Category Archives: Procurement News

Challenges Ahead for Buyers Making Late Payments

Few buyers are aware of changes to late payment regulations, as well as the potential penalties for making late payments to suppliers. 

Late Payments Main Image

In the modern procurement world, there are many hurdles to timely payment that exist on both sides of buyer-supplier relationship. Overcoming these, and ensuring that organisations are not making late payments, is a key way to build good relationships.

New Hackett Group research has found that nearly one-quarter of all supplier invoices are paid late (Fig. 1). Despite the working capital benefits, only a very small percentage of respondents to The Hackett Group’s Payment Practices Poll, intentionally pay suppliers late.

Fig 1: Common Reasons for Late Payments
Fig 1: Common Reasons for Late Payments

Most payments are simply delayed by slow approval processes, late receipt of invoices, or technology problems. That being said, there is a continuing trend for larger organisations to extend their payment terms, or make unilateral contract changes aimed at slowing the payment clock.

Well over half of procurement organisations surveyed by The Hackett Group were not aware of legislation and government initiatives to encourage faster payments to suppliers. Further, because it is uncommon for suppliers to charge interest or fees for late payments, 76 per cent have no plans to pay suppliers for late payments.

In general, late payments have a proportionally higher impact on smaller suppliers’ financial positions. These may be the very same companies that buyers have committed to help grow as part of their diversity and supplier development strategies.

Why is there such a large disconnect? And what needs to change?

This disconnect has become an important economic issue for several reasons. Banking regulations like Basel III have tightened bank capital requirements and financing costs, thereby reducing financing funds available for smaller companies.

There is also a belief that money unnecessarily caught up in the supply chain counteracts growth in the economy (e.g., missed business opportunities, financial distress), causing additional concern.

Given the higher risk of financial penalties being incurred for late payments, companies purchasing goods and services from SMEs need to resolve any process issues to enable a more efficient payment program.

What can buyers do to avoid late payments?

Not only do late payments cause operational issues and loss of discounts for early payment, they can also hurt relationships with suppliers and result in financial penalties due to contractual obligations and government regulations.

Buyers should start by looking internally to ensure better communications, processes, and automation around the payment process. Payment organisations can also look externally, to their suppliers, to improve the payment process.

Although buyers are ultimately the main driver, suppliers can still influence the timing of payments through the use of various strategies. Buyers should work collaboratively with suppliers to implement both internal and external changes spanning from people to process to technology.

Learn more about Hackett’s Procurement Executive Advisory Program here

Laura Gibbons is a Research Director for The Hackett Group’s Procurement Executive Advisory Program. She has industry and consulting experience in areas such as purchase-to-pay, strategic sourcing, payment strategies, manufacturing operations, economic impact analysis, and organisational and process design. You can contact her via email at: lgibbons@thehackettgroup.com.

What is the Biggest Challenge Facing Procurement?

From talent management, to ethics and transparency, there are some major challenges facing procurement in the current environment. But which is the biggest challenge?

Biggest Challenge

When considering the potential issues and risks that procurement professionals need to be aware of in their day to day work, it’s difficult to single out one in particular requiring greater focus than the rest.

In fact, if you were to ask the question of what is the biggest challenge currently facing procurement, the chances are high that you would get a considerable number of topics listed. However, that is exactly what Deltabid did with a survey of over 500 procurement professionals. More on this shortly.

Blind Spots

During the Big Ideas Summit 2016, Procurious asked its delegates to tell us what they considered to be procurement’s blind spots, and major areas of risk, in the coming years. Our panel of experts highlighted these areas:

  • Too great a focus on savings
  • Dealing with the wider business
  • Talent attraction and management
  • A lack of ambition in procurement
  • Working with legal teams

A contributor to the Procurement Leaders blog commented that, “CPOs face one of the most complex roles in an organisation”, and highlighted skills required for the future including a focus on strategic relationships, management of global supply chain risk and use of big data.

At the 9th Annual Asia-Pacific CPO Forum, The Faculty will be discussing the need for procurement to leverage supplier-enabled innovation, and a focus for procurement on SRM in order to make this a reality.

And when you consider the prevalence of stories and news reports on sustainability and supply chain transparency, it seems we are reaching a point where not only can we not reach a consensus on what the biggest challenge is, but also facing a lack of understanding about how we tackle these challenges.

Making Progress?

The other issue to consider is whether or not the procurement profession is making progress dealing with its biggest challenges. A quick search reveals a number of articles from the past couple of years asking a similar question of procurement leaders, including this one from Spend Matters.

In it, the top 5 challenges for CPOs are highlighted, including mitigating spend creep, the visibility of realised savings, compliance, technology, and procurement skills and capabilities to deliver on strategies. Starting to sound familiar?

