Category Archives: Procurement News

Did the CFO set Procurement up for Failure in Marketing?

The news last year that Pepsico had disbanded its Marketing Procurement function has been met with mixed reactions.

This article has been reproduced with kind permission from Darren Woolley, Founder & Global CEO of TrinityP3 Marketing Consultants.

The ANA was quick to explain that this was not evidence of the failure of Procurement in marketing, which they said from their polling “was here to stay”. Likewise the WFA said that the Pepsico move was evidence of the need for a more responsive and customer centric focus to their strategy.

And while I do not believe this is the end, it does concern me that in the past 15 years there are a number of examples which suggest procurement has often been set up for failure when it comes to marketing. And I believe the person responsible is usually the Chief Financial Officer. The CFO is, after all, responsible for the financial management of any organisation, and is often the C-suite executive the procurement team report to.

Not the first marketing procurement function to disappear

While the Pepsico decision is the most high profile example of a marketing procurement function disappearing, it is not the first, and likely not to be the last. During 2007, we were working with a procurement team of a food company, who were recruiting to build a specialist marketing procurement function within procurement.

The team of three were very successful in the first year of engaging with marketing and identifying a number of major projects that resulted in significant savings including packaging design and print, media and agency fees.

In the second year, the team delivered only moderate savings as their focus shifted to process optimisation and risk mitigation as further cost cutting alone was agreed to be potentially detrimental to marketing effectiveness. In the third year they were disbanded. The reason given was the projected savings did not justify the cost of maintaining the procurement team.

The short termism of a savings focus strategy

I remember one of our procurement clients providing me with their contract that they were intending to use with the successful agency of the tender they were managing. They asked us to review the contract to see if it was suitable.

I noticed that there was a clause that the agency was responsible for identifying and delivering a 5 per cent improvement in efficiency each year of the contract with a corresponding reduction in fees and costs.

When I bought this to their attention and the fact that the efficiency of the process depended on the brand team as well, considering it was a co-creation process, they looked quizzical. They explained that this was a fairly standard manufacturing clause and wasn’t the agency manufacturing advertising?

In our discussion I was able to highlight where this metaphor did not hold up to interrogation. If you consider it to be a manufacturing process, then it is one where the product goes through iterations of design until the final product design is approved. Then a prototype is produced which again goes through iterations of approval before the project is delivered. Then the whole slate is wiped clean and the process starts again from scratch.

Ultimately, while I made the point well, it failed, as the 5 per cent reduction was already budgeted by finance to be delivered no matter if the agency was able to deliver it or not.

Is there no value in performance management?

We have found that where procurement is focused on delivering cost reduction, either to justify their existence and ensure their survival, or to deliver the objectives of the CFO, there is an underlying belief that the marketing function is a cost and not an investment.

But the fact is that technology, and especially digital marketing, means there are increasing ways to be able to track and manage the performance of the marketing plan against marketing and business objectives.

Giving procurement a broader commercial focus, and not just a cost reduction focus, would position the function as the ideal commercial partner in this accountable marketing world. The procurement team could be aligned to marketing, to manage the measurement and optimisation of the marketing function, to improve performance and return on marketing investment.

Who is focusing on risk management and contract compliance?

Technology has had another impact on marketing and that is an increase in workload. This comes as marketers are often increasing the number of specialist agencies and suppliers to implement the marketing plan across and increasing number of channels.

With a growing roster of suppliers, it means that the marketers also have an increased burden in managing the agencies and their contracts. Compounding this is the increased burden of managing issues such as intellectual property issues, consumer legislation compliance and the like.

Again, procurement as a commercial partner is ideally placed to assist marketing manage these issues to minimise risk by ensuring compliance to contracts and government legislation. It means that instead of just counting savings, there is an opportunity to account for the avoided costs that would arise through poor or non-existent compliance management.

Before anyone says it is not a big issue, most commercial lawyers will tell you that these issues are on the rise, it is just that the advertisers involved will pay significant sums and take extraordinary measures to ensure the issue does not become public.

The role of Math Men and Mad Men in marketing today?

