Category Archives: Procurement News

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.

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 [email protected] and we’ll profile it in an upcoming article!

Meet the Procurement Young Gun Making Her Mark Globally

It’s a big deal to be charged with the task of managing a significant spend portfolio that covers the Asia-Pacific region. But this BP strategic sourcing manager takes it all in her stride. Meet Joanna Graham, winner of the 2016 Future Leader in Procurement Award.

Johanna Graham

Graham looks after procurement for the retail networks of one of the world’s largest oil and gas companies. Her role encompasses the entire BP service experience, including building new service stations and travel centres, maintaining them and supplying them with equipment. She manages a team of four people.

It’s no mean feat,  particularly given that she’s played an integral role in a number of significant strategic projects recently undertaken by BP.

Driving Procurement Value

“It’s a really exciting time to be working for BP, especially as there is a growing culture of innovation. There have been real opportunities to create value for the business as BP strengthens its competitiveness. This all creates an environment ripe with opportunity for Procurement to drive value in fresh and creative ways”.

Graham’s manager and BP’s procurement director, David Macdonald says: “Joanna exemplifies everything that’s good about the modern procurement professional. She’s got remarkable commercial acumen, negotiation planning and stakeholder management skills all brought together with a tough-minded determination. From my experience, it’s very rare to see all those attributes in the same person.”

A glowing endorsement for Graham indeed, who spends a lot of her time on sourcing activities and negotiating complex contracts.

Graham was also the procurement lead on a major process to select a joint venture partner and launch a new company to manage operations, engineering and maintenance of BP’s network of 18 fuel terminals dotted across the country. This piece of work subsequently extended to establishing a procurement function for the new company.

Broadening Experience

Prior to BP, Graham worked in procurement roles for British multinational alcoholic beverages company Diageo, owner of brands Johnnie Walker, Smirnoff and Baileys, among many others. These roles took her around the world including to China, broadening her experience significantly as she perfected cross-cultural negotiation techniques. Graham says she learnt about cultural nuances and how they impact upon sourcing, as well as navigating supply chain complexities.

“Living in China was an amazing experience both personally and professionally. I learnt so much in the time I was based there, and was lucky to work on some really exciting projects in a market that was at that time experiencing exponential growth”.

After making three international moves in less than six years, relocating to Melbourne in early 2013 was a lifestyle decision. Graham continued to work for Diageo for a period, though the time difference made working with global colleagues in the UK and US difficult.

“Since settling in Melbourne, I’ve been blown away by the strength of the Melbourne procurement community. They’re a very tight-knit community here, with networking events and Roundtable forums. Procurement professionals here are incredibly supportive, and willing to answer hot topic questions.

“In my experience, there’s just not that same sense of community in the UK due to its size, although I know that given the explosion of growth being experienced by www.procurious.com, that it’s only a matter of time before that changes.”

Strengthening Global Connections

Graham also praised the work done by The Faculty to build the procurement community in the Asia-Pacific region. Next on the agenda for Graham includes strengthening global team connections.

“There’s a lot more that we can do to make the BP team here closer. I want to leverage global team members and manage conversations to bring better value to the Asia-Pacific region. My focus is on being best in class, and I won’t stop until we get there.”

Graham is advocating the use of social network tool Yammer as a valuable way to enable procurement team members from around the world to communicate quickly.

“The intelligence that’s flowing internally through Yammer is absolutely phenomenal. I can post a request for some information for a supplier presentation, and less than 24 hours later a stack of brand collateral on a similar presentation on the other side of the world has been posted for me to access. It’s far more efficient than email.”

The Future Leader of the Year award is sponsored by American Express.

Have you met the Chief Procurement Officer of the Year?

It’s taken less than two years for Johanne Rossi to implement and lead a major transformation at fuel and oil giant Caltex Australia.

Johanne Rossi

Her goal is to transform the company to become the customer of choice for suppliers. What this means is Caltex gets higher quality, a lower total cost of doing business, priority supplier support and access to the latest innovations.

“I came on board to kick off this journey for Caltex procurement at a time when Caltex was transitioning to stay current and create a bright future for itself. We realised that the fuel industry is being challenged with new trends and new competition is entering the market. The entire procurement function and what we stood for as a company needed a complete rethink,” Rossi says.