What procurement must do is set out to tackle these challenges, and actually make some progress on them, instead of moving on to the next thing. And also to realise that these challenges don’t go away – it’s going to be a continuous process.

Biggest Challenge

This circles back to being able to identify the biggest challenge facing the profession, and perhaps assessing an order for them to be in, and a plan of attack for meeting them head on. This is where Deltabid’s research can help.

A survey of over 500 procurement professionals found that the biggest challenge was supplier-related issues, including finding and qualifying suppliers and maintaining consistent supply, with strategy selection, and cost reduction making up the top three. You can see the full results in the infographic below:

Procurement Biggest Challenge

While the results may not be surprising, they go some way to helping generate a consensus on the biggest challenge facing procurement. It’s now down to the profession as a collective entity to work out the best way to tackle these challenges.

One of the best ways of doing this is by collaborating openly, sharing knowledge, information, and lessons learned, and flexing our collective muscle in order to change the profession for the better.

If you have any comments, ideas, thoughts, or anything else you would like to share, please let us know in the comments below. If you have also had successes in dealing with any of these challenges, then we would love to tell your story!

Creating Community Empowerment With Football

How taking an interest in football can help put community empowerment at the heart of public procurement.

Community Empowerment

Lots of public bodies at national, regional and local level like to talk about community empowerment don’t they? That’s because promoting community empowerment is perhaps the holy grail of participatory democracy.

Many politicians and policy makers believe that getting communities more involved in what public money should be spent on and, more importantly, why, will lead to improved outcomes for people and their communities. And there’s plenty of evidence to back this up.

For procurement, tasked with delivering more for less, increasing community empowerment could also mean that the ever-decreasing pot of cash available to spend on public services could actually be deployed in a much more effective way.

Empowerment and Football?

So what we can we do in procurement?  How could we promote community empowerment and what benefits could that bring?  When I was searching Google for examples, strange connections started to occur.  Wherever I found a good example of procurement and community engagement, great football, or soccer to those of you on the other side of the pond, was also evident too. You don’t believe me? Well read on…

Let’s start in the home of sexy football, Brazil.  They’ve been doing a thing called Participatory Budgeting there for a number of years, and it’s a great way to do community empowerment at the front end of the procurement process. Participatory Budgeting in Brazil is an approach which gives local people a direct say in how, and where, public funds can be used to address local requirements.

It started in a place called Porto Alegre in southern Brazil over a decade ago. The first phase of participatory budgeting was to get people together to prioritise how money should be spent, and where investment should go. Should it be parks or water supply, or schools or roads? People at the grass roots of the community were asked to come together in neighbourhood assemblies, and make those decisions.

As the process matured people were able to take decisions at an increasing lower level.  From choices between thematic areas, to choices between services within a theme, to choices about what the specification for that service should be.

So people at the front end determining priorities. Something perhaps we already get involved in from a procurement point of view through User Intelligence Groups, particularly when we have service users involved in that process.

Community Empowerment

What they’ve done in Brazil is a start, but how could we shift control even more directly to people’s hands and empower communities through procurement?

To have a look at how this might be done I moved on to another football hotspot – Spain. I zoomed in on a city which features on a daily basis in my house, and probably every household that has football crazy kids in their midst. Now the football club might be having a great season, but the real reason why Barcelona is a great place isn’t the sublime football of Messrs Neymar, Messi and Suarez.

It’s their approach to procurement using open problems that was the real wow factor for me. Instead of coming up with a specification for a service, they’ve specified the problem, and then gone to the market and asked suppliers to solve it.

They asked people from geographic communities, or communities of interest, to identify what needs they have, and then turned it over to the world’s entrepreneurs to solve them.

Barcelona’s approach was successful. They had 50,000 views of their contract notices, and ultimately let six contracts in this way for issues ranging from tackling bike theft, to systems to tackle social isolation, and empowering local retailers using technology. The thing to understand here, is that communities don’t always know the answer to what they need at the outset – they just know they have a problem.

This method of empowering them to say what they want to change and then enabling them to choose what the answer should be from a range of options, some of which they might not even have considered, is very powerful and procurement is right at the heart of it.

Going Remote and Rural

But is it just in big cities and the regions where these community empowerment approaches might work? Could we use them in remote and rural locations?

My final destination is in one of the great footballing heartlands (well we like to think so anyway!) – Scotland, and my own organisation in the Outer Hebrides.

We wanted to improve community empowerment and link it to a procurement process and so we gave a combination of Brazil and Barcelona a try.  We used a bus service contract but flipped the requirement on its head so we went out to the market to seek travel solutions for people without cars – the problem we sought to solve.

