Institute for Supply Management (ISM) CEO Tom Derry tells Procurious that people need facts, not speculation and fear, when it comes to understanding the impact of Brexit on US business.
ISM took the unusual step this month of releasing a supplementary Report on Business, focusing specifically on the impact of the UK’s Referendum on EU membership on US business.
The decision was prompted by a flood of enquires from US business and media representatives about whether the data for this month’s highly anticipated and influential report would reflect the fallout from Brexit.
“We decided to go back to our panel of over 600 procurement professionals with a tailored series of questions about the net financial impact of Brexit on their organisations”, said Derry.
“More importantly, there has been an enormous amount of speculation about the impact of Brexit, fed by a sense of unease and uncertainty. ISM was in a position to gather real data and put the information out there so businesses can make informed decisions based on facts, rather than fear, concern or emotion.”
The report will serve to dispel much of the speculation around the impacts of Brexit on US business. The vast majority of those surveyed reporting that Brexit will have a “negligible” impact on their business. Only one in three thought their firm would be negatively, or slightly negatively, impacted.
The main concerns for those who do anticipate an impact include the exchange value of the dollar, changes in demand globally, financial market uncertainty, and currency movements.
“The report demonstrates that despite the speculation, the majority of US businesses feel that Brexit will have a negligible impact”, says Derry. “This is because the US has a comparatively low export economy at only 13 per cent of GDP, so we are relatively insulated from the impacts of currency movements and global demand. We’re not a huge commodity exporter, although the strength of the dollar is of course a concern for those who are in the exporting business.”
Derry says that in the short-term, trade relationships are stable. “For US firms doing business in the UK or EU, very little has changed. For now, we’re good – business is predictable, and we love predictability and certainty.”
Future Investment Shift
In the long-term, however, US businesses may not choose to invest additional dollars in the UK. Historically, a lot of companies (such as car manufacturers) have used the UK as their port of entry into the EU, due to its shared language and talented workforce.
Derry added, “That option may no longer be so attractive, and discretionary investment will probably shift to Eastern Europe – Poland or the Czech Republic – to have a presence within the EU, and take advantage of low-cost labour.”
Derry says that the Brexit referendum is a historical event. However, in 10 years it is likely to be seen as a political decision, rather than an economic one. “The ‘sky is falling’ scenario is certainly overdone”, he says. “I don’t think we’re going to see the fracturing of the EU over Brexit.”
“It’s important to keep our vision focused forward. As supply management professionals, we work in the global economy and a major shift, such as Brexit, forces each of us to recalibrate our global supply strategies and trade relationships. The EU is the largest single market in the world – we can’t ignore it.”
It was argued that poor career guidance was stopping young people making informed career decisions, which in turn was harming the country’s economy.
The report, the first published by the Sub-Committee, also argued that there needed to be greater oversight over the wealth of organisations, service providers, and websites set up to offer careers advice.
The report concluded that schools needed to be held to greater account when it came to careers services, and that this should make up part of annual inspections.
“Big Stick” Approach Wrong
However, the report came in for criticism from head teachers’ leaders, who argued the “big stick” approach of downgrading schools for poor performance wouldn’t solve fundamental issues with the careers advice system.
Malcolm Trobe, interim general secretary of the Association of School and College Leaders, said that there were severe problems in the existing system that urgently needed fixed, while school budgets were frozen and under severe pressure.
It was argued by other leaders that the threat of downgrading and inspection was not an effective way of driving improvements in career guidance.
Effective Career Guidance
However, there was agreement that steps needed to be taken in order to better equip students and school leavers with the right advice for their careers.
As the business world continues to change and evolve, students need the best possible advice about experiences, qualifications, and training needed for chosen careers, or how to get involved with new and emerging industries.
And this is not necessarily about just encouraging school leavers to go on to higher education and university, a criticism which has been levelled at many schools, but also making them aware of apprenticeships and other work opportunities.
This could be done through giving pupils better access to employers while still in school, work experience opportunities, and career talks from former pupils and local business leaders.
Seamus Nevin, Head of Employment and Skills at the Institute of Directors, said: “The IoD welcomes the committee’s focus on careers guidance, which by all accounts remains an Achilles heel in the UK education system.
“Alarmingly, just 43 per cent of students currently receive any formal careers guidance before choosing their A-level subjects and yet the subjects they choose can severely restrict their employment options later in life.
