Category Archives: Procurement News

The Art of Cross-Cultural Negotiation

Negotiations can be tricky. A cross-cultural negotiation presents an entirely different challenge, one with countless pitfalls and potential faux-pas.

Cross-Cultural Negotiation Roundtable

Negotiations in a business setting can be difficult at the best of times. Throw cross-cultural diversity into the mix, and the difficulty level rises again.

The way you speak, behave, control your body language, and operate can change hugely from culture to culture. This increases the chance of making a mistake, or accidentally offending the other party.

Some people may also make the mistake of assuming that when we talk about culture, we are limiting this to a purely geographical standpoint.

When referring to a cross-cultural negotiation we often talk about different nationalities as a primary characterisation. But this is not the only element that affects culture.

Culture is the unique characteristics of a social group, and the values and norms shared by its members. This social group may be a country, a corporation, a religion, gender, an organisational function, or one of many others.

Dealing with Cross-Cultural Negotiation

How can you prepare for a cross-cultural negotiation? What do you need to know? What do you need to prepare in advance? And how should you approach negotiating with different cultures? This is where expert advice can help.

Procurious were lucky enough to be invited to listen in on a cross-cultural negotiation roundtable, organised by Giuseppe Conti, Founder of Conti Advanced Business Learning. Participants came from a range of businesses and diverse backgrounds, and comprised 8 different nationalities. The discussion was fascinating, and provided some great insights into a complex subject.

In this series of articles, we will examine key factors to be taken into consideration during cross-cultural negotiations, and see some real-world examples straight from the experts.

Power Dynamics and Balance

Giuseppe kicked off the discussion by asking the participants to talk about their own experiences of cross-cultural negotiations.

Jonathan Hatfield, Director of Purchasing, EMEA at PPG Industries, talked about his first trip to Russia to purchase chemicals.

Supplier power played a large part in the negotiations. Jonathan visited factories in Siberia, where no-one spoke any English. In line with the strong hierarchical culture of the country, he was also dealt with several junior product managers before he could access more senior people.

While Jonathan’s aim was to create a relationship with the supplier, the supplier cut straight to the point. They only wanted to know what he wanted to buy, where it was going, and what the price would be.

Jonathan left Russia not even knowing if he had managed to secure any materials (happily he did!). It taught him about power balance, and also to make sure that he had approvals lined up in advance.

Language Barriers and Coffee

Two other participants gave examples highlighting the difficulties of language barriers and body language.

Thierry Blomet, Senior Vice President at Kemira, took part in a negotiation with an Indian customer, who appeared to be shaking their head from side to side at every argument that was presented. This left Thierry feeling that none of his ideas had been accepted.

When he questioned this with his local representative however, he was told that he was doing fine. The shake of the head was actually a sign of agreement with what he was saying.

Matthias Manegold, Head of Procurement and Supply Chain Practice at Kinetic Consulting, talked about a situation where language barriers played a major role.

He was negotiating with an Asian business to bring new technology to Europe. Each statement in the negotiation was met with a “Hai” (Japanese for yes), but it wasn’t until later on that Matthias was told that this actually meant, “Yes, we hear you, but we don’t necessarily agree”.

Jean-Noel Puissant
Jean-Noel Puissant

One final example came from Jean-Noël Puissant, Head of Procurement EMEA at Monsanto International. Jean-Noël highlighted the difference in how negotiations start in different cultures.

In one negotiation in the South of Italy, the owner of the supplier arrived with his wife, listened to the agenda being laid out, then suggested everyone get a coffee.

It was his way of starting the negotiation by getting to know the other party better with some conversation before the business discussions kicked off.

Company Cultures

The participants also reflected on company cultures, and how current or former employers’ cultures had shaped their own negotiation approaches.

Stephane Guelat, Senior Director – Supply Chain at Pentair Valves and Controls, spoke about one of the key factors for procurement and supply chain – ethics.

Stephane said that, while many organisations will put employees through ethics training, the ethical standards may be different across cultures. For instance, the exchange of services or gifts may be perceived as completely unethical in Western Europe, while fully normal in India.

Xin-jian Carlier Fu, Strategic Sourcing Commodity Manager at Honeywell, argued that there are likely to be many different cultures within the same organisation.

This was confirmed by Jonathan Hatfield, who said that this is ever more the case as organisations from different cultures and countries merge. He added that it was something buyers needed to be cognisant of when dealing with companies which had been taken over.