We engaged with the community to identify needs, drive specification development and score the tenders. We embedded community engagement the length and breadth of the procurement process.

To make this happen we assembled our squad of players. The Transport Team in defence, yearning to retain the old ways of doing things, community workers in midfield being creative with their consultation techniques, corporate policy playing in goal making sure we didn’t make any strategic blunders, and finally our strike force, the procurement team, taking all the needs, creativity and service requirements, and converting this into the winning goal by putting a great procurement process and contract in place.

With a 5 per cent budget saving delivered over the lifetime of the contract we clinched the trophy with no need for extra time.

Footballing metaphors aside, promoting community empowerment as part of the way we do things gives those of us in public procurement a real opportunity to shine.

It’s a chance to showcase our talent – getting the right people to have the right input into the procurement process at the right time.

It’s a chance for us to stretch ourselves and learn new techniques. To work with different types of people, using different engagement techniques, at different points in the procurement process.

And it’s the chance to deliver more for less, to provide real answers to the challenges of austerity, and to score that winning goal!

Supply Chain Transparency: Why We Need It More Than Ever

As scrutiny over supply chain practices increases, organisations need to ensure supply chain transparency, from Tier 1, all the way down.

Supply Chain Transparency

This article was first published on Greenstone.

As non-financial reporting frameworks and requirements for organisations evolve, so does the need for transparency throughout supply chains. There is an ever increasing emphasis within current, and upcoming, regulations on being able to demonstrate a deeper understanding of your suppliers and vendors.

Most recently we have seen evidence of this advancing mood through the UK Modern Slavery Act, the EU corporate disclosure directive, and, of course, the Dodd Frank Act covering conflict minerals.

Last summer UK Prime Minister David Cameron further clarified the criteria surrounding the UK government’s commitment to anti-slavery and supply chain transparency in a speech in Singapore.

The prime minister stated: “From October [2015], we will also require all businesses with a £36 million turnover or above to disclose what they are doing to ensure their business and supply chains are slavery free. This measure is one of the first of its kind in the world, and it will be a huge step forward, introducing greater accountability on business for the condition of their supply chains”.

Legal Requirements

Guidance for compliance with the Modern Slavery Act was published in October 2015. And businesses with a turnover of greater than £36 million have some work to do. This includes involving internal buyers and procurement departments so that they are aware of any potential implications of the Modern Slavery Act, and can prepare to embed it in their processes. As well, as including the requirements into any current audit practices.

Supply chain transparency is also being driven by EU Directive 2014/95/EU, relating to disclosure of non-financial and diversity information. This requires by 2017, that all companies concerned (all companies based in the EU with over 500 employees) disclose in their management report, information on policies, risks and outcomes with regards to the following:

  • Environmental matters;
  • Social and employee aspects;
  • Respect for human rights;
  • Anti-corruption and bribery issues; and
  • Diversity in their board of directors.

Even though there are already mandates around CSR reporting in some EU countries, and many large enterprises already report on their environmental and social impact, the new directive will demand further commitment, as it also requires disclosure on the supply chain.

Placing Responsibility on Companies

The Dodd Frank Act, also known as the conflict minerals law, has been in operation for over two years. Under the law, over 1000 U.S. listed companies report their conflict minerals status to the Securities and Exchange Commission.

The law is designed to reduce the risk that the purchase of minerals from Central Africa contributes to conflict or human rights abuses. It places a responsibility on companies to be able to trace the designated minerals throughout their supply chain. This is something that can only be achieved through increased transparency of information at all levels.

Companies have struggled to accurately disclose information through their conflict minerals reports. They may also struggle with the Modern Slavery Act and the latest EU Directive. Like organisational level, non-financial reporting before it, supplier information disclosure and supply chain transparency is a new way of working for many businesses.

Those that address this area now will be creating robust processes that ensure a competitive advantage, as well as being well positioned for future legislation.

Role of Software

At Greenstone, we are increasingly seeing organisations turning to software solutions. This is not only to drive supply chain transparency, but to enable organisations to handle the burgeoning reporting requirements, and stakeholder expectations, efficiently.

Previously, supplier compliance has been a box ticking exercise for organisations. The processes of data gathering were ill conceived and incomplete, and information gathered was rarely interrogated, and almost certainly not used for reporting purposes. This lead to disillusionment amongst suppliers, and even lower levels of engagement.

However, we are now seeing that users of SupplierPortal are utilising the analytical tools available to manage suppliers and their data. The increasing emphasis on transparency and reporting means that organisations are no longer ticking boxes, but adopting new processes and procedures in order to identify and manage non-compliance.

What is more, is that this doesn’t have to consume a great deal of additional resource, but rather for organisations to acknowledge a new way of working, and realign current practices.

