us to create a global community. Are you in?

Here are some of the top procurement and supply chain headlines this week…

PepsiCo Scraps Marketing Procurement Function

  • PepsiCo has scrapped its marketing procurement function, handing procurement responsibilities to its brand teams
  • The move has been claimed as necessary in order for the company to remain competitive in “an environment where cost cutting and value building are paramount”.
  • With procurement now sitting with the brand teams, the company believes that discussions with agencies will have a more strategic slant, rather than being about cost cutting
  • The move will also help PepsiCo rid itself of the tension that existed between the two functions, while creating a leaner organisation

Read more at The Drum

Indian Supply Chain Firm Makes UK European Hub

  • TVS Supply Chain Solutions has announced its UK arm, TVS Logistics, is to become a regional hub for the business in Europe
  • The move is expected to create up to 100 new jobs at a newly built warehouse and call centre in Barnsley, and up to 500 more over the next 5 years
  • R Dinesh, managing director of TVS Logistics, said: “The UK is a highly successful investment destination for TVS Logistics. TVS will continue to make further investments in the UK and will make it the gateway for future growth and expansion for its business in Europe. ”
  • The announcement comes as Indian Prime Minister, Narendra Modi, visits the UK to discuss trade and investment deals worth up to £10 billion

Read more at Supply Management

Alibaba Sees Record ‘Singles’ Day’ Sales

  • Alibaba, the Chinese e-commerce website, has seen record sales for its ‘Singles’ Day’ promotion on the 11th of November
  • The platform boasted sales of 91.2 billion yuan ($14.3 billion), a figure that was up by 20 per cent on 2014’s total, and making the day larger than Black Friday and Cyber Monday combined
  • It was estimated that 68 per cent of the total transaction value were orders placed on mobile devices
  • Speaking at the end of Singles’ Day this year, Alibaba founder, Jack Ma, estimated that future events would see growth of up to 50 per cent

Read more at Supply Chain Digital

Open Procurement for Trans-Pacific Partnership (TPP)

  • The nations involved with the newly-signed Trans-Pacific Partnership (TPP) have agreed to opening their procurement contracts as part of the agreement
  • The deal will require its signatories to provide suppliers in other member nations with equal treatment in procurement processes
  • Public agencies will also have to publish tender notices which must include the description, conditions of participation, and selection criteria
  • Organisations will not be allowed to exclude suppliers purely on the basis of them not having won business in that country before

Read more at Supply Management

Mergers on the Horizon for Shipping Industry

A crippling slowdown in the international shipping sector is causing many industry leaders to rethink their strategy, and it appears that mergers are on the agenda.

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Last weekend the Singapore based Neptune Orient Lines announced that it was in ‘preliminary’ talks with both A.P. Moller Maersk of Denmark, and CMA CGM SA, based in Marseille, France over a potential merger.

When asked about the talks, the company was quoted as saying it “has a duty to assess all options to maximise shareholder value and improve its competitiveness.”

Mergers are afoot

These discussions are not the first movements toward consolidation of the shipping industry, a market sector that has been traditionally stagnant and unresponsive to cyclical market fluctuations.

Last year, German shipper Hapag Lloyd merged with its Chilean counterpart Compania Sud America de Vapores. Industry analysts have kept a close eye on the merger, with its outcome likely to have some bearing over the Neptune Orient Lines sale.

Oversupply of Capacity

The consolidation of the international shipping this thought to be driven by a vast oversupply of capacity in the market, coupled with decreasing freight rates.

The industry has traditionally avoided this sort of merger talk, as many firms (including Neptune Orient Lines) are owned by sovereign wealth funds or private organisations, which have been financially stable enough to take a long term position on the market and ride out these cyclical blips. However, it seems the market is due some correction with some industry observers suggesting it is over supplied by as much as 30 per cent.

Decreasing Competition?

Further consolidation in the industry is anticipated in China, with the country’s state-owned Cosco Group and the China Shipping Group Co. in discussions about combining their shipping operations.

The move has been ordered by the Chinese Government, who are looking to consolidate state-owned operations. Between the two organisations there was a total of $911 million in operating losses (EBIT) from container operations in the previous five years, as well as a significant drop in market share.

However, many experts are concerned about the knock-on effect of this merger across the industry in Asia, as it could precede further mergers and alliances in the region, ultimately damaging competition.

Stay tuned to Procurious for news and updates on these mergers, as well as to keep abreast of future changes in the shipping industry.

Supplier Competition Unwinds Japanese Business Culture

Increasing competition in the global automotive market looks to be forcing an end to traditional working relationships in Japan.

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A few months ago Procurious published a piece on keiretsu, a Japanese business practice involving very close links between suppliers and buying organisations. These practices are back in the news this week, as Toyota looks set to further unravel some of these links.

To summarise, keiretsu is a business practice that sees companies with overlapping business interests (normally buyers and suppliers) taking a financial share or interest in one another. This practice has traditionally been very common in the Japanese economy, and has been particularly popular within the automotive industry.