The process required long-standing internal silos to be broken down so that company teams could integrate and work closer together through the change, challenging the status-quo and doing things smarter.

The confidence and determination she displays in her role with Caltex are some of the key reasons Rossi has been named Chief Procurement Officer of the Year at the 9th Asia-Pacific CPO Forum in Melbourne.

Upon winning the award, Rossi praised the work done by The Faculty’s Founding Chairman, Tania Seary, adding that the innovation and collaboration she’s fostering within the procurement community is vital to ensure the function evolves.

At Caltex, Rossi is responsible for a $1.8 billion spend. She’s led a transformation program of the entire procurement function, leading to a saving of more than $100 million through improved agreements, cost avoidance, process improvement in both Opex and Capex and revenue generation. She is credited with delivering on company-wide strategy, and creating value in key supplier partnerships.

Rossi, meanwhile, came to Caltex after being headhunted for the role. She has a background in FMCG, management consulting, mining, airline industry and also construction with blue-chip companies like Nestle, Qantas and Accenture.

A determined approach to CPO leadership

“I recall during the interview process for Caltex I was asked about whether I was aggressive in my approach and how determined I was. It was a strong indication of what sort of leader they were looking for in the role.”

Rossi has had to rely on these skills to implement far-reaching cost reductions, as well as a major review of what the procurement function encompassed within the company. This has involved re-structuring and organising internal teams in new ways to better partner with stakeholders and supply partners. A global sourcing team has also been set up in Singapore. A procurement innovation manager has been hired to achieve benefits for the company in the longer term, such as finding new, mutual value with supply partners through innovation and implementing efficiencies. The focus of the team is on reducing the total cost of ownership of external goods and services for the company, bringing innovation from supply partners, reducing wastage in dealings with partners, as opposed to just being price focused, says Rossi.

“I believe that a lot of people know how manage and evaluate tenders, but that’s not where we want to spend most of our time – that’s not where the sustainable value lies. As the role of procurement within Caltex evolves, we want to be spending more time in building internal and external relationships, and developing stronger business and commercial skills.”

A supplier relationship program called Catalyst has been developed and is currently being rolled out. It focuses on building mutually beneficial relationships with supply partners, and goes beyond supplier performance management, Rossi says.

“The entire focus for us is to become the customer of choice for our suppliers. To do this, we’ve segmented our supplier base, which consists of about 3,500 suppliers. It’s very difficult to treat each of our suppliers in a special manner, but that’s what we’re working to achieve,” Rossi says.

“We’ve also worked to get closer with internal stakeholders to better understand their growth targets and how we fit into those and bring solutions from our external spend networks. We’ve transformed relationships with our suppliers. We want to have a far more frictionless relationship with them by integrating systems, simplifying the transactional activities, and benchmarking our actions so that our achievements are visible.”

While the transformation process has been under way for more than 18 months, there are still a number of improvement efficiency opportunities that Rossi wants to implement. Conscious of the evolving workforce, she is interested in looking at ways to better organise the procurement function and create new skills to find greater efficiencies, continuously bring new value and anticipate the future, she says.

“My focus is on creating a strong team that will be nimble and adapt to the changing conditions of the market and the company. A team that will develop new capabilities to create its own future, focused on continuously bringing new value.”

“The experiences I’ve had in my career have made me a stronger person. It’s been a tough journey, even though I’m fully aware I have sometimes created my own obstacles. I now want to give back and make the journey more enjoyable for others if I can.”

“Thinking about how you can better support those around you is paramount”, says Rossi. “The world is completely different to what it was a decade ago. It’s incredible to realise how much impact you can have on others’ lives.”

The  2016 CPO of the Year Award is sponsored by Avetta Global.

ISM’s Jim Barnes: three major L&D challenges for procurement

Are you clear about the capabilities your role requires? Do you regard yourself as financially acute? Does your organisation have processes in place to capture vital knowledge from departing professionals as they retire?

Jim Barnes

Jim Barnes is a busy man. He’s the managing director for ISM Services, the Institute for Supply Management’s team learning and development arm, and the nature of his role means he’s on the road, or in the air, for much of his working week. His team and its affiliates are truly global, working around the clock with top corporations across the US, Latin America, Europe and Asia – in Barnes’ words, “the sun never sets on ISM Services”.