Gyles is Head of SupplierPortal at Greenstone, a non-financial reporting solutions company providing software and supporting services to clients in over 100 countries.

Greenstone’s SupplierPortal solution enables buyers to effectively manage supplier risk and compliance through a secure and private online platform. Buyers have the flexibility to distribute standard framework questionnaires, as well as proprietary questionnaires, to their suppliers and can then manage and analyse this information through a comprehensive suite of analytical tools.

ANZAC Soldiers in WWI – What Supply Chain Leaders Can Learn

How did John Monash, a Jewish son of German immigrants, become one of the greatest leaders of ANZAC forces during the First World War? And what’s its relevance to Supply Chain leaders?

Sir John Monash - Supply Chain Leaders

Recently I finished listening to Roland Perry’s audio book on ‘Monash: The outsider who won a war’, and found it a fascinating insight into early Australian military and social history.

And it got me thinking about what it was that meant that modern day universities, freeways, suburbs, scholarship funds and monuments were dedicated to and named for John Monash.

He became very famous, and if the King of England wanted to be his mate, then there must have been something special about this West Melbourne-born bloke!

You could say that Monash was pretty smart – a civil engineer, lawyer, business and artillery officer by training and profession. These skills saw him eventually become the Commander of the Australian Corps, which, at the time, was the largest individual corps on the Western Front.

Technologically Savvy

Like great supply chain leaders today, Monash was fascinated with technology, and what it could potentially do to meet his objectives. The Tank intrigued Monash and, along with the machine gun, he used it as a new and powerful offensive weapon.

Monash, like a smart manager today, encouraged his subordinates to come up with innovative ideas. One of them was a smoke canister that could be fired from artillery, providing screening for advancing troops.

He even used his legal training and knowledge of legal patents to help that soldier get that invention patented!

Health, Welfare, Blood and Guts!

Monash recorded in his diaries seeing and hearing the agonising cries and moans of injured soldiers left for dead after many of the battles at Gallipoli. It was this that led him to demand the urgent need for post combat repatriation and emergency medical treatment.

He also strongly advocated for more nursing services for recovering soldiers, which would have been a tough gig in those days.

Nothing demoralises an Army more than poor trauma health care, and Monash realised this. And any HR professional working in the supply chain knows that Health and Welfare programs work!

Leading his People

Monash’s leadership skills were second to none, especially when it came to his troops. He valued them. He wanted them alive.

He didn’t want to waste them as dispensable shock troops, as some suggest the British Commanders used ANZAC troops as, and like the movie Gallipoli portrayed them.

He went out of his way so that his troops would be given public recognition for their wins, sacrifices and heroic deeds, as censorship, particularly in newspapers, was suffocating at that time.

And what employee doesn’t crave a manger’s public recognition for a job well done? Monash understood implicitly the positive psychological effects of this.

Planning, Forecasting and Communicating

Monash as civil engineer understood the importance of intact supply chains and the logistics of moving people.

This expertise proved invaluable on the Western front. Time spent rebuilding destroyed road and rail networks, and town infrastructures, enabled the carrying of much needed supplies and reinforcements where and when he needed them.

Monash was a meticulous planner. He used all available topographical maps, often venturing into the field to survey objectives, so his soldiers could use existing terrain to their advantage and safety.

Planning skills and forecasting are nothing new to supply chain leaders, and it’s especially effective when you let your “troops” know what’s expected and up ahead.

People, Procurement and Negotiating

One of the most important tools in the arsenal for supply chain leaders, and what Monash was exceptional at, was the ability to negotiate, schmooze and defer when necessary to his superiors and reports. Or win them over with a confident well planned strategy.

Personal Fortitude, Self-development and “sucking that gut in”.

Monash, like any great leader, didn’t magically acquire “grit” or fortitude. He worked on himself both physically and mentally.

He read. He studied those around him. He picked himself up after failures and setbacks. And he was able to overcome racial slurs and innuendos, about his religious and cultural roots used by his opponents and detractors. At one stage even the Australian prime minister had it in for him!

When John Monash died in 1931 approximately 300,000 mourners turned out to pay their respects. Given the small size of Melbourne at that time, it showed how revered this great man was.

Monash - supply chain leaders
Australian Stamp Celebrating Sir John Monash

So whilst today’s supply chain leaders may not be involved in terrible international conflicts, some of the aptitudes and skills that a great Australia demonstrated over his lifetime, could be inspiring.

You can catch up with more leadership and life and style thinking at www.productiveminds.com.au.

Inspirational Words from Women in Procurement 2016

The Faculty’s Hugo Britt shares some inspirational words and thought-provoking ideas from the 2nd Annual Women in Procurement conference. 