“This is partly because only 83 per cent of secondary schools employ a qualified, full-time careers adviser, with many relying instead on other support staff to fill career guidance roles. The only way to solve this problem is to improve guidance, not punish schools for being poorly equipped.”
The political environment in Australia is tense, even as the Liberal Coalition claims victory by the slimmest of margins. How the corporate landscape will be impacted by the outcome is merely a guessing game.
It’s been something of a topsy-turvy year, and couple of months in particular, for political uncertainty around the world. The on-going US election campaigns ahead of the November election have polarised opinion, while in the UK the Brexit vote has individuals and organisations alike trying to uncover the full extent of the changes.
And while there is likely to be more instability in the coming months, the ongoing uncertainty around the Australian election has the business community and procurement leaders watching with baited breath, given that what elements of business trade could be impacted by this is anyone’s guess.
With 80 per cent of the vote counted, we do know that Malcolm Turnbull will be returned as Prime Minister, after opposition Leader Bill Shorten admitting defeat on Sunday, according to recent media reports.
The Liberal Coalition is expected to win just enough seats (76) to form a majority government. But the rest of the line-up could take weeks to finalise. And Turnbull has an uncertain and challenging year ahead, as he faces difficult negotiations with independent members of parliament, a hostile Senate, and potential mutiny within his own party.
The election was held against the backdrop of a particularly complicated political environment. Laura Tingle, the Australian Financial Review political editor, helped to outline why in her keynote address to the Asia-Pacific CPO Forum in Melbourne earlier this year.
Back in 2013, Australian voters wanted to get rid of the Labor government, with many viewing it as a “soap opera“, as Julia Gillard first took over from PM Kevin Rudd in 2010, before being challenged by Rudd twice, resulting in Rudd leading Labor again at the 2013 election.
However, Tingle explained that the ‘coup’ in 2013 from Rudd isn’t the only reason the electoral situation was in flux.
“Voters have been utterly disappointed by the Coalition under Tony Abbott, and confused and angered by what has happened since Malcolm Turnbull took over,” she says.
The highly respected journalist and political commentator told forum attendees that it’s rare for there to be a uniform swing across seats in an election, and that she can’t think of an election where there are so many unknown factors at play that could create wild outcomes.
For example, the Melbourne seat of Batman, once considered technically the safest Labor seat in Australia (with margins of 21 per cent), was only just held by Labor during the election. The significant change is due in part to rapidly changing demographics in the seat.
In addition, there was a lack of clarity in the state of Queensland as to how the votes would be cast, with independents including the hard-right Pauline Hanson picking up support from dissatisfied voters.
Political Instability Ahead
Tingle argued that Australia was heading into a period of instability.
“When I say ‘uncertainty’, I mean it in the sense that we really don’t known what the election outcome will be if we judge it purely by the numbers.”
Prior to the election, the question was really about whether or not the electorate really wanted yet another change in prime minister.
“Ironically, I think it is the Coalition – the current government – which is more of a policy unknown that the Labor Party.
“The Coalition has been thrown off course in the last couple of years. First by its political incompetence and lack of policy savvy. The 2014 budget has become the byword for this, but there was much that proceeded it in terms of policy towards business even before the budget was brought down,” she says.
Complex Issue Resolution
Even if the government is returned to power, and it looks likely that it will happen, Tingle argued that the major issues, such as health funding, schools funding, and universities funding, would have to be sorted out one at a time, due to the complexity of the issues in the political environment.
“None of this, in reality, leads you to think that either side of politics can have a real breakthrough moment. There has already been a lot of commentary to the effect that much will depend on the size of the majority Turnbull is able to command in the House of Representatives.”
The most basic measure Tingle has learned covering politics and policy making for so long is the capability of politicians to react to the issues of the day.
“When I say that, I mean it is assessing what you believe their underlying capability is to deal with the stuff that comes along every day when governing a country, rather than the set piece policy positions you draw up beforehand.”
However, it’s not all bad news, particularly from the point of view of public sector spending and government procurement. Even in the midst of the political upheaval and turmoil, it appears to be a case of “business as usual” for procurement.
The Federal Bureaucracy, which is unelected, and as such unaffected by the election until a result is declared, has assured people that the chaos is mainly isolated to the parliament itself.
They have stated that since the election, there have been a large number of state and local government authorities calling for tenders, announcements of grants, and new public works projects. In addition to this, there are tender notices still being issued for on-going projects, suggesting that business will continue however the final few seats fall.