Procurious was lucky enough to get some time with Barnes at ISM2016 in Indianapolis. We asked him for his top three concerns for the future of learning and development in procurement. From his unique viewpoint near the pinnacle of one of the biggest supply management associations in the world, Barnes sees the following three shared challenges:

1. Lack of clarity around procurement roles and competencies

With procurement role definitions and responsibilities becoming increasingly fluid in modern businesses, Barnes has become aware of confusion around what many roles actually entail. “We’re seeing a lack of alignment between job roles and organisational needs. There’s also a lack of clarity in what it takes to get to the next level in your procurement career”.

ISM’s solution was to launch the Mastery Model, which CEO Tom Derry has referred to in the past as “the world’s greatest collection of job descriptions”. All of ISM Services’ content and training now maps to this model, and it’s part of Barnes’ role to ensure the model itself stays relevant in a fast-changing profession. “We’re constantly updating the Mastery Model”, he says. “That’s the whole point – procurement has moved so fast that we’ve almost outstripped the ability to have formalised career structures, but the model is designed to stay ahead of the latest trends.”

ISM Services surveys individuals to determine their competency levels across no fewer than 73 sub-competencies in the Mastery Model, identifying individual or group-wide gaps and devising a targeted investment plan for training and career feedback.

“There are so many ways people can be up-skilled”, says Barnes. “It could be formal training towards ISM’s CPSM or CPSD, or eLearning, or on-the-job mentoring and coaching. It’s all about targeted investment to address identified gaps. Most importantly, the Mastery Model helps procurement professionals understand what competencies they need to excel in their current roles, and what skills they’ll have to master to move to the next step in their careers.”

2. Procurement professionals need greater financial acumen

“If you’re in procurement, you need to ensure you have a basic understanding of business finance and accounting. For example, when selecting suppliers, you should be able to look at the financial data around their business to understand their dynamics”, Barnes says.

Being able to speak intelligently about finance will greatly benefit your ability to engage internal stakeholders and talk their language. “This is especially important when engaging with Finance, of course, and the C-level will expect you to have a good grip on business finance.”

Barnes says that more and more universities are offering quality courses in procurement and supply chain that address the gap in financial knowledge. “We’re seeing some terrific graduates coming out of these courses, including this year’s impressive group of Richter Scholarship recipients”.

Barnes’ advice to newly-minted graduates looking for a great role in procurement? “You’ve got to be willing to travel’, he says. “Lots of manufactures have plants in regional areas, often in the middle of nowhere – we can’t all land jobs in San Francisco”.

3. An ageing workforce

US electricity and gas company Duke Energy, says Barnes, is a prime example of the ageing demographic in procurement. “Over the next five years they’ll lose two-thirds of their supply chain staff. They’re replacing 200 people a year”. Barnes’ main concern with the demographic shift is capturing lost knowledge. “Of course there’s going to be a ‘brain drain’ – companies need to be very proactive about capturing as much knowledge from outgoing professionals as possible. But it’s also an opportunity to shift the skill set in procurement from old-school tactical to cutting-edge strategic.”

Barnes notes that ISM is on the front foot when it comes to developing millennial talent, most noticeably in its 30 Under 30 Supply Chain Stars program (in partnership with THOMASNET.com) and through its innovative eLearning initiative.

“The eISM online learning options make skills acquisition so much more accessible. We’ve now got people in remote places accessing our guided learning by webcam – they may not have been able to attend a workshop in person due to time constraints and travel expense. Trainers have to be able to accommodate people’s needs – and some procurement and supply chain professionals simply can’t find the time to leave their jobs”.

Virtual learning benefits trainers, too

On a personal level, Barnes is very pleased about the increasing popularity of virtual learning. “There’ll always be a need for face-to-face learning, networking and workshops, but one of the great benefits for me is that hopefully I won’t need to be on the road quite so much in the future!”