Women in Procurement 2016 Inspirational Words

Back in March, I attended Quest Event’s 2nd Annual Women in Procurement conference in Melbourne, representing Procurious as the event’s media partner.

Literally within minutes of the conference being opened by NBN Co’s Chief Procurement Officer Coretta Bessi, I was scrambling to keep up my note taking as a flood of ideas, inspirational words and thought leadership came from the podium. And this pace didn’t let up over the two days of the conference.

Why run a conference exclusively for women in Procurement in Australia? Because the numbers are dire.

According to Jigsaw Talent Management’s Trends in Gender Diversity, the average split in the Australian national workforce is 54 per cent to 46 per cent in favour of men. But in the Procurement profession specifically the numbers are much worse – 63 per cent to 36 per cent in favour of men. Let’s not also forget the widening gender pay gap – currently averaging 17.1 per cent.

All of these figures point to an urgent need to drive change through a gathering of minds such as that seen at Women in Procurement.

Rather than try to summarise the content of the key speakers’ presentations, I’d like to share what I took as the most inspirational words and thought-provoking quotes from the conference.

Coretta Bessi, CPO, NBN Co.

“Ask yourself every day: ‘What am I doing today that will make me better tomorrow than I was yesterday?’”

Kelly Irwin, Head of Procurement Australia and NZ, Holcim

“Have the courage to leap out of your comfort zone.”

“A boss depends on authority, but a leader depends on goodwill.”

Jonathan Dutton, Director, JD Consultancy

“The secret to success in procurement is staying relevant to the vision.”

“Corporate Social Responsibility has the potential to change the fabric of our decision-making in procurement.”

Dutton’s four big critiques of modern procurement:

  1. An unproductive focus on cost
  2. Organisational isolation with no customer focus
  3. Glacial pace of procurement processes
  4. Acting without enquiry and not asking WHY.

Margaret Ruwoldt, University of Melbourne, speaking on the “Working out Loud” movement

“Hierarchical boundaries are much more permeable in a networked world. You have personal development opportunities that didn’t exist five years ago.”

“’Working out Loud’ is ‘How to Make Friends and Influence People’ meets the internet”

“Don’t wait to be plucked from the crowd – make yourself stand out.”

Jackie Aggett, Head of Procurement, Laing O’Rourke and The Faculty Roundtable member

“Courage, for me, means believing in myself, and believing my ideas are worth sharing.”

Sharon Hoysted, Procurement Manager, Supplier Management, Boeing Aerostructures Australia

“Diversity and inclusion are key to fostering a culture of innovation in your business.”

Nelli Kim, Senior Supplier Management Specialist, Telstra International Group

“If you can get through the self-doubt and give something a try, it’s a win.”

“What are YOU doing to personally manage your development?”

Professor Margaret Alston, Monash University

“Australia’s gender pay gap has grown to 17.1 per cent differential. This is simply not equitable. To achieve the same wage in Australia, women would have to work 64 days extra per year.”

Jennie Vickers, Director Australia and NZ, IACCM

“Don’t be defined by your job title or you’ll find yourself disappearing.”

“Make the case and articulate the benefits of supplier relationship management.”

Honey Meares, Procurement Manager, Supply Strategy, Genesis Energy

On clarity of purpose: “It’s important to know what you are trying to achieve.” 

Sarah Collins, Chief Procurement Officer, NSW Roads and Maritime Services

“Don’t try to change everything at once – rather, concentrate on starting the momentum.”

You can check out the full programme for the event here.

Hugo Britt is a Research Consultant at The Faculty, helping to support The Faculty Roundtable, an influential group of Australian procurement leaders, who gather to share their experiences and insights. The Faculty will be hosting their ninth Asia-Pacific CPO Forum, the region’s premier procurement event dedicated to accelerating commercial leadership at the highest level.

For more information on The Faculty Roundtable or CPO Forum, contact Program Manager, Belinda Toohey.

Curbing Public Procurement Fraud in Africa

Are we making any progress curbing public procurement fraud in Africa?  The consensus seems to be very little, although there are pockets of not quite excellence, but at least some promise.

Public Procurement Fraud

The Anti-corruption Agencies

10 years ago the World Bank reviewed the activities of anti-corruption agencies active in Africa and came to the conclusion that they were not particularly effective, despite some significant funding.  They concluded that African governments, in general:

  • lack the know-how or the political will to control corruption and procurement fraud
  • want just to be seen to be taking some action, however ineffectual it is in practice

In reality, if a study was undertaken today, the results would be about the same. This is despite efforts by the Organisation for Economic Cooperation and Development (OECD), Transparency International (TI) and Corruption Watch and others.

TI’s arm in Ghana, GII, says that their “vision is to make Ghana a corruption-free country in all spheres of human endeavour, where people and institutions act with integrity, accountability and transparency”.  Worthy sentiments, but is it just rhetoric?