Finally, Giuseppe highlighted how his first job with a large multinational with a very competitive culture shaped his initial approach to negotiation.

When working later in his career with a smaller, family-owned organisation, he learned to adapt and broaden his approach to negotiation. According to Jean-Noël, we cannot assume one-size-fits-all. We need to understand the specific culture of each large or small organisation.

There’s much more to come on this topic, including tips on negotiating with different nationalities, and applications of cross-cultural research in negotiations. Come back next week for more.

This roundtable was organised by Conti Advanced Business Learning (www.cabl.ch), a Swiss training company that specialises in Negotiation & Influencing training. Giuseppe Conti, has over 20 years of Procurement experience and 10 years of negotiation teaching experience at leading Business Schools (including Oxford, HEC Paris, IMD and ESADE).

5 Price Analysis Methodologies to Apply to Negotiated Costs

How can you find out if you’ve got a good deal from your negotiation? Here are some price analysis tools that could help you out.

Volume Price Analysis

One of the key performance measures that invariably arises at the end of a negotiation is if the final price achieved is a good one or not.

If we, as buyers, have purchased the product or service for a number of years, we can rely on our experience. But we have all faced a situation when we have to deal with an unfamiliar product. What do we do then?

I have outlined the pros and cons of some different approaches to price analysis. There’s no magic formula we can apply to confirm if the negotiated cost is accurate to the market price.

Each price analysis method has its own strengths and weaknesses. Knowing them will help us to understand which one to apply in which situation.

Price Comparison

The most basic method. You take the final price, and compare it against the prices quoted for the same product by other suppliers in the market place. This is the most common method, and it’s usually applied to common products, or those with transparent pricing.

Pros:

  • Doesn’t require too many resources.
  • Relatively easy to find out if the cost is over the market average.

Cons:

  • It can only be applied to common products – it should not be used, for example, for the cost of a lab analysis service, or customised goods.
  • You have to work with updated costs – in some areas, like electronics, a 6 month old cost may be obsolete.
  • You have to compare exactly the same product, under the same circumstances – not, for example, two different mobile phones, or services from two different countries.
Cost Structure

If it’s not possible to find equivalent market prices for the products or services, procurement can use the approach of a detailed cost structure analysis.

In order to do it, we ‘only’ have to replicate the manufacturing process, and assign an estimated cost to each stage. We can then benchmark this result against the cost provided by the supplier.

With a service, rather than a product, the process requires disaggregation of the service into its constituent parts (salaries; materials; equipment), and a cost assigned to each.

Pros:

  • Provides a detailed view of costs.
  • Can be used as a basis for supplier partnerships, and to visit supplier facilities to look at the manufacturing process.
  • Allows for negotiation on each constituent part of the good or service, increasing potential for savings.

Cons:

  • In-depth knowledge of the manufacturing processes and costs is needed.
  • Resource heavy.
  • Without supplier input, manufacturing process costs will be estimated, increasing the error margin exponentially.
Price Index

If the product has a published price index, then it is logical that the index will be a good guide to check if the negotiated cost is a good one. It would then be a matter of comparing the negotiated and index price to see if the negotiated cost was good or not.

The process is a bit more complex than that, but for the purposes of this article, there is no need for further explanation.

Pros:

  • Price indices usually are available on the Internet under paid subscription. As an added value, these sites usually offer forecast analysis that could be helpful for ongoing procurement strategy.
  • Can show trends and provide a comparison to the cost the last time the product was purchased. For example, if a product index has decreased a 5 per cent, but the supplier has only offered a 2 per cent cost decrease, then it’s clear that there is room for further negotiation.

Cons:

  • The indices are just a guide, there is a more complex cost structure which has to be considered. For example, other factors, such as a trader’s fee, would not be expressed as part of the product cost.
  • Indices only have a partial influence on the final price. A drop of 30 per cent on a factor, such as petrol price in the plastics market, wouldn’t necessarily mean a 30 per cent drop in the product price.
  • Markets can fall victim to speculation, or an issue that distorts the index. Being unaware of these issues prior to a negotiation could lead to a higher than expected cost.
Unit Price Analysis (UPA)

The Unit Price Analysis (UPA) is a mathematical model which predicts the right cost that a product or service should have based on its specific properties or details. It’s like a price calculator.

Pros:

  • We have access to a goal cost before starting negotiations.
  • Companies have developed their own UPAs based on non-linear regression statistical analysis. You can hire their services in the same way as you sign up for Price Index sites.
  • They are quite helpful when calculating complex project costs, and provide an accurate cost result for EPC projects.