What are your thoughts on the Australian elections? How will your business be impacted by the political uncertainty?
Meanwhile, we’ve been keeping track of the all the major procurement and supply chain news headlines this week…
China Cosco to invest in Port of Piraeus
One of the largest seaports in the world, the Port of Piraeus, was sold to China Cosco Shipping Corporation for €368.5 million in April this year,
The deal represented a major privatisation and was a central plank of the €86 billion bailout deal agreed with Eurozone partners.
This week, China Cosco announced its plans for the site, including an investment of over €500 million in the port over the next five years. The company will focus on developing the cruise and shipbuilding industry.
Chinese president Xi Jinping said this week, “We are certain that Piraeus will open new prospects for the broadening of Greece-China cooperation in transport, infrastructure, telecoms and shipping”.
Robot maker Starship Technologies has launched a test programme for their self-driving robots.
The test will involve the robots delivering packages, groceries and goods in the UK, Germany and Switzerland.
The robots drive autonomously in a 2-3 mile radius and are monitored by human operators.
Rolling on six wheels, the robots find their destination using GPS, radar and camera, and are able to navigate around obstacles and follow traffic rules. Customers open the secure compartment to access the delivery using their phone.
Traditionally a prime hub for trade, logistics and communications, Dubai, the UAE, are looking to secure the future as a hub of business innovation.
On the 27th of November 2013, Dubai was voted as the host city for Expo 2020, an event that aims to bring together a global audience to discuss issues pertinent to every person in the world. Based on central theme of “Connecting Minds, Creating the Future”, Expo 2020 will also cover key sub-themes of sustainability, mobility and opportunity.
While the event will place the country at the heart of an event with an estimated 25 million visitors, it also helps to cement Dubai’s place as a centre for technology and business innovation.
Dubai is already well on its way to becoming a ‘smart city‘, with huge sums of money being invested in making the emirate a hub for IT and technology. In September 2015, Dubai was named as the second-best city in the world for expats wishing to start a business, while the UAE was among the top 10 countries for expats to work in.
These titles run in line with Dubai’s aim to open its doors to the best and brightest technology innovators and entrepreneurs. As part of its investment in infrastructure during its ‘Year of Innovation‘ in 2015, provisions were made to assist small to medium-sized startups with technological assistance, aimed at creating growth in this sector.
And, as part of this drive to encourage more global technology organisations to come to Dubai, Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai, announced a $544 million fund to finance innovation in the city.
While the fund doesn’t actually go live in terms of investment until later this year, it is anticipated that it will provide funding to companies based in the UAE, as well as those providing “exceptional innovative ideas“, helping to drive growth and economic development across the region.
All of this comes as part of the UAE’s ‘Vision 2021‘, which aims to make the country one of the most innovative in the world. And it’s good to know that procurement and supply chain have a key role to play in this process too.
In the coming months, a huge procurement and contracting effort will be undertaken to award build work for the site, infrastructure and transportation to support the hosting of Expo 2020. Dubai is forecast to spend around $8 billion on infrastructure mega projects in the build up to Expo 2020 including hotels, new metro links and malls.
Kicking it off last week, the RTA awarded a $2.88 billion contract for the construction of its Expolink metro. This will be followed by purchase of trains to service both the new, and existing, Dubai metro lines.
It’s estimated that Dubai’s Road and Transport Authority (RTA) will look to 30 per cent of the project cost through private funding, with public-private partnerships mooted for the remainder.
Is it too much to ask for to have a little innovation in the procurement process? While traditional processes might still hold sway, we can only hope that the profession can get in on the act in the next few years.
Need something to chat about in the tea room? Or something to enjoy with your coffee? Here are the week’s big headlines…
States Come Together for Purchasing Agreement
TheNational Association of State Procurement Officers (NASPO) has been formulating a collective procurement agreement which is expected to benefit 34 states in America.
The Value Point platform will give states purchasing similar items cooperative buying power as one organisation, rather then by state basis.
The Cloud-based platform will enable information storage and allow for different payment structures.
The final agreement is expected to be signed off in August and will the states to move forward with a cohesive, cooperative approach to procurement.
It was an unlikely event just a week ago, but the Brexit has come to pass. Procurious looks to unpack initial thoughts on how the ‘Leave’ vote will impact both procurement and organisations as a whole.