The OECD tells us that “public procurement remains the government activity most vulnerable to waste, fraud and corruption due to the size of the financial flows involved”.  On average, 12-15 per cent of a country’s GDP is spent on public procurement. Some of this is wasted. However, there are no reliable statistics of how much money is lost to procurement fraud and corruption across Africa, as much of it goes unreported.

Kenya’s Procurement Woes

Despite an active but bureaucratic watchdog in Kenya: The Public Procurement Oversight Authority (PPOA), public procurement fraud and collusion in tenders is alive and well, and some say endemic. Many of the reported high value failures are in transport and logistics including railways and ports, and particularly in education.

PPOA has as its tag line “transforming procurement”. It has a laundry list of tender appeals awaiting attention and looks like it is losing the battle. Ask Haier Electrical or Hewlett Packard who together won a case against the Ministry of Education, Science and Technology in 2014 involving a project of more than US$400 million.

PwC says in a newly published report that one in every three Kenyan business leaders reported procurement-related fraud in the past two years, making it the most common type of economic crime in the country. The report faults Kenya’s procurement processes as not being robust enough to guarantee integrity at all levels.

The Politics of Preference – Women, Youth and Local Sourcing 

There is growing disquiet about preferential procurement rules and guidelines like those legislated in countries such as Nigeria.  The Nigerian government wants to help the local economy by developing emerging businesses, but new legislation on local sourcing may have the opposite effect if it is prescriptive.  Will “Made in Nigeria” allow suppliers to charge more for inferior products and services and will government buyers somehow be tempted to offer guarantees – for a fee or other benefit?

Initiatives being taken to tackle the scourge

The World Bank’s new procurement framework will allow it to better respond to the needs of client countries in Africa, while preserving robust procurement standards throughout Bank-supported projects. Since they have a portfolio of about US$42 billion in over 1,800 projects in 172 countries, this is significant.

There’s also some good news coming out of South Africa.  The Chief Procurement Officer, Kenneth Brown, has kept a low profile. Behind the scenes, his team are quietly reviewing all tenders over R10m for compliance to the rules and are looking for opportunities for cost savings.

On an expenditure of R500 billion annually, its target of savings of R25 billion looks achievable.

The State’s fragmented spending practices are now being centralised to reduce waste and get more leverage through technology. They have set their sights on some key categories: travel at R10 billion per annum, ICT, construction and leases.

The new online eTenders portal launches in April 2016 with a modest maintenance cost of just R16,000 a month. It introduces much needed transparency and will save a staggering R400 million a year that the government spends on advertising the tenders in newspapers.

Burritos and Ice Cream – Supply Chain Failure and Success

Burritos and ice cream – the contrasting fortunes of two organisations and the difference between supply chain failure and success.

Supply Chain Failure

Burritos and ice cream. Who doesn’t love them? Carne asada and guacamole. Chocolate and cherries. The combinations are endless, and so are the places that offer these tasty treats. So what can a burrito chain or an ice cream brand do to stand out from the crowd?

Chipotle and Ben and Jerry’s (known for burritos and ice cream, respectively) have both come to the same conclusion: leverage the supply chain and use it as a brand differentiator.

They have decided to draw customers in with high-quality ingredients and a transparent supply chain. Chipotle and Ben and Jerry’s as brands have both become champions of local suppliers, fresh produce, and organic and non-GMO foods.

However, if you’ve been watching the news over the past months, you’ve probably noticed one of these companies has been more successful in their mission than the other.

Supply Chain Failure

Chipotle has been plagued by outbreaks of food-borne illnesses in the past few months, to the point where they shut down all their restaurants for a day to address food safety issues. As a result of these outbreaks, there have been calls for the chain to centralise their procurement strategy and source from large, well-known suppliers, rather than working with small farmers who may not adhere to as stringent food safety standards.

Chipotle appeals to the coveted millennial market and a supply chain failure, and a failure to live up to their lofty supply chain goals, may have a severe impact on their brand value.

Ben and Jerry’s has succeeded in the arena where Chipotle has come up short. After being sold to Unilever, a multinational corporation, Ben and Jerry’s received certification as a B-Corp, essentially a company that doesn’t allow board influence to sidetrack their CSR efforts. In their case, their parent company may actually be an asset rather than an obstacle as Unilever itself is also known for ambitious environmentally friendly initiatives.

For example, the company has pledged to make a $90 trillion investment in infrastructure over the space of 15 years to build a sustainable economy and combat global warming. “Companies make up 60 per cent of the global economy. If they don’t play an active part, how can we solve this crisis?” said Unilever CEO Paul Polman.