Silo Busting: Using savings management to drive collaboration

In a perfect world, savings management should follow a clear pattern: set targets, identify then prioritise initiatives, track initiatives and, finally, review the targets. However, managers know that in reality, these five steps are beset with difficulty. They have to deal with unknown targets and goals, manual inputting, approval difficulties, siloed projects, sporadic monitoring and, worst of all, focus on the wrong projects.

chompoo/Shutterstock.com

How to bust silos when nothing seems to work

Many of the woes besetting procurement professionals can be traced back to organisational silos, which hamper effective communication, hinder compliance, and impede transparency. You’ve tried everything to improve collaboration – from issuing company-wide news bulletins, increasing the number and frequency of interdepartmental meetings, and even drastically altering the seating arrangements … but sometimes, silo-type behaviour is just ingrained. No doubt, you have wished there was some sort of silver bullet that will do away with silos once and for all.

According to SciQuest’s Karen Sage, there is. Sage is excited about launching a new solution that will bring everyone on board with procurement savings initiatives. “Our new Portfolio Savings Manager (PSM) is really going to hit those organisational silos hard”, says Sage. “It encourages interaction, creating cross-collaboration within the business. You’ll have all of these different silos working together on your procurement savings initiatives, and those frustrating savings management difficulties have been ironed out into a seamless and efficient process.”

SciQuest has been in the spend management space for a long time – 20 years, in fact – and services a wide range of industries and organisations including many of the Global Fortune 500. Customers using SciQuest’s Source-to-Settle Suite wanted a way to track projects in a single interface that incorporates multiple aspects of the procurement process, whether it be savings tracking, project management or workflow management. The company responded with the creation of the innovative PSM, which can be used as a stand-alone product, but its full functionality is revealed when integrated with the existing Source-to-Settle Suite.

The cross-functionality of PSM enables team members in any department, from sourcing and procurement to finance and operations, to:

  • identify potential savings and process optimisation projects
  • approve and prioritise initiatives
  • assign tasks and allocate resources
  • track milestones and results, and
  • monitor progress against forecast and budget.

The system is a project-manager’s dream, automatically determining milestones and tasks required to complete initiatives and allocate resources. PSM replaces tedious manual processes such as spreadsheet inputting, project tracking and database updating. It captures strategies and savings initiatives from inception to realisation, forecasting, scheduling, tracking and reporting savings. Users benefit from historical project and savings visibility, without having to dig into the database or spreadsheets for lost information.

Savings management made simple in five steps

 PSM users follow an intuitive five-step process, with a focus on simplicity throughout:

1. Identification

Users are guided through the completion of a savings initiative creation with the aid of a left-side navigation section that indicates counts and completeness.

  1. Authorisation

Approval workflows are applied to the initiative based on business compliance requirements.

  1. Prioritisation

The user assigns a priority to each initiative on a scale of 1 to 10. Priorities can be adjusted to reflect current business and resource parameters.

  1. Execution

Deliverables and tasks assignees can update their tasks status, mark them in-progress, complete or reset the due date.

  1. Achievement

Reports and graphs are automatically generated and displayed on customised dashboards.

Having the right system in place enables procurement professionals to stop spending valuable time trying to persuade unwilling cross-departmental colleagues to collaborate. Concentrate instead on getting everyone interacting with your new system, see the silos melt away, and watch the savings flow.

SciQuest’s Portfolio Savings Manager will be available for purchase in July 2016. For more information, please visit www.SciQuest.com.

The Circular Economy Demands Procurement Collaboration

Faced with the dual challenge of sustainability and growth, businesses are looking to procurement collaboration to help.

Since the Global Financial Crisis in 2008, most established firms have reduced costs, focused their resources, and become more lean and efficient. Now, however, they face the challenge of how to grow. This will require the development and implementation of truly innovative products, services, and business models.

In this challenging economic climate, procurement professionals are being asked to do more with less. The efficiency of Procurement, as well as procurement collaboration, is now seen as a critical part of moving the business forward.

Research confirms the new picture

Recent research by Oxford Economics for Ariba and SAP shows that more than two-thirds of senior procurement executives and employees say procurement is “becoming more collaborative with other parts of the business”. These figures are also valid for Responsible Procurement.

According to Procurement Leaders Research from 2012 on how procurement aligns with other functions on CSR topics, 33 per cent responded that, “there is an informal communication between procurement and other functions”. 47 per cent stated that there is formal communication between procurement and other functions.