However, in the past two decades or so many Japanese organisations have moved away from this business practice and towards the more open supply market competition we are accustomed to in the west. Nissan abandoned its keiretsu policy about 15 years ago to reduce costs. Honda too has moved away from its preference for interlocked supplier relationships with Japanese suppliers.

Toyota sticks with it – until now

Toyota, however, has held firm on its keiretsu policy. Or at least it had until the beginning of this year.

Much of Toyota’s past success has been attributed to the company’s lean supply chain operations and, specifically, its keiretsu business practice. The close relationship the firm had with its suppliers (not to mention their shared financial interests), meant that these organisations were able to work collaboratively and innovate far beyond what was ‘normal’ in more traditional supplier relationships.

Recent decisions, however, suggest that these close relationships are starting to unravel. The most visible sign of this was when Toyota released its new Corolla earlier this year. The best selling Corolla was, for the first time, fitted with anti-crash technology that was produced by a German auto parts manufacturer. Blasphemy in the world of keiretsu.

A shift in capability or in strategy?

All of this poses a question – are Japanese auto parts manufacturers losing their competitive edge, or is Toyota actively looking to diversify its supply chain?

The answer seems to be ‘a little bit of both’. While it does appear that the gap between Japanese parts markers (once seen as the driver behind the powerful Japanese auto industry) and manufacturers across the rest of the world is closing or has closed, the decision to leverage foreign suppliers may in fact be part of a diversification strategy by Toyota.

Speaking on the strength of the foreign supply market, Toyota President Akio Toyoda was quoted as saying, “Competition in the global automotive industry is becoming fiercer”.

It is also clear that foreign manufacturers, like Continental, who supplied the Corolla’s new crash avoidance technology, have closed the gap on Japanese suppliers.

It is thought these organisations are maturing more quickly than their Japanese counterparts, because they have a broader customer base and a wider geographic spread, opening them up more opportunities, innovations and economies of scale. Japanese suppliers have missed this exposure through their arguably insular relationships with one (or very few) buying organisations.

Perhaps driven by this increase in global competition, Toyota has, over the last year, looked to diversify and unravel some of its interlocking supplier relationships. In April, the automaker took the bold step of installing a former Toyota executive, Yasumori Ihara, as the CEO of one of one of its leading suppliers (and keiretsu partner) Aisin Seiki Co.

Ihara’s role at Aisin was to slacken the ties between the business and Toyota, and look to make the organisation more competitive in the global market, a move that was thought to be beneficial for both Toyota and Aisin.

Where do you think the balance lies for Toyota? Open markets or close supplier relationships? Could western Businesses learn something from the keiretsu mantra?

Are Price Wars Impacting The UK Food Supply Chain?

The price war between supermarkets in the UK is frequently referred to as a ‘race to the bottom’ . But as the major retailers fight for market share, suppliers with already wafer-thin margins are the ones feeling the price war’s impact hardest.

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A report released last week by the National Farmers’ Union (NFU) in the UK, argued that, while trying to win customers, retailers were returning to “damaging short-term practices“, and heaping pressure on their producers and suppliers.

Numerous suppliers have argued that retailers have begun to prioritise price over quality and service, and trying to recover their decreased margins across their supply chains.

Over Supply Issues

Compounding these issues are two other factors – over supply and aesthetics – something that farmers and other industry stakeholders, including chef Hugh Fearnley-Whittingstall, have called out retailers on.

Although bound in some cases by EU Regulations on fruit and vegetables, many retailers are rejecting high-quality food (usually vegetables) as “imperfect”, even if the food in question is in good condition.

Around one-third of fresh food produced in the UK is never eaten, with vast quantities being rejected on cosmetic grounds. As well as the issue of rejection on quality grounds, supermarkets have also been accused of wasting tonnes of food that is over-ordered, so that they can have full shelves for customers.

Financial Distress

An estimated 1,500 UK food and beverage manufacturers in the UK are currently classed as suffering from “significant” financial distress. Although this figure has fallen by 4 per cent during the second quarter of 2015, it still represents a figure three times higher than in the same period 2 years ago.

Experts believe the cause of this distress is linked to a readjustment to supermarkets’ lower price strategies. With suppliers under pressure, industry professionals are calling for change in order to ensure a future for all parties.

Judith Batchelar, Director of Brand at Sainsbury, has argued that there needs to be a more “joined-up” approach across the supply chain, with collaboration between all the parties and steps taken to integrate the latest technologies and information systems.

Although admitting that Sainsbury itself had a long way to go in this respect, Batchelar argued that this was the best way to create long-term sustainability, and help to balance the inherent supply and demand driven industry fairly.

Fresh Strategies

In the US, retailer Target is also addressing its supply chain strategy for fresh produce in the wake of major stores closures across North America this year.

The food supply chain, described as a “Frankenstein” system by Target COO, John Mulligan, is seen by the organisation as a key element in its battle to regain its market share.