The Role of Procurement

Procurement needs to play a central role in CSR efforts, especially when supply chain promises are a primary piece of the brand message. Procurement should be responsible for staying on top of current and potential suppliers, including second tier and beyond when possible, making sure they have the necessary qualifications to live up to your brand image.

Procurement also needs to be ready to pivot to new suppliers quickly in response to any supply chain disruptions, whether they are result of illness outbreaks, drought, or changing government regulations.

Where Chipotle failed, and failed big, was that it wasn’t just one outbreak — there were five in the space of six months. Even if they can’t be traced directly back to a weak link in the supply chain, rumours and public perception can still have damaging consequences. Of course, Chipotle isn’t the only company to have suffered from a supply chain failure. Read about a more extreme case here.

Both Chipotle and Ben and Jerry’s have proven supply chain doesn’t have to hide in the shadows; there’s a place for it in the limelight. After all, now more than ever, people want to know where their food comes from.

But from Chipotle we can see companies will suffer if they don’t live up to their brand promises. However, with proper alignment to business objectives and recognition as a strategic player, Procurement can help prevent this from happening.

Hillary Ohlmann is the knowledge base developer at DeltaBid, easy-to-use procurement management software.

Australian Shines Spotlight on Unethical Supply Chains

Australian fashion brands are bearing the brunt of increasing unwanted attention for unethical supply chains.

Fashion Unethical Supply Chains

No-one wants to talk about it. But if you’re working in procurement for the fashion industry, you’re in the hot seat.

Fuelled by consumers’ love affair for fast fashion, the fashion industry is finding ways to produce faster and cheaper apparel than ever before. The latest example of this is Kmart and Target producing school uniforms for $2 an item, in a marketing campaign that made recent headlines for all the wrong reasons, given that factory workers are paid below levels that can cover basic living expenses.

The broader industry is digging its own grave, and, in years to come, the fast fashion industry will cease to exist, warns an Australian fashion industry authority who has worked on both sides of the fence.

A Different Way to Do Fashion

Catherine van der Meulen (formally Taouk) worked her way up in her father’s teen, fast fashion brand SUPRÉ for 15 years, which specialises in mass-produced, cheap fashion. During those years, the potential issues of unethical supply chains never crossed her mind.

She’s since realised the error of her ways, designing the Raw to Store movement to educate businesses about the spectrum of impacts generated by the fashion industry globally.

“Since leaving SUPRÉ, I’ve realised that there’s another way to do business, and it’s not this ruthless, cut everyone down to make money style of business that’s operating in the fashion world today,” van der Meulen says.

“I wish I’d have known back then what I know now about ethical fashion and conscious capitalism in my days at SUPRÉ. I wish I knew that the impact of our decisions can have a negative impact on others without me even knowing it.”

Raising Awareness

But she’s making up for lost time. Late last year, van den Meulen landed the role as head of corporate sustainability at Clean Cut Fashion – Australia’s industry body for ethical and sustainable practice. The organisation connects Australia to the global sustainable fashion movement and encourages national retailers to be more mindful of their supply chain.

She has only been in the role a few months, and is starting by raising awareness and contacting the industry’s worst offenders in search of a commitment.

“I’m starting with exemplifying the ones that are doing well in creating positive impact in the industry. We want to empower the great work of the brands that are committed to change and use that to teach other brands,” she says.

Issues associated with unethical supply chains include building an entire brand on an unsustainable business model, bad publicity, consumers turning to social media to vent about brands doing the wrong thing and, of course, knowing that you’re paying workers less than they need to live on in their own countries.

Collective Responsibility

Cath-van-den-Meulen - Unethical supply chains

Cath van den Meulen

“It’s my job to look at the supply chain of these fashion brands here in Australia and open up discussions around what’s being done to improve the processes. There’s plenty of room for improvement out there. But there’s generational corporate resistance to work through,” says van den Meulen.

She hopes to bring about change among Australian fashion brands that rely on mass sales by producing ‘loss leaders’ (extremely cheap items that are highly publicised), which are commonly mass-produced in unethical supply chains and manufacturing establishments in third world countries, she says.

To highlight the sheer size of the issue of unethical supply chains in Australia, she points to the Australian Fashion Report prepared by Baptist World Aid Australia, which last year named and shamed Australian fashion brands that haven’t cleaned up their supply chain or protected workers overseas.

The report was released two years after the fatal Rana Plaza factory collapse in Bangladesh, which saw the lives of 1,129 factory workers die. This event has put a black mark against the collective fashion industry, and van der Meulen says everyone needs to take responsibility.