The Supplier Coach

Procurement collaboration with the supplier is also key, though it is also critical for the process, and the sustainable outcome, that procurement acknowledges its role as a ‘supplier coach’. Typically procurement is responsible for the Supplier Relationship Management part of collaboration, although there is a need for a more open interpretation of the relationship.

The relationship should build on a joint relationship with win-win approach, where both parties will be engaged in driving the sustainable agenda on an equal basis.

As a coach, the procurement professional should:

  • Ensure that the supplier is motivated to work with the company’s agenda.
  • Ensure that the supplier continuously improves by providing input for improvement.
  • Promote the supplier’s interest within the company.
  • Ensure that the supplier has the strategic capabilities, or the willingness, to contribute to the company’s long-term growth.
  • Develop effective communications both internally and externally with the supplier.

Need for Business as ‘Unusual’ 

Typically, a supplier will encounter CSR at the very beginning of the relationship via the supplier selection and evaluation process, through the risk management process, or through the settling of the contract.

No business can escape the fact that global economic conditions, the status and future availability of affordable resources, energy supplies, and a growing global population are creating an ever more complex business environment.

The limitations and growing problems of the linear economic model, that has served organisations well for many decades, demands that ‘business as usual’ is unlikely to be a winning strategy in the future. The winning strategy lies within the circular economy.

The Circular Economy

The Ellen McArthur Foundation defines the circular economy as “one which is defined as an industrial system that is restorative or regenerative by design”, essentially replacing the end of life concept with restoration.

It shifts business towards the use of renewable energy, eliminates the use of toxic chemicals, which impair re-use and aims for the elimination of waste through intelligent design of materials, products, systems, technologies and business models. We could call it circular innovation.

Supply chains are getting more complex every day in terms of the number of involved partners and the quality and degree of interdependency between them. One of the predictions in relation to the integration of circular thinking, is that complexity will increase.

Businesses operate in a globalised world, where the volatility of markets, the speed of technological progress and the pace of change in the economic and business environments, will continue to rise rapidly. As a result product life cycles are getting shorter and market demands become more and more unpredictable.

Collaboration with all types of partners, and their willingness and ability to share their knowledge, will be crucial and key to a successful development and integration of circular thinking.  

Key Questions

The key question is how procurement can advance procurement collaboration with suppliers on circular thinking in an effective way? How can procurement ensure that the suppliers are willing and able to share their knowledge?

In many companies it is typically a challenge to include suppliers in the front end of the innovation process. Procurement teams are often disconnected from the functions they serve and the markets they engage with. They are not fluent in the nuances of the business and hence lack experience and authority.

Also in many companies, procurement are used to innovation being an internal capability. They are not used to working together with external partners on delivering it.

For procurement to be successful in these innovation oriented supply partnerships, I believe that it requires new models for relationship building and collaboration. It also requires procurement collaboration and integration across the whole organisation.

There is a great opportunity for Procurement to take a leading position within an organisation and transform the company approach from a linear economy to a circular economy. In order to do this, procurement has to facilitate the change of supply partnerships from a pure cost orientation, towards a strong focus on joint collaboration and innovation.

Four tips for working with SMBs from the experts

Procurious caught up with Ed Edwards, Audience Outreach Manager at THOMASNET.com, to discuss his organisation’s recommendations on connecting with small and medium-sized businesses.

ArtFamily/Shutterstock.com

THOMASNET.com knows that it’s tough to connect with SMBs. The product sourcing and supplier discovery platform has been in the business of connecting buyers and suppliers for no less than 118 years. Recently, though, their analysts have noticed a worrying trend. “We run sourcing events through the platform”, says Edwards. “We discovered that large Fortune 500 companies were only getting a 12% response rate when they issued a sourcing event to 100 suppliers. Further investigation revealed that SMBs are increasingly unwilling to engage, and buyers need to make more effort in this respect.”

Why SMBs are important to you

Ignoring SMBs means turning your back on half of the potential supply base – in the US, 49% of manufacturers have between 5-99 employees. According to Edwards, the trend towards supplier consolidation is a false economy. “More supplier choices means less dependency, and therefore less risk”, he says.