Cons:

  • Building this model from scratch is expensive. Nearly all companies outsource this service.
  • You must be sure that data comes from a trustworthy source before using it for a negotiation.
  • UPAs are unitary prices based on a specific volume. The data doesn’t support different volumes.
Conclusion

In addition to the price analysis tools outlined above, there are a number of other, less common, ones. They are less used as they can only usually be applied to very specific cases.

There is no, one correct method. The specific circumstances of each sourcing activity will determine which method can be best applied to the post-negotiation benchmarking activity.

Is it Worth Fighting for Sustainable Procurement?

Why procurement professionals must drive supplier innovation in order to keep up the fight for a sustainable planet.

Sustainable Procurement Fight

As a procurement professional it can sometimes be a little bit challenging to keep up the motivation to pursue a more sustainable planet. News headlines and science reports reflect a world which is developing in the wrong direction.

Oceans are becoming more acidic, with devastating results on coral and connected ecosystems. The air in major cities is full of high levels of dangerous particulates. Crop-growing regions for key commodities are shifting. Sea levels are rising.

At the end of the day, is there still hope for you, me and the planet? In this article I will put focus on some of the positive signs we can see. Let me be clear – it is still worth fighting for sustainable procurement, the planet and the generations to come.

Greater Transparency

Transparency is growing. It’s harder and harder to hide malfeasance. Carbon emissions are disclosed. Everyone is online everywhere, and we have easy access to information, and the ability to pictures of something that we dislike at any given time of the day. And if you fail, even as a company, the public will collectively judge and give the verdict.

Even in procurement we are working with tools, like the Ecovadis sustainability rating system, where the performance of the suppliers is evaluated. Not only for the sake of performance, but also because we want companies to change. To create impact driven approaches.

Regulators and Heroes Show the Way

It is obvious that the more transparent we get, the more the regulators act. More and more companies and public actors disclose their behaviour, and this leads to actions amongst regulators who create climate treaties, introduce carbon taxation, or hand down regulations to markets.

Investors have even started incorporating sustainability and ESG risk into their calculations on where to invest their money.

Heroes are among us. Alongside the great minds in science, many individual policy-makers, business leaders, farmers and consumers are making millions of decisions and taking small steps, every day, to reduce their impact or improve the planet.

The vast majority of people want to take care of their world, and science and the media are providing the tools and knowledge to help them do so. Lights are being turned off. Public transport systems are being built and used. Less food is being wasted. Each of us wants to be a hero.

Fostering Innovation and Collaboration

Innovation matters. Enormous investments are being made. These efforts, many of which are being driven by the best minds in academic and business labs, will without a doubt deliver solutions to many of our environmental challenges. It’s a question of when, not if.

Collaboration is happening. Competitors are talking to each other and to policy-makers around how to share best practices to reduce costs and improve efficiencies. Solutions to global sustainability problems are too big for any one country or company to solve.

Integrating Sustainable Supplier Innovation

We should not forget that a company’s ability to build close partnerships with innovative suppliers is directly correlated with the firms successful innovation performance. Companies which include their suppliers in the innovation process seem to financially outperform their peers that do not.

It is a fact that 90 per cent of companies do not include their suppliers in their innovation processes. 69.9 per cent of corporate revenue is directed towards externalised, supplier driven cost. Suppliers should be viewed as an extension of the company and, as such, they should be incentivised, coached, sanctioned and rewarded to help achieve corporate objectives.

The message is clear: we need to keep fighting for sustainable procurement, the planet, and the generations to come. We can make a start by integrating suppliers closer to the innovation processes.

Why Supplier Segmentation Can Aid Risk Mitigation

Supplier segmentation could prove a useful tool for procurement in aiding risk mitigation in the supply chain. Sandeep Singh of Genpact explains.

Supplier Segmentation

In the first part of this series, we looked at the role of procurement plays in risk mitigation. In this article, Sandeep Singh, Vice President – Procurement and Supply Chain Services at Genpact, offers further advice on risk mitigation strategies, as well as how to create effective supplier segmentation.

What are good mitigation strategies for global supply chains in light of high impact factors like natural disasters and political instability?

To anticipate, prevent, and manage adverse events throughout their operations, global enterprises need enhanced visibility of their third-party risks. They need more efficient risk assessments to support targeted mitigation strategies, and the ability to predict potential outcomes throughout their operations.