However, it’s not all bad news in North America. US-based agriculture co-operatives have announced record income and revenue figures for 2014, with incomes up 16.4 per cent and a total of $246.7 billion revenue for the same period.

The figures are credited to an increased reliance on co-operatives, increased involvement in communities and greater number of producers joining one or more co-operatives in the past year.

It is hoped that the success of the co-operatives can be repeated in the UK, increasing the importance of the co-operatives and bringing the same collaborative strategies supermarkets are talking about into practice and achieving tangible benefits.

Do you work in procurement in retail or for a supermarket? We’d love to hear your experience of these issues, as well as how you might have solved them. Get involved on Procurious.

In need of some news to share with your colleagues over morning coffee? Look no further than what we have for you…

Tata Demands Suppliers Cut Prices

  • The Indian Steel Giant, Tata, has been accused of “bullying” tactics towards suppliers by demanding a 30 per cent reduction in prices
  • The company recently wrote down the value of its UK assets, and has made over 2000 people redundant in the past few months
  • A letter signed by Lorraine Sawyer, procurement director of Tata Steel Long Products Europe, was issued to the whole supply base, initially asking for a 10 per cent price reduction across the board
  • The letter goes on to ask for “contribution from all…suppliers” and implies that suppliers who do not comply may end up losing business

Read more at The Telegraph

Nurse Saves NHS Trust “Thousands”

  • A nurse has helped save tens of thousands of pounds in Plymouth – by introducing new and more efficient equipment.
  • The Senior Sister, who also acts as an Clinical Procurement Manager, has saved Plymouth Hospitals NHS Trust thousands of pounds over a 6-week trial period
  • Michelle Winfield said the key to saving money was “involving clinical staff in the choices and changes”
  • James Leaver, category manager for the trust, said, “We are seeing a real sea change in attitude with people no longer taking the historic view that procurement and finance are ‘imposing’ changes on clinical staff.”

Read more at The Plymouth Herald

BHP Billiton Shares Plunge Following Dam Disaster

  • Shares in Australian mining giant BHP Billiton have fallen sharply following the collapse of two dams at a co-owned iron ore mine in Brazil
  • What caused the dams to break is unknown, but it caused a wave of water, mud and debris to be released, engulfing nearby villages and killing at least 2 people
  • Shares in the company fell by 3.5 per cent on both the Australian and UK stock markets on Monday morning
  • The disaster has prompted calls for better regulation on the mining industry in Brazil, which is one of the country’s leading sources of export revenue

Read more at The Guardian

Obama Signs Illegal Fishing Laws

  • U.S. President Barack Obama has signed the Illegal, Unreported and Unregulated (IUU) Fishing Enforcement Act
  • The legislation includes a number of provisions preventing illegally harvested fish from entering the U.S. and supports efforts to achieve sustainable fisheries around the world
  • Currently, U.S. fisheries law focuses on at-sea or dockside enforcement of domestic fishing operations and does not provide the tools needed to address imported seafood and fishing violations
  • It is hoped that the new laws will ensure that both the economic and environmental sustainability of the U.S. Fishing Industry are protected

Read more at Maritime Executive

Austrian Wastewater Solution Wins Procurement Innovation Award

This year’s Public Procurement of Innovation Award has been won by the Austrian Federal Procurement Agency for its work in delivering a ground breaking wastewater solution.

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The award, which was presented to the Austrian delegation at a ceremony in Paris, aims to recognise successful public procurement practices that have been used to purchase innovative, more effective and efficient products or services.

This year’s finalists included entries from Sweden (medical imaging for optimisation of care flows), Italy (integrated energy service framework contract), Netherlands (learning space self supporting river systems) and Spain (Galician Public Health Service).

Innovation led to Sustainability

Ultimately it was the Austrian solution that came out on top. According to the Awards panel, the project, which recycles wastewater by vaporising it to remove waste particles, was chosen as it not only involved the application of innovation-friendly procurement procedures, it also ensured increased resource efficiency and improved environmental sustainability.

“We felt that the procurement of the vaporising system best showcased the impressive work being carried out, as well as the type of solution that public procurement of innovation can achieve, the procurement brought together the institutional knowledge of public procurers with the ingenuity of the private sector” said Wouter Stolwijk, Director of PIANOo, the Dutch Public Procurement Expertise Centre, who presented the award to the Austrian delegation (pictured below). 

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The solution, that will be used to clean the residual water left over from the production of coins and notes at the Austrian mint, is said the reduce the amount fresh water used in the process by 97 per cent. It is believed that the machine could also have uses in other industry sectors.

 

 

2015 marks the second year of the PPI award with last year’s award being won by an impressive robotic bed washing facility at the Erasmus Medical Centre in Rotterdam. That innovative solution reduced bed-washing costs by 35 per cent and cut the CO2 footprint by 65 per cent.

See the full list of finalists here.