There has been a lot of discussion about the rise of the Math Men, replacing the traditional Mad Men (and Women of course) of advertising. This conversation usually relates to rise of data scientists and econometric modelling. But in fact there is a role for a more commercially focused function within marketing.

Procurement is usually positioned within organisations as the sourcing function, but increasingly procurement has a broader role of identifying commercial opportunities to improve the financial performance of the organisation, while identifying and mitigating risk and ensuring compliance.

That is until it comes to marketing, where it appears that the CFO agenda is to use procurement simply as a razor gang on the marketer’s budget. The problem is this focus on costs is, as we have shown, is a short term strategy and overlooks the wider opportunity of having procurement act as the analytical and commercially focus partner to the marketing team. In a way they become part of the Math Men within marketing to complement the Mad Men.

Procurement is a commercial function not simply a financial one

The increasing complexity of marketing and the impact of technology has already seen the rise in the need for a more analytical approach. Rather than the CFO using procurement as a razor gang on marketing, beyond the first cut to remove obvious excesses, the role should be to assist marketing in managing and measuring performance.

After all, who better to work in partnership with marketing and help report the effectiveness of the marketing investment to the CFO and the C-suite than the procurement team? The best procurement professionals are commercially aware and analytical and able to work with their marketing colleagues to provide the increased level of analysis required in this digital and data driven world.

Ultimately it achieves the longer-term goals of any business in driving profit as no-one is able to slash their cost to growth.

Cost Breakdowns – As Much About What’s Important As About Price

“As I hurtled through space, one thought kept crossing my mind – every part of this rocket was supplied by the lowest bidder.” John Glenn, NASA

SLS-launch-at-Launch-Complex-39B-at-Kennedy-Space-Center-in-Florida-NASA-image-posted-on-AmericaSpace

Time was that the old-school view of procurement, as illustrated above, prevailed. Of course, since then, times have changed, and procurement has emerged after the Lopez era to prioritise quality alongside purchase price.

However, companies continue to hold purchase price as a primary driver in making decisions, with other factors remaining as things that need to be taken into consideration somewhere along the way.

Procurement organisations following this track are likely to find themselves under more and more pressure in the coming years without really understanding why. And it is because the concept of cost itself is changing – and nowhere is this clearer than in the cost breakdown.

Changing the Meaning of Cost

There are two things changing what cost means. First of all, procurement is expected more and more to act strategically. In addition to all the obvious costs on top of purchase price: installation, operating, maintenance, and disposal costs, procurement is expected to think several steps down the line, or at least should be.

As well as looking at short-term cost, it is important to have an idea of future prices, and therefore the behaviour of the cost drivers that might influence this. Not all purchasing is a simple transaction – suppliers need to be developed, strategies need to be formed.

In structuring cost breakdowns, procurement organisations have to ask two key questions – am I making the best economic decision today? Is my decision helping my company to gain a competitive advantage tomorrow?

Secondly, the development of information technology and increasingly globalised supply chains present a wide range of risks as well as opportunities. This all has an effect on what we mean by cost. Globalisation is opening supply chains up to new risk challenges: the unknown quantity of a new supplier from abroad, disruptions from natural disasters and political instability, differing local conditions like lead times, and growing awareness of lacking environmental and labor standards outside of the EU.

The same global media network that can feed vital information to procurement organisations also opens corporations up to risk: specifically brand damage when an environmental or labor scandal goes viral, with all the costs of revenue loss and re-call expense that come with it. Global brands like Apple and Adidas have recently become much more active on this front in China.

Coupled with incoming legal requirements in Europe, such as the UK Modern Slavery Act, procurement organisations have to factor much more into their cost breakdowns. It’s no wonder that people talk about procurement delivering value.

Procurement Value

This is a colossal amount of information to process. But procurement value is not some nebulous concept floating over all of this. It’s simply a matter of defining what is important for your company – what is going to produce value. Maybe it’s making productivity faster or better, maybe it’s reducing risk in quality or in logistics.

You can only identify this by working with your internal customers, for example, engineering and manufacturing, and working cross-departmentally. Procurement professionals will also need to be attuned to how values