Last week, Procurious’ weekly news article reported on the potential impact of the UK Referendum on UK and European supply chains.
Now, with a weekend of uncertainty and speculation behind us, Procurious looks at the initial views on what the wider implications are likely to be for procurement now the ‘Leave’ vote is a reality.
Following the ‘Leave’ result announcement on Friday morning, the UK stock market dropped 8 per cent on opening, its worst one-day fall since 2008, although it recovered slightly during the day. The pound, too, fell dramatically in the early morning, with a 10 per cent fall taking it to an over 30 year low.
Across Europe, stock markets reacted in a similar fashion. Markets in France and Germany also fell around 8 per cent, while the Swiss Government were forced to stabilise the Franc as it dramatically appreciated in value.
Due to the unprecedented nature of the vote and the result, experts foresee a period of volatility in UK, European and World markets. The volatility has already had an impact on commodity prices, with oil prices dropping by over 5 per cent, both in Europe and the USA, while gold prices have risen by nearly 7 per cent.
In a bid to calm markets, George Osborne, Chancellor of the Exchequer, broke his silence to reassure markets that “Britain is open for business” – but warning too “it will not be plain sailing”.
The Long Term
The long-term implications will take a while to become clear. The markets across Europe will stabilise, as will the value of the currencies of the member states. However, as has already been reported, the UK exit may precipitate other in/out referendums in Europe.
Far-right parties in France, Italy and the Netherlands were all quoted on Friday as saying that it was now time for their countries to have their own votes. Although further votes would result in increased volatility, these are unlikely to happen in the short term.
For now, all member states, the UK included, are still part of the EU, and are therefore subject to EU regulations and obligations under the single market.
Britain will most likely wait until at least October, when a new Leader of the Conservative Party is elected, to trigger Article 50 to start the EU divorce process.
Procurement, Trade and Supply Chains
Setting politics aside, and assessing the UK’s decision from a procurement and supply chain point of view, there are a number of factors businesses must consider in the short term, in the run up to the UK formally taking its leave from the EU.
Should the value of the pound remain low, this will bring both positives (think cheaper exports for British companies), and negatives (think more expensive imports of global products, and less bang for your buck in foreign currency exchange transaction), for procurement organisations.
The UK will also have to renegotiate trade deals, not only with European countries, but also with other countries around the world. Both UK imports and exports would be subject to tariffs, increasing supply chain costs of organisations with pan-European supply chains. However, it is worth noting that this will only happen in the event of the UK fully removing itself from the EU common market.
It is also worth remembering that this will not mean the end for procurement activities around Europe. Far from it. New trade deals, negotiations, supplier evaluations and supply chain changes, will all fall under procurement’s remit, making our profession as important for organisational value as it ever has been.
A two-year waiting period for the UK to formally leave the EU doesn’t mean that nothing can be done in procurement. There are a number of strategies and actions that can be taken in order to prepare, and help to mitigate future risks.
Procurement professionals first need to understand if and how they are impacted within their current contracts and supply agreements. Assessing the current supplier lists to identify European suppliers, or suppliers with European Tier 2 or 3 suppliers, is a good starting point.
It will be better to know now if critical, or bottleneck, suppliers will be impacted, so mitigations and contingencies can start to be planned. Within existing contracts, procurement must assess the potential impact of tariffs on pricing, and if they, or suppliers, will be in a position to renegotiate these contracts.
Finally, investigating alternative sources of supply for all products is a good step to take. This could be supplier based in the UK, or further afield. Another option in this regard would be assessing the possibility of exploring innovative supply solutions with existing suppliers.
UK and European businesses, including procurement departments, have time to prepare. The biggest mistake would be in leaving it too late to ensure actionable outcomes.
Are your supply chains likely to be impacted by the referendum result? How can procurement act to ensure they still have the best deals with suppliers? Let us know your thoughts.
Had your fill of politics? Need something to take your mind off it? Here are some headlines to peruse from the world of procurement & supply chain…
FAA Relaxes US Drone Regulations
The Federal Aviation Authority (FAA) has relaxed its regulations on the piloting of drones in US airspace.
Before now, operators needed to obtain a licence, requested on a case-by-case basis, to have permission to pilot a drone legally.
Now, the regulations state that commercial drones can be flown by pilots over the age of 16, below 400 feet, and with the drone in line of sight.
However, the changes will not affect the commercial drones proposed by Amazon, as the FAA is still carrying out further research on this use.