Some of the mitigation strategies could include:

  • Having access to a list of risk assessed, qualified suppliers, who can serve as an alternate source of supply in case of an adverse event.
  • As part of a supplier selection process, adopting a multi-supplier strategy, where suppliers are located in multiple geographies, or where one supplier may have an ability to ship from multiple locations.

These mitigation strategies can easily be created by analysis of past trends and through leveraging digital technologies.

To increase the likelihood of third-party risk management (TPRM) initiatives achieving expected outcomes, organisations can adopt a Lean Digital approach, combining digital technologies, design thinking methods to focus on the end customer, and Lean principles that offer greater agility.

This approach tightly aligns risk processes to business outcomes, and helps overcome the challenges from legacy operations. This is done by driving the right choices end to end, rather than focusing on the individual parts of the process.

What is a good process to follow when carrying out supplier segmentation for risk management?

Multiple product or services, complex data structure and taxonomies, large supplier base across the globe and changing regulations makes supplier segmentation by risk a complex process.

Leading companies are increasingly relying on data-driven digital solutions, powered by the right set of business rules to conduct risk segment. The Lean Digital approach can make risk segmentation more efficient and effective. Typically to arrive at risk segmentation of suppliers, organisations can follows two broad steps:

Step 1

Segmentation based on:

  • Category or type of product or services suppliers are delivering or will deliver – an office stationery supplier may pose no risk, as compared a supplier providing IT services, or a supplier providing raw material for the manufacturing of an end product.
  • Location of supplier – a supplier located in a developing country can be prioritised first, as compared to suppliers located in developed countries.
  • Nature of supplier relationship – how strategic or critical is a supplier to an organisation’s business. It may be more sensible to focus on suppliers with a long-term engagement, versus a one-time purchase.

Step 1 can also be taken to understand and manage inherent risk. It can help organisations prioritise their needs around risk, and can save lot of time, effort and investment into managing risk.

Step 2

Organisations can assess suppliers’ relevant risk dimensions leading to their segmentation as low, medium or high risk. Risk dimensions, such as anti-bribery and corruption, and data privacy, need to be mapped with the category, or type of product or services, that supplier is responsible for delivering.

Further, a scoring methodology should be created, taking into consideration category and location of supplier, and then connecting it to an applicable risk dimension.

This scoring methodology should also consider weightings across various risk dimensions, so that the final output is a comprehensive risk score which can then be used for supplier segmentation into low, medium and high risk brackets.

Are there examples of good practice in supplier segmentation by risk, where organisations have mitigated their risks?

There is a good example of this through some of the work that Genpact has done with clients in the past. One pharmaceutical company wanted to improve its ability to assess its thousands of vendors and partners, particularly as regulators were taking a greater interest in third-party risk management.

The firm lacked standard processes for supplier risk management, could not provide timely or accurate risk reports, and could not keep up with the volume of assessments required. Genpact transformed the pharmaceutical firm’s TPRM operating model by defining and executing a scalable, five-step process for assessing third parties against its standards of excellence.

The organisation also introduced metrics, data-driven process management and technology to industrialise the process. This enabled more accurate and timely reports, reduced assessment cycle times by up to 40 per cent, and increased coverage to assess close to 100 per cent of the company’s third parties over a certain level of spend.

Genpact offers a number of procurement services that can be tailored to specific client needs, including end-to-end Source to Pay (S2P) services for both direct and indirect materials. Find out more by visiting their website.

Why Supplier Discovery Must Become a More Agile Process

In order for procurement to remain strategic, manually intensive processes, such as supplier discovery, need to become more agile and intuitive.

Supplier Discovery

Doesn’t it seem like procurement reaches a new strategic milestone every day? These are amazing times to work in this field. We’ve been pushing towards this point for so long! Now that we’re here, we need to make sure we keep up the momentum.

None of procurement’s less strategic work is going away anytime soon, so if we’re going to avoid being dragged back down, we need to look for opportunities to streamline our processes. Anything that takes procurement away from working with suppliers and stakeholders should be a prime target for change.

Streamlining Supplier Discovery

One of those processes – supplier discovery – is long overdue for a makeover. Given today’s time constraints and better places to invest effort, there is no reason for procurement to be limiting the potential of a sourcing project by web-surfing to find prospective suppliers.

As Chris Silva, former Senior Director of Sourcing & Procurement at Synageva BioPharma Corp., recently told us, “Initial due diligence varies significantly from hours to months, depending upon many factors including data availability on the supplier, the supplier’s availability and response, the availability/completeness of third party data, and the complexity and completeness of the requirements, to name a few.”