It makes sense to source regionally from SMBs. THOMASNET.com’s research shows that 41% of organisations always prefer a local source, while 57% generally prefer a regional source. The further away your source becomes, the more risk and cost are introduced into the supply chain. Edwards explains that when things go wrong, you need to be able to respond quickly and creatively. “Local and regional SMBs can do things better with less resources at a lower cost”, he says. “They’ve got the advantage of being nimble and innovative.”

Working with SMBs is also one of the best ways to reduce costs, as there’s a strong correlation between the size of a company and the average payroll. A US manufacturer with 5–9 employees, for example, has an average payroll of $36,313 per employee, while a manufacturer with 500+ employees pays an average of $61,150. “If you only work with large suppliers, you’re going to be paying for their higher overheads”, says Edwards. “More bureaucracy equals more cost and less innovation – and more people equals more bureaucracy.”

Understand where SMBs are coming from

Small and medium-sized businesses often have an owner-proprietor and operate with limited resources. They generally need to be cautious in investing time and energy in pursuing new business, while running their existing operation. Common concerns held by SMBs around engaging with large buyers are:

  1. Can I fulfil the order?
  2. Am I wasting time bidding on an opportunity with very little chance of winning?
  3. What happens to my other business if I become beholden to a large company?
  4. What if the new opportunity becomes 50% of my business and it dries up?

Four recommendations for improving your relationships with SMBs

THOMASNET.com has worked with suppliers and buyers to create a list of best-practice recommendations for working with SMBs:

  1. Be transparent throughout the process to convey that winning your business is possible.
  • Outline your process upfront
  • Provide a timeline with milestones
  • Be specific regarding vendor selection criteria
  • Divulge who the decision makers are (if not by name, by role)
  • Convey number of suppliers under consideration
  • Provide case studies of similar relationships you have built with SMBs
  • Divulge why you are looking for a new supplier
  • Be specific regarding quantities.
  1. Simplify your process to increase the likelihood that more SMBs participate.
  • Only ask for information that is critical to the specific supplier qualification process
  • Break lengthy supplier questionnaires into smaller chunks.
  1. Humanise your process to build trust and reduce downstream confusion.
  • Leverage phone communication early in process
  • Provide specific Procurement and Engineering contacts
  • Provide feedback
    • Communicate timeline and process changes
    • Let suppliers know if they have been eliminated from consideration along the way
    • Let them know why they were eliminated.
  1. Consider shortening payment terms and offering financing to minimise your risk and ensure your suppliers have sufficient working capital.
  • Create a special program with reasonable payment terms for SMBs
  • Consider adopting a Supply Chain Finance Solution (reverse factoring).

“We’ve become very efficient at communicating in the 21st century”, says Edwards. “But at the end of the day, decisions are made when people connect with each other. That’s why I can’t stress enough the importance of humanising the procurement process if you want to connect with SMBs.”

ED EDWARDSEd Edwards enjoys educating procurement and engineering professionals on how to use THOMASNET.com’s Supplier Discovery and Product Sourcing platform to streamline and improve their work. As part of this mission, he provides customized training to organizations’ engineering and sourcing teams at their offices and online. Ed and his colleagues work together to listen to the challenges facing buyers, and help them address those issues as well as new opportunities.

THOMASNET.com exists specifically to help you find, evaluate, compare and contact suppliers for what you need, where and when you need it. Access 700,000+ North American suppliers in 67,000+ categories – create your free user account today.

*Update: Check out THOMASNET.com’s new eBook The ABC’s Of Making The Shortlist, written to help you shore up any shortcomings that may prevent you from making buyers’ shortlists and put you in position to win more business.

Buying a better future – Procurement’s sustainability leaders recognised

Once seen as a ‘niche’ part of the profession, sustainable purchasing is fast moving into the mainstream. The misbelief that sustainable solutions cost more is quickly giving way as businesses recognise that competitive advantage lies in developing innovative, sustainable supply chains.

Evidence of this came this week with the Sustainable Purchasing Leadership Council (SPLC) recognising 12 organisations and one individual who are using their purchasing power to advance the long term health and vitality of society, economies, and the planet.

Winners were recognised across a range of sustainable purchasing initiatives, including cooperative buying contracts for green cleaning products, a week-long zero waste initiative at the Phoenix PGA Open and supplier incubator programs designed at improving environmental performance.