National Women in Engineering Day 2016 is all about raising profiles and showcasing why engineering is a great career for women.
Thursday the 23rd of June isn’t just about the UK’s EU Referendum. In fact, there’s something happening on Thursday that it would be remiss of us to overlook, or let be completely overshadowed by the vote – National Women in Engineering Day 2016.
Building on Success
NWED 2016 is aiming to build on last year’s success, when over 400 organisations, including schools, colleges, universities and industry bodies, from across the world, got together to celebrate achievements of women engineers, and encourage more girls and women to consider a career in engineering.
But first, a bit of background. The first National Women in Engineering Day was set up by the Women’s Engineering Society (WES) as part of its 95th anniversary celebrations. The society wanted to highlight the opportunities available for women in engineering, at a time where the industry was suffering from a skills shortage.
The WES felt that by encouraging more girls and women into engineering, it would help to improve diversity, fill the skills gap and enable the industry to cope better with future job requirements. NWED was created to support this aim, allowing organisations to set up their own events, and link together with others in order to maximise the impact of the message.
Importance of Raising Profiles
The sub-theme for this year’s NWED is ‘Raising Profiles’, something the organisers see as key to bringing more women into the profession.
Alongside the publication of the ‘Top 50 Women in Engineering‘ list in Thursday’s Daily Telegraph, institutions are being encourage to share the profiles of their female engineers, their stories and achievements.
Raising Profiles is also about changing the perceptions of engineering as a male-dominated, physical, dirty work, and showcasing the reality that not only are women just as capable as engineers as their male counterparts, but there are already examples of where women are succeeding at the top of the profession.
You can read about just a few great examples here.
While it might be a bit late to organise your own NWED 2016 event, there are still plenty of ways you can get involved:
Visit a local university to highlight engineering as a career
Make a plan to increase your corporate diversity and launch it today
Raise the profile and celebrate the achievements of your female engineers
Feature an article in your newsletter or on your website about your female engineers
Follow events, and help promote the cause, on social media at @NWED1919, and by using the hashtags #NWED2016 and #RaisingProfiles
Why Spread the Word?
You might be wondering why Procurious are profiling National Women in Engineering Day when we aren’t an engineering-related platform.
Well, besides it being a great campaign to get behind, it’s clear there is still work to be done. It’s estimated that the gender gap in engineering subjects has doubled in the past eight years.
Even with the awareness of NWED increasing, it can still fall victim to a lack of time for organisations to support it fully. As one female engineer at a global engineering organisation put it to us, “Personally I would love to see more support for it. I have supported the event in previous years and it is excellent. Unfortunately ‘business pressures’ tend to get in the way of greater support.”
We also firmly believe that procurement and supply chain could, and perhaps should, follow suit with similar events for this profession. After all, why should raising profiles be limited to engineering. We’ve talked previously about women in supply chain, and gender diversity, and NWED is a great example of getting a wide group of people involved in a common cause.
Isn’t it time to take a positive stance in procurement and supply chain? Procurious can provide the platform – can you provide the support?
Procurious is a global platform, but wherever you are, you’ll have heard about this week’s referendum in the UK. Will the UK #RemainIn or #brexit the EU this week?
Far from being specific to the EU, I think it’s a global issue. And one I find myself thinking about sitting on a train…
Referendum & the Supply Chain
No one can agree on the exact figure (£350m-£380m per day), but the UK is a ‘net contributor’ to the EU. In fact, the UK is one of the biggest net contributors along with France and Germany. But what about taking this issue in (very) simple supply chain terms?
Customers pay suppliers for products. Suppliers make profit from product sales. Therefore we can view customers as ‘net contributors’ to suppliers, much like the UK to the EU. What would happen if a supplier were to lose one of its biggest customers?
The loss of that customer’s revenue needs to be mitigated. Replacing that customer with new business of equivalent size will be difficult, or at least take a long time. Whilst costs may have gone down through no longer servicing that customer, cost reduction is not proportionate to the lost business, leaving an increased cost to be recovered from remaining customers.
What are the options? The supplier can: take the hit; make efficiency savings; increase prices for other customers; or pass on the cost to the supply chain.
So, if the EU loses a large net contribution, other member states will either see a reduction in EU funding, as there is less money to share out, or they will have to renegotiate their contributions to the EU to make up for the shortfall.