Australian Offenders

The Baptist report named iconic Australian fashion brands as worst performers, such as the Just Group (owner of Just Jeans, Jay Jays, Dotti, Peter Alexander and Portmans), fast retail brands like Ally, Valley Girl, Temt and Industrie, and low cost suppliers like Lowes and Best & Less.

These companies each received D or F grades because there was little evidence they were doing much, if anything, to protect workers overseas. Many had little or no publicly available information and/or didn’t respond to requests to engage with the research process.

Oxfam Australia also released a report late last year naming the Australian brands dodging workers’ rights. The report named Best & Less as making the least progress of all the companies Oxfam has been engaging and assessing. The Just Group was also named in the report as another company sourcing from Bangladesh, which has so far refused to sign the Fire and Safety Accord.

“The truth is that you can create a profitable and sustainable business model while also doing the right thing as a corporate citizen. And yet there’s so much toxic fashion out there that consumers can purchase clothing for the price of a coffee is utterly obscene. Everyone needs to take responsibility for there to be change.”

Procurement – Authentic and Transparent

And while almost impossible to put a figure on the cost of cleaning up unethical supply chains, she recommends that procurement professionals approach this mammoth task in an authentic and transparent way.

Procurement professionals need to take responsibility for what’s happening further down the supply chain, starting with an independent audit to uncover and document the issues, she says.

“Where the cotton is from that you’re using, for example, can have one of the biggest impacts on the cotton industry globally. These are questions procurement people should be asking that demand answers.”

“I recommend that fashion brands start out by doing the B Corp assessment, which take just 90 minutes and gives you a rating out of 200 to see where you stand today,” she says.

Next, work out where you can make the most impact within your supply chain, and commit to starting an improvement program.

“Just focus on one thing that will improve your supply chain by 1 per cent this year. This could include improving energy consumption or waste water, changing suppliers, or sourcing more ethically produced products,” van der Meulen says.

How can Procurement Work Smarter, Not Harder?

Time never seems to be on our side. It’s time for procurement spend its time more wisely, and work smarter, by leveraging new technology.

Z Hotels Work Smarter

Procurement, finance and operations have forever been working on ways to integrate simply and effectively. While it is reasonably simple to coordinate small teams in one office, hospitality is one industry faced with the tough task of managing spend and suppliers across multiple locations, multiple businesses within a business and a seasonal spend pattern.

Traditionally, these three departments have been engaged in a never ending paper chase between numerous locations and head office. Not to mention the arduous task of managing budgets across a multitude of locations, geographies and currencies. Until now, managing this extensive workload has meant the headcount in the back office goes through the roof and the time staff should be spent in front of the guest/client, is instead spent on pushing paper and placing orders.

Breaking with Tradition

So how do you fix this expensive problem, and work smarter?

Breaking decades’ old business patterns and cleverly using technology to simplify buyer – supplier interactions and location management. However, Z Hotels have cut administrative tasks by up to 90 per cent through simplifying and digitising many of their previously time devouring tasks.

Frontline hotel staff would spend up to five hours a week on purely administrative duties like placing orders, chasing paper invoices and pushing items through the approval process back to head office. Meanwhile, head office staff lacked the transparency and real time control on departmental spend and relied solely on location staff to be their eyes and ears.

Since bringing in a new, cloud-based procurement platform, they have cut admin duties for location staff time down by 90 per cent.

Bev King, CEO at Z Hotels, commented on the benefits of the new solution. “Customer service is at the forefront of everything we do, InstaSupply gives us the opportunity to have a much more automated solution that allows our staff to have time to focus on the service to the customers rather than try to fill the administrative gaps. The process has become very easy to use. We’re on the right track,” King said.

Supported Growth Ambitions

The platform now pulls together all orders, delivery reconciliation, stock, invoice processing, location management and budget tracking as well as a host of other functions still being refined within the portal. All this with full integration with the business’ accounting software.

When Z Hotels first brought in InstaSupply, at the end of 2014, they had big ambitions to grow. A year later, they have just opened their 10th site and are on course for another five by the end of this year.

Under the traditional model, a flurry of staff would have been brought in to handle the additional workload that growing nearly 300 per cent would have created. In fact, the head office team that deals with finance and procurement has stayed the same as it was in the beginning.

It is this ease of use that makes it a great solution for Z’s predominantly Millennial operational staff. Implementing a fully responsive, one click, cloud solution is in tune with the emergence of a dominant Millennial workforce who will no longer just get by with archaic systems and countless spreadsheets.

With a wealth of new technology available to procurement and finance teams, isn’t it time for your organisation to look at ways you could work smarter?

Watch a video on this case below:

Instasupply employs advanced cloud technology and a user-friendly web application to give users control of their time and their spend. Find out more about Instasupply’s purchase-to-pay ordering system, and supplier invoice management and consolidation functionality, at their website.