Background on some of the award winners includes:

Leadership Award for Overall Sustainable Purchasing Program (SPLC’s highest honour), presented to The District of Columbia for having put in place a comprehensive sustainable purchasing program that exemplifies the qualities defined in SPLC’s Principles for Leadership in Sustainable Purchasing. DC conducted extensive market research and stakeholder engagement to develop sustainable purchasing guidance and specifications for more than 100 priority products. Hundreds of employees have been trained on the guidance, which DC shares publicly.

Leadership Award for a Special Sustainable Purchasing Initiative, presented to The Commonwealth of Massachusetts and the Responsible Purchasing Network for leading the establishment of a cooperative contract through which agencies in multiple states can now buy independently certified green cleaning products at favourable pricing and with specialised training and outreach.

Leadership Award for Public Interest Advocacy, presented jointly to International Campaign for Responsible Technology and the GoodElectronics Network for organizing the “The Challenge to the Global Electronics Industry”, which has been endorsed by more than 200 organizations and individuals in 40 countries. The Challenge calls on the global electronics industry to respect human rights, workers’ rights, and community rights, including the right to a safe and healthy workplace, and to healthy communities and a safe environment.

This award was also presented to the Initiative for Responsible Mining Assurance for bringing together a coalition of businesses purchasing minerals and metals, mining companies, NGOs, affected communities, and trade unions in order to promote a world where the mining industry respects the human rights and aspirations of neighbouring communities, provides safe, healthy and supportive workplaces, minimises harm to the environment, and leaves positive legacies. Through the many years of collaboration, IRMA has developed the Standard for Responsible Mining, which is currently being piloted.

Leadership Award for Purchasing Innovation
Two organisations were recognised for leveraging sustainability to find and promote innovation: King County (Seattle, WA) for purchasing battery-electric busses for its Metro Transit fleet and documenting significant cost savings and environmental benefits associated with this new technology; and Philips Corporation for innovative procurements that have enabled the company to achieve carbon neutrality in its North American operations while saving money. The Philips’ Procurement and Sustainability groups have collaborated on energy efficiency, onsite renewables, renewable energy certificates, and long-term Power Purchase Agreements for wind power.

Sam Hummel, Director of Outreach and Operations for SPLC, says that the breadth of award categories demonstrates that sustainable procurement is about more than just buying green. “We are talking about human rights, ethical conduct and supplier diversity”, says Hummel. “Sustainable procurement is a holistic approach.”

In other news:

China mandates renewable energy procurement across 11 provinces

  • China’s National Development and Reform Commission has forced grid companies to buy enough renewable power to enable wind farms to operate at least 1800 hours per year, and solar farms to be utilised at least 1300 hours per year.
  • The mandatory procurement is applicable across 11 provinces, including Xianjing and Gansu.
  • Solar capability in China has increased seven-fold and wind has almost doubled since 2012, with China aiming to generate 15% of its power from renewable and nuclear energy by 2020.

Read more at http://www.bloomberg.com/news/articles/2016-06-01/china-s-order-for-green-power-purchases-lifts-wind-solar-shares

World’s longest – and deepest – rail tunnel opens in Switzerland promising to transform Supply & Logistics in the region

  • The Gotthard rail link has taken 20 years to build, cost more than $12bn (£8.2bn), and is tipped to revolutionise Europe’s freight transport.
  • At 57.1km in length, 4,00,000 cubic metres of concrete were used to create the tunnel, employing 2600 people.
  • Its maximum freight amount is 377,000 tonnes per day, the equivalent of 15,080 shipping containers.

Read more at http://www.bbc.co.uk/news/world-europe-36416506

Human Rights Watch calls for binding global convention on supply chains

  • HRW has released a report calling for governments to effectively regulate business activity to protect human rights in supply chains.
  • The report highlights abuses including child labour, labour rights, environmental damage, and lack of safety.
  • Juliane Kippenberg, Children’s Rights Director at HRW, said. “It’s clear that a binding standard on human rights in supply chains globally is needed to ensure that businesses live up to their human rights responsibilities.”