Contributions are proportionate, so all member states will either see their contribution increase, or their share of the funding reduced. France and Germany would likely be most affected.
The UK might view this as the EU’s problem. However, all that will have happened is the ‘problem’ has just changed.
Assuming France and Germany – two of the UK’s largest trading partners – did pay more into the EU to cover the loss of the UK’s contribution, how will they take the hit? More austerity? Or will they pass on the cost to their customers – particularly if the customer caused their cost increase!
The UK will want to continue to trade with the EU member states. That will be possible, and the member states will want to trade. However, having left and caused those very same member states to see higher costs as a result, I’m struggling to see why we aren’t more concerned about potential ‘tariffs’ which may be applied.
The risk is that the EU will want to recover the ‘cost’ it suffers from a Brexit. Furthermore, the EU will debate and agree their stance on this. And guess what – the UK won’t be at that table.
From a supplier perspective, losing a large customer simply to find that customer still wants your product, but just didn’t want to pay for it is frustrating enough. But what example would you set to your other customers if you actually agreed?
Of course, suppliers will be happy to supply those products, and even though the commercials of the deal might change, you’ll inevitably be charged the same (or more as the deal is no longer standard and will have introduced complexity, risk and cost). Other customers will be watching you.
But the UK isn’t just a customer, it’s a supplier too. Exiting the EU may mean higher costs for the UK’s customers, meaning they have less money to spend. They may want to trade, but could buy less, or need lower prices to compensate.
Let’s consider Framework Agreements. Frameworks are really useful commercial vehicles (a separate debate!) to access products and services without complex, lengthy advertised procedures.
Typically, a set of suppliers are appointed to a Framework for a fixed period. Suppliers who are not appointed to the framework cannot trade through it, and consequently find it more of a challenge to trade with the public sector, who want to use the ‘easy’ route.
Think of the EU as a framework, and the member states as the suppliers appointed. The UK could be about to give up its hard fought position on the framework. In doing so, the UK will be making itself more difficult to trade with, and it will be natural for current EU customers to look at other, less complex, sourcing options.
So, if the referendum goes for #Brexit, does the UK become just a country geographically in Europe, but in the ‘no longer free to trade’ area? Is the UK’s slice of the EU trade pie more at risk than either campaign have realised?
Well, I conclude that…my train has arrived on-time! Don’t forget to vote if you’re eligible!
Want something to take your mind off the referendum? Here are the week’s procurement and supply chain headlines…
Starbucks Names New Supply Chain Chief
Hans Melotte, former Johnson & Johnson CPO, and current Chairman of the ISM Board of Directors, has been appointed by Starbucks as its new Executive Vice President of Global Supply Chain.
Starbucks has approximately 16,000 suppliers and operates in over 70 countries and has recently announced plans to open a 20,000 square-foot roastery in New York.
Mr Melotte will oversee supplier relationships, distribution, transportation and store delivery, and is expected to transform stores’ distribution channels in line with company expansion.
A major training effort is needed to improve digital skills, and make sure people are not left behind in the digital age, say the Institute of Directors.
The Institute of Directors (IoD) have stated that a major effort is required in the UK in order to ensure that workers have the digital skills required to keep up with technological advances.
The IoD was responding to a report from the House of Commons Science and Technology Committee, which suggested that, while 90 per cent of current UK jobs required digital skills, over 12.6 million UK adults did not have the skills to allow them to perform these roles.
The report also stated that two-thirds of digital-based organisations have struggled to fill a vacancy in the past 12 months, and that 93 per cent of technology companies have seen a direct impact on commercial operations from a digital skills gap.
This is despite over 12 per cent of Computer Science graduates still being unemployed six months following graduation.
The House of Commons report also highlighted a worrying trend in digital exclusion, with 23 per cent of the UK population lacking even basic digital skills. These include a high percentage of disabled and elderly people, as well as those without a formal education.
However, the good news on this front, is that around 4.5 million of the 12.6 million are currently in full time employment, with employers being asked to assess how to aid with digital skills education and training.
While the impact on the economy of these statistics is estimated to be in the region of £63 billion per year, in lost potential GDP, individuals also miss out on savings of £560 per year on average by not being online.
The report concludes that there is more to be done by the UK Government, both in terms of facilitating the training of digital skills, but also putting the infrastructure in place to enable the entire population to have access to the Internet.