Not only is the process inefficient for the reasons Chris points out, there is not really a good way to know if you’re missing a prime supplier candidate. The Internet doesn’t usually reflect the perspectives and opinions of your colleagues, and despite how popular online reviews and feedback are for consumer purchases, they just haven’t caught on in the B2B world.

Teresa Fiore, Associate Director of Global Sourcing for Marketing and Sales at Boehringer Ingelheim USA Corporation, pointed out the need to synthesise multiple sources of information, saying that finding new suppliers is “a combination of our internal sourcing knowledge combined with our internal marketing clients’ knowledge.”

Pulling relevant information from these multiple sources without adding time to the process is the first challenge to be addressed when streamlining supplier discovery.

Supplier Discovery – The Real Story

In November, ProcureCon surveyed 40 procurement execs like Chris and Teresa to find out what they really think of supplier discovery. The results tell an interesting story about the role of knowledge management in procurement today:

  • 83 per cent of searches take one to six weeks (or more) to identify the right suppliers and contact information prior to running an RFP.
  • 78 per cent of respondents share supplier information with their internal partners in person, and 70 per cent share through email. Only 25 per cent said they use online portals.
  • 70 per cent of procurement and sourcing professionals report that the most credible source of supplier intelligence comes from their internal peers.
  • 62 per cent of the respondents indicated they have little satisfaction with the technology solutions they use to gather supplier information and manage category intelligence today.

Clearly, there are real challenges around finding suppliers and then managing the organisation’s knowledge about them. One to six weeks to identify qualified suppliers? That hardly meshes with procurement’s agile, responsive new brand.

If you can go to Procurious and search their members for skills and sharing activity, why shouldn’t the same be possible on the supplier side? It’s not as if the technology doesn’t exist. We just have to prioritise supplier discovery and knowledge management so that they get fixed – fast.

If you’re interested in learning more about the research, including quotes from follow up interviews done with industry leaders, click here to download and read the whitepaper: Improving Strategic Supplier Discovery Through Technology.

Stephany Lapierre is Founder and CEO at tealbook, intuitive platform that mutually benefits companies and their supply partners by improving access to instant and trusted supplier intelligence, discovery, and identification.

Leadership & Chicken – Reflections on SAPICS 2016

Visibility, leadership and SRM in chicken sourcing – highlights from the 38th SAPICS Conference in South Africa.

SAPICS Conference

Earlier this month, I attend the 38th Annual SAPICS Conference, held in Sun City, South Africa. With the theme this year of “A Concert of Coordination”, the conference focused on bringing supply chain professionals together to network, and to discuss topics and access resources relevant to the supply chain profession.

A number of high-profile individuals and organisations graced the speaker list for 2016, far too many to see in 3 days, let alone cover off in a post-conference article! However, I have picked out three major themes and points that I took away from the conference.

1. Gaps in Supply Chain Visibility

Lora Cecere, the renowned Supply Chain Shaman, was in South Africa this month to share her US survey results and some views on the wide range of topics at the SAPICS Conference.

Of particular interest to the procurement community was her take on the challenges in two of the main identified areas of pain: supply chain visibility, and problems in talent management; the latter being that all-time favourite topic of speakers that has no clear solution.

When comparing the importance of visibility of information on first tier material suppliers vs. their actual performance, respondents acknowledged that there was a big gap between importance (83 per cent) and performance (38 per cent). Almost all respondents (96 per cent) identified that there was also a similar gap in visibility into transportation and logistics networks.

Supply Chain Insight

In some cultures, a shaman is believed to be able to use magic to cure sick people, to control future events, and more. Since Lora Cecere is seen as a shaman, we could look to Supply Chain Insights for help when trying to work out why visibility into first tier material suppliers is such a challenge.

What is also interesting from the research, is that respondents did not identify much of a gap between the importance of visibility and actual performance in second and third tier suppliers. Could that really be the case in other markets?

2. Leadership – a hundred years ago

An interesting parallel was drawn by a speaker, Kate Stubbs of Barloworld Logistics, about styles of leadership 100 years and today.

She was reporting back on the annual study, supplychainchangeforesight 2016which was undertaken in conjunction with Frost and Sullivan. She considered the leadership style of Sir Ernest Shackleton, the 1920’s polar explorer, with the traits and approach required of current supply chain leadership.  Shackleton was:

  • a leader that could create order from chaos.
  • one who had to adapt and change to suit his rapidly changing circumstances.
  • optimistic and had a people-centred approach to success.
  • able to reconsider his path and redirect his goals when he hit serious snags.

Shackleton

Sound familiar?  We often have to change direction mid-stream track due to circumstances, often because of events beyond our control.  Constantly redefining our plan has become the norm.

How much has changed in 100 years?  Men (and women) wanted for hazardous unknown journey, that part’s definitely true. People hope for honour and recognition in the event of success, but it’s not always delivered.

3. Chicken and chips, anyone? Nando’s supply chain

Perinaise

A category manager in the casual dining restaurant business (a more polite term than fast food), has a very different life to the rest of us.  Sourcing electrical parts or software licences is not half as exciting as negotiating for containers of African bird’s eye chillies from Southern Africa, or for the manufacture of bottles of Perinaise.

Nando’s supply chain, although directed from its HQ in Johannesburg, has staff in many of the 30 countries it trades in. Linda Reddy, Supply Chain Director, says that one of their main areas of focus is supplier relationship management, with a major emphasis on continuous improvement. That’s quite important when you have to get fresh-not-frozen chickens from factory to table in less than 8 days.

Next time you are in Nando’s, take time to view the art while you are considering how your hot sauce got to meet your half-chicken. 

References to Powerpoint Presentations at SAPICS:

Lora Cecere: 15 Years Forward: 15 Years Back :  Supply Chain 2030

Kate Stubbs : “supplychainforesight 2016”. Barloworld Logistics.

Are Traditional Views Limiting Procurement Innovation?

Is a lack of competitiveness and a risk averse nature holding back the progress of procurement innovation? New research seems to suggest so.

Procurement Innovation

New research shows that procurement is innovating and wants to do so even more in the future. However, the function’s risk averse nature, non-competitive attitude, and the prioritisation of collaboration over leadership, may be holding back its progress.

While many procurement professionals and leaders are embracing procurement innovation, many appear to be innovating within a safe environment, sticking with the things they know about, such as the supply chain.

Procurement says its ability to innovate is stifled by what others think it’s there to do, but isn’t it time that procurement stopped worrying what others perceive it as and started focusing on realising its full potential?

Limiting Procurement Innovation

Wax Digital’s new Procurement Innovation Pathway research, which surveyed 100 of the UK’s senior procurement professionals, shows that 69 per cent considered themselves pivotal to business innovation today, with 80 per cent expecting to be so in the future.

On average, 76 per cent said that they are involved in a range of business innovations, but only 27 per cent are leading them. However, 86 per cent said they want to be a part of all ongoing product innovations and service developments in the future – not only those within the procurement function.

But procurement’s view of what makes a business innovative appears to be impacted by some of its traditional risk averse thinking. Having a clear business vision (42 per cent), reacting quickly to the market and customers (33 per cent) and reviewing and improving business processes (32 per cent) were procurement’s top cited factors associated with business innovation.

Other characteristics traditionally more innovation related, however, are at the bottom of their list. Only 20 per cent cited a willingness to take risks, and 19 per cent a high investment in R&D, for example.

Procurement Innovation Barriers

Procurement identifies a number of factors stopping it innovating, most frequently other departmental views (40 per cent), lack of required skills (33 per cent) and time consuming processes (31 per cent).

And while these factors clearly play a part, there seem to be attitudinal setbacks with procurement’s own mind-set. Only 10 per cent, for example, are focused on challenging business objectives; just 14 per cent prioritise competitiveness and 18 per cent leadership as skills within their team – which they also say are declining traits.

Commenting on the research’s finding, Daniel Ball, director at Wax Digital said: “It’s fair to say that the average procurement function today is a vastly different place to what it once was. Procurement is innovating – of that there’s no doubt. But are they heading in the right direction or truly prepared to break the mould? Clear indicators of some discomfort with taking risks and really leading and driving innovation suggest it’s not yet realising its full potential in this area.

“To become real innovators, procurement professionals must overcome these issues while fostering the right business relationships, nurturing the correct new skills and seeking to break ground in their approach to technology.”

The Innovation 2016 research was conducted by Morar Consulting in March 2016, involving 100 interviews to canvass the opinions of UK senior procurement professionals working in small to large UK enterprises.

You can find out more about the research, and download the report, by visiting the Wax Digital website.

12 Ethical Questions to Ask in Supplier Pre-Approval

In procurement, ethical practice is the key to a positive organisational image. Knowing the right ethical questions to ask can make a real difference.

Ethical Questions

Increasingly the corporate world is focusing on social issues in supply chains such as slavery, forced labour and human trafficking, typically referred to as “modern slavery”. Procurement professionals have an important role to play, by sourcing in a manner that enables and rewards suppliers for good ethical practices.

Local governments and consumers are increasingly aware of such issues and are supporting, if not demanding, that businesses act to implement ethical standards in their procurement processes. Organisations will suffer reputational damage if they are found to be sourcing from suppliers using exploitative labour.

Companies may also face legal sanctions if suppliers are found to be involved in corruption or bribery. Organisations naturally want to avoid negative impact.

The issue of modern slavery has highlighted issues in countries where:

  • Workers have fewer or no protections.
  • There are high levels of poverty.
  • There is widespread use of migrant workers.
  • Because of the industry and use of raw materials, there are high risks.
  • The supply chain is labour intensive, because the end product is cheap. 

Codes of Conduct

Many companies have a Code of Conduct. This is a great way to start out, but can seem ‘non-actionable’ when on its own. So instead, a company can also introduce initiatives such as:

  • Collecting and providing all parties with the information they need to plan more effectively (for instance by sharing audit reports).
  • Creating processes which ensure efficient communications and formalised, streamlined buying and production processes.
  • Empowering procurement professionals to reward good practice and leadership amongst suppliers.
  • Encouraging buyers and suppliers to collaborate with organisations who have expertise in addressing systematic problems within the supply chain.
  • Enable the supplier to collaborate with others who are purchasing from the same supplier.

Your Role as a Procurement Professional

Typically, a procurement organisation will establish some firm processes to ensure the ethical practices. In addition, you can, as a procurement professional, also make yourself aware of some of the most essential ethical questions that you can ask during a sourcing activity, within the supplier pre-approval part of the process.

I would recommend that you, as part of your pre-approval process, get inspired to use some of the following ethical questions and observations in your process:

You want the supplier to have good labour standards, a positive impact in the community, and actively work to improve standards.

You should be looking for:

  • Staff turnover at production sites
  • Good human resource management systems
  • Good labour standards audit results
  • Sharing of good practice with other suppliers
  • Willingness to discuss issues such as pressures on working hours and pay
  • Retrospective comparison of planned vs. actual timings and volume outputs, measured against overtime worked at site

You want the supplier to demonstrate improved working conditions at all times.

You should be looking for:

  • Sites with initiatives such as active trade union representation
  • An existing recognition agreement and collective bargaining agreement
  • Number of workers with long term agreements
  • Analysis of working hours

You want the supplier to demonstrate stable relationships with own suppliers and subcontractors.

You should be looking for:

  • Average length of relationship with individual production sites
  • The dialogue they have with their suppliers/subcontractors on labour conditions

The Key Role of Procurement in Risk Mitigation

As average spend with suppliers increases, procurement must be more active with the management of risk mitigation in the supply chain.

Risk Mitigation

Increasingly companies have a higher percentage of their cost base with suppliers, frequently as much as 50-70 per cent. Typically half of this is indirect spend on functions such as Marketing and Human Resources.

It is clear that as the cost spend increases with these suppliers, procurement is playing a key role as a broker and helping to drive the revenue line. However, if the majority of cost base is outside of the company’s walls, this presents a major business risk.

This is particularly alarming in industries such as financial services and pharma, where the regulatory and reputational landscape is complex. How can procurement help with risk mitigation, and also help senior executives have greater confidence that their supply chain is in order?

Mitigation & Segmentation

According to Jon Kirby and Paul Birch, from Business Process Transformation consultancy Genpact, organisations must institute better and more sophisticated risk segmentation, dividing the procurement supplier base into distinct risk tiers.

This does not necessarily mean that the largest suppliers in terms of spend will pose the largest risk. Companies should also be continually re-assessing supplier risk and asking questions, such as:

  • Are any of your suppliers at risk of bankruptcy?
  • Are there any global or geopolitical issues in your supply chain that could disrupt it?
  • Do you have systems and processes in place to regularly evaluate and monitor your most important suppliers?
  • Have you embedded risk evaluation into the on-boarding of new suppliers?

Creating stronger links between the lines of business and the procurement function can also ensure that the risk profile is in line with business priorities.

Procurement’s Role

There are a number of factors procurement professionals can keep an eye on when tasked with supplier risk mitigation. Sandeep Singh, Vice President – Procurement and Supply Chain Services at Genpact, shares his experience across these factors.

  • What are the signs that procurement needs to watch out for when assessing suppliers’ bankruptcy risk?

Assessing the financial health of a supplier should be a critical part of selection, as well as the ongoing relationship management process. Financial failures in today’s economy are not uncommon and can cause disruption to companies business.

Procurement professionals should pay close attention to the following aspects of business when assessing a supplier’s financial condition or bankruptcy risk:

  • Financial information – including profitability or margins; revenue growth; liquidity; negative cash flow.
  • Law suits such as where supplier is being sued for collection matters.
  • Managerial and employee related events such as resignation of key members of management, or abnormal turnover of employees.
  • Poor quality of product or services, or long term order delinquencies.
  • Inability to produce timely and accurate financial information.
  • Delay and penalties due to outstanding tax and statutory issues.
  • Request for special payment arrangements, such as changing terms of shipment to Cash on Delivery, or request for advance payment
  • Declining relationship with their bank or frequent change in their banks.

However, applying various signs and parameters to assess a suppliers financial condition can be a huge challenge for procurement, for the following reasons:

  • Financial assessment needs to be a continuous process, and doing it only during selection process may not be sufficient.
  • How priorities are given (i.e. which supplier to cover and which supplier to exclude).
  • Large supplier base can run into the thousands.
  • Multiple early warning signs and financial parameters.

To overcome the above challenges, leading global companies are leveraging Lean Digital solutions, which combine digital technologies with design thinking. This results in procurement being able to segment their supplier base with minimal effort, and being able to prioritise multiple early warning signs and financial parameters.

The adoption of the Lean Digital approach also provides companies with the ability to conduct ongoing financial risk assessments on their suppliers as opposed to doing it only during the selection process.

So what else can procurement do to assist with risk mitigation in the supply chain? For this you’ll need to come back for the second article in this series.

Genpact offers a number of procurement services that can be tailored to specific client needs, including end-to-end Source to Pay (S2P) services for both direct and indirect materials. Find out more by visiting their website.

Big Data Success Stories in Procurement?

At the end of our last Big Data article, we indicated that we were going to track down some Big Data success stories from the procurement function.

Big Data Success Stories

What we found, or rather what we didn’t find, was a cause for concern. A criticism of Big Data has always been that it is nothing more than the latest marketing buzzword, and that Big Data is something that everyone talks about, but very few people or organisations actually do.

We remain unconvinced by this, but based on some fairly high level research and trying to find some real world examples, it would appear that procurement either isn’t properly utilising Big data, or it isn’t actively promoting its use, and celebrating successes, externally. The latter is bad enough, but the former is worse.

A search for how Big Data is being utilised in procurement around the world returned very few real-life examples. There were a number of great case studies around how other business functions have used big data to solve business problems, but procurement solutions appeared to be fairly thin on the ground.

Rio Tinto Trucks

One of these Big Data success stories, leading towards cost savings and procurement-led wins, that appeared as a result of our search was from the Australian mining giant, Rio Tinto. The company is using Big Data to monitor the state of the roads at their mine sites.

Site roadways are a critical asset for mining organisations and, in the past, their maintenance checks have been carried out by members of the workforce. This makes for a very time consuming and costly manual process, which ultimately is still vulnerable to human error.

Rio Tinto has recently improved this process dramatically by using a data driven approach. The company’s mining trucks now carry 300-400 sensors that constantly send data back to an operations centre.

A team in this centre processes the information received to provide the business an understanding of the condition of site’s roads, feeding back on the state of degradation and any maintenance work that might be required.

This analysis is carried out at a remote location, where staff are provided notifications on when an issue is likely to occur, rather than once it already has. This saves precious time and money that would be spent on manually reviewing the road condition, while also enabling preventative maintenance to be carried out, rather than disrupting operations when a larger issue is reported.

Challenges for You

Maybe we have missed something, or our search hasn’t been focused enough to uncover more Big Data success stories in the procurement space.

There are are guaranteed to be more examples in the business world of how procurement teams have used data analytics to improve the processes and performance of their business. In light of this, Procurious lays down the gauntlet with a couple of challenges for you:

  1. If you know of a great example of a successful application of Big Data in procurement, let us know! We would love to tell your story and share your experiences, thoughts and plans with the rest of the procurement community.
  2. If you think your organisation has a great example, find out who you have to speak to and get it publicised. Making more people aware of this can position your organisation as a leader in this area, and get people talking about it too.

Comment on this article, or send us an e-mail at info@procurious.com and we’ll profile it in an upcoming article!