Read more: http://www.cips.org/en/supply-management/news/2016/may/binding-international-convention-is-required-to-protect-human-rights-in-supply-chains/

Autonomous taxi startup nuTonomy raises $16 million in funding to compete with Uber

  • Autonomous taxi startup nuTonomy hopes to bring self-driving taxis to the road by 2018.
  • The company counts the government of Singapore as one of its main partners. It runs a fleet of R&D vehicles in Singapore and is the first private company approved to test on public roads.
  • The startup is promising to develop the whole suite for driverless taxis, from autonomous navigation software (nuCore), fleet routing and management, remote vehicle teleoperation, and smartphone-based ride requesting.
  • The firm uses retrofitted Mitsubishi iMiev electric cars and is expected to add Renault Zoe EVs in its autonomous cab service later this year.

Read more: http://futurism.com/a-new-uber-competitor-just-raised-16-million-in-funding-for-complete-autonomous-taxis/

Connecting the Dots: 5 Key Learnings from Interviewing Procurement Thought Leaders

How can we elevate the role of procurement? What are the key lessons we need to be learning from the profession’s thought leaders?

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I love working in procurement! From my first day as a Junior Buyer I got the bug and never looked back! However, our profession is now at the crossroads of profound change.

Never before has the value that we can bring been needed more by our employers, as they seek to become more agile and rely more on their supply base. Yet we run the risk of irrelevancy if we do not adapt as the world around us changes.

It was with this in mind that I founded the Art of Procurement podcast last November. I interview thought leaders every Tuesday so that we can all benefit from their experience and perspectives as we seek to collectively elevate the role of our profession.

I want to share five key themes, or learnings, that I have taken from the first 50 episodes: 

  1. Alignment holds the key to our relevancy

Alignment differentiates the haves and have nots in procurement.  Yet, too often, we operate in a silo. It starts with the way our performance is measured. We are measured on a metric – cost savings – that is not the primary objective of our leaders and our internal clients.

We then look at a stakeholder as an opportunity for us to achieve our objectives, rather than help them achieve theirs. Every guest that I talked to agrees: to become or remain relevant, we have to be aligned with the objectives of our executives, and focus on helping our stakeholders excel in whatever it is that they do to contribute to our organisation’s value proposition.

  1. A two-tier procurement model is imminent

This is already occurring. Every activity that is not a core competency, that materially impacts our ability to bring competitive advantage through procurement, will go away. Some of it will be outsourced, but a lot of it will ultimately be automated out altogether.

A point that interviewees often stated, is that with this shift will also come a change in what we actually view as strategic. There will be no sacred cows.

  1. The value of the traditional skill set is diminishing

The executives that I talked to believe it will be our ability to bring a commercial mindset to our stakeholders, to influence and facilitate their use of external partners, to help our businesses build and retain a competitive advantage in our marketplaces, that will define our value in the future.

The new procurement skills most often cited are business acumen, relationship building, influencing and data analytics. CPOs tell me that it is easier to train procurement skills to an outsider who already has the soft skills needed, than vice versa. We need to step up or face becoming redundant!

  1. Collaboration is a competitive advantage

Is collaboration the latest procurement buzzword? The thought leaders I don’t believe so. In a world where third party spend is representing a larger percentage of revenue than ever before, an organisation’s success is becoming more and more dependent upon their relationships with their most critical suppliers.

The likelihood is that competitors in any market rely on many of the same suppliers to supply the products and services that materially impact their success. Competitive advantage will be gained by those who are able to foster true, two-way, collaborative relationships with those partners – where the sum of the relationship is greater than the parts. If you do not achieve this, your competitor will! 

  1. Change must come from within

Too often we lament the fact that we don’t have a seat at the big table. As thought leaders repeatedly told me, the seat is there, we just have to take it. Members of the C-suite at most companies do not understand what we are capable of, and so we will never make progress if we wait for an invite.

We need to have courage to demonstrate the value that we know we can deliver in procurement if we focus on the right things – and change the conversation around how that value is defined and measured.

Doing so will make our desire to become the trusted business partner a reality across all of the organisations within which we work, rather than the isolated few. 

Philip Ideson is a long time procurement practitioner, leader and service provider, who hosts the Art of Procurement podcast. You can listen to the show here, or subscribe via your favourite podcast app.