Digital Skills Education
In April, the IoD released a major report arguing significant changes to education and life-long learning were needed to enable the UK to adapt to rapid advances in technology and automation.
The IoD’s Chairman, Lady Barbara Judge, in a piece for the Sunday Telegraph yesterday said that society needs to make “a concerted effort to upskill and reskill its population, and not leave a whole generation ill-equipped to meet the new reality”.
Seamus Nevin, Head of Employment and Skills Policy at the Institute of Directors, said of the House of Commons report: “This report shows the need for businesses to invest more in training British workers. We also must make sure tomorrow’s workforce is leaving school or university with the digital skills that employers require. Just as importantly, we must enable people already in employment to retrain or up-skill in order to meet the demands of the changing workplace.
“The IoD has called for the government to increase the use of technology in education — such as use of MOOCs (Massive Open Online Courses) — to provide training at much lower costs and improve access to learning for all. We have also suggested the creation of tax incentives to encourage and enable people at all stages of their career to return to education and learn new skills”.
“The Committee says the UK needs another three quarters of a million workers with digital skills by next year. In order to meet the immediate shortfall, businesses must be able to access workers with the right skills from abroad.”
More than half a billion dollars was wiped from Samsung SDI’s market capitalisation this week in response to a single tweet from Elon Musk about Tesla’s supply chain.
Rumours were swirling earlier this week about Tesla’s supply chain for its lithium-ion battery packs. Investors believed that the official supplier, Panasonic, may not be able to produce enough batteries for the much-anticipated Model 3, and that Samsung SDI (Samsung’s battery and display division) would be brought in to meet production targets.
Elon Musk set the record straight on Tuesday with the following tweet, clarifying that the arrangement with Panasonic is exclusive.
The effect of Musk’s tweet was immense – Samsung SDI’s shares plummeted by US$580 million (or 8%) on Wednesday, while Panasonic added $800 million to its market value on the same day.
Tesla’s Model 3 is slated to be a comparably affordable electric car with a range of at least 215 miles (346 km) per charge. At $35,000, it’s Tesla’s first step away from the luxury space into a price range affordable by mid-level buyers. It’s expected to be an enormous success, leading to significant interest from investors who follow Tesla news very closely indeed. This has led to a situation where a single tweet from Musk can cause huge disruptions in the share market, comparable to the shockwaves caused when Apple makes announcements about its supply chain.
A similar situation occurred in April when shares for Taiwan’s Hota Industrial Manufacturing, Tesla’s sole supplier of gearboxes, plunged rapidly as news broke that Tesla may be looking for a second supply source.
Stock market shocks are compounded by Wall Street firms’ usage of high-frequency trading, where computers use algorithms to comb through the internet to read news items (including tweets), executing thousands or millions of small trades per second based on that information.
Gizmodo’s Matt Novak has observed that if Musk’s Twitter account has so much power, the consequences of a hacking could be disastrous. “We hope he has a strong password and two-factor authentication turned on … If Musk ever got hacked, it could send markets into a minor tailspin.” Novak gave the example of a fake tweet that caused a $130 billion stock market crash in 2013, when hackers used the Associated Press Twitter account to announce that Barack Obama had been injured in an explosion at the White House.
Musk has a longstanding partnership with Panasonic, which invested $30 million in Tesla in 2010. This investment is now estimated to be worth more than $300 million, and Panasonic holds a supply agreement for 1.8 billion cells through to 2017 for Tesla’s luxury Models S and X. Panasonic is also playing a significant role in Tesla’s Gigafactory in Nevada, which will supply 500,000 Tesla cars per year with lithium-ion battery packs by 2020.
Tesla has since tweeted that Samsung may still be involved in making Tesla Energy products, namely its Powerwall and Powerpacks (stationary batteries used in homes).
We’ve been keeping track of the major stories making the procurement and supply chain news this week…
Amazon’s massive investment in logistics
Amazon continues to make aggressive capital investments, with some observers claiming the company is positioning itself to take over the last mile of delivery from UPS, FedEx and the U.S. Postal Service.
Recently, Amazon purchased an air cargo network previously owned by DHL, purchased thousands of 53-foot trailers, and is leasing 20 Boeing 767s at a cost of $300,000 per month.
The organisation has built over 100 global fulfilment centres between 2009 and 2016, with 125 million square feet of global warehousing. The warehouses themselves contain 30,000 Kiva Robots (acquired by Amazon for $775 million).
Amazon’s founder and CEO Jeff Bezos said his company’s goal is to “heavily supplement and support”, rather than take over, peak season fulfilment.
World Bank to launch modernised procurement framework
The World Bank will launch a new procurement policy on July 1, 2016, modernising an outdated framework that has remained unchanged for decades.
Moving away from a rules-based procurement system to one that focuses on performance and achieving development goals, the new framework allows for much greater flexibility.
Changes in the new framework include a sharper focus on achieving value-for-money, an increased number of procurement methods and approaches, greater streamlining, more attention to contract management, and enhanced support for borrowers in low-capacity environments.
Johnson & Johnson: Controls need to be in place when buying digital ad placements
Johnson & Johnson was recently alerted by shocked customers that one of their baby product ads was played before a video about paedophilia, leading senior digital marketing strategic Louisa Thraves to comment that more responsibility needs to be taken. The issue is caused by automated keyword matching, such as “baby” or “children”, and can be remedied by creating a watch-list of topics to avoid being paired with.
Thraves used cold and flu remedy Codrol as an example of a brand that could be damaged by erroneous media placements, which she said could never be associated with alcohol in an advertising environment.
Marketing procurement professionals must ensure they know where and when digital ads will be played, and what other content they will be associated with.
The impact of fast fashion can be seen on the high street and in the newspapers. But the trend may be about to take down one of the world’s most recognisable brands.
There are few people in the world who wouldn’t recognise Gap’s brands on the high street, in shopping malls, or on the Internet. However, the fashion and retail giant is facing up to major issues thanks to the ever-growing fast fashion trends.
With consumers moving their shopping habits away from in-store purchasing, Gap may seek bankruptcy in order to help it transform its business model and organisational set up.
All three of Gap’s major brands – Gap, Old Navy and Banana Republic – have seen sales decrease again in the first quarter of 2016. In April 2016, Gap sales dropped by 4 per cent, Old Navy by 10 per cent, and Banana Republic by 7 per cent.
The company is now on a run of 24 straight quarters without a growth in comparable sales, and 13 straight months of declining sales. In the face of this, Gap’s shares are down by 9 per cent since the start of the year, leading many analysts to suggest that these brands still aren’t learning lessons from fast fashion retailers such as H&M, Uniqlo and Zara.
Gap is yet to successfully match the design-to-shelf timelines of fast fashion, with many of its products still taking up to nine months to hit the shops. This is roughly double the length of time that it takes fast fashion trends to reach consumers on average.
It’s not just Gap who are suffering from the fast fashion spread. Other US-based brands, including J. Crew, Abercrombie & Fitch, have experienced a sales downturn, while traditional retail icons, such as Sears and Macy’s, have both closed a number of stores this year.
In Australia, Wesfarmers Ltd, the country’s biggest company by sales value, announced its worst yearly profit in two years, and looks set for its first net loss in almost 20 years. The organisation puts its decreasing sales down to the impact of fast fashion brands on its in-country discount stores.
However, not all is rosy in the garden for the fast fashion retailers. Uniqlo appear to be struggling to gain a foothold in the US market, opening fewer stores than anticipated, and with slower than anticipated sales.
Chief Executive, Tadashi Yanai, has gone to the USA to assess the company’s strategy and to work out how to raise the brand’s profile outside of major cities. The company has consistently lost money in its US operations since expanding there five years ago, but still maintains a plan to open over 100 stores in the country in the coming years.
Could this be a turning point for retail brands? Or is it just the natural progression of a business’ rise and fall, just sped up in line with the increasing pace of change in trends and demands? Whichever it is, it will be interesting to see how the fashion industry changes in the coming years.
We’ve been keeping track of the major stories making the procurement and supply chain news this week…
Procurement “Underpaid and Unrecognised”
A new salary survey report from Next Level Purchasing Association (NLPA) has suggested that procurement professionals are being underpaid.
Oil prices touched the $50-per-barrel mark on Thursday 26 May as production outages brought a faster-than-expected recovery to an oversupplied market.
Global benchmark Brent crude oil was down 35 cents at $49.40, having earlier risen as high as $50.51 in intraday trading.
Adding to outage concerns, a source at Chevron said the producer’s activities in Nigeria had been “grounded” by a militant attack, worsening a situation that had already restricted hundreds of thousands of barrels from reaching the market.
Investors will be watching next month’s OPEC meeting for signs of an output hike now that oil had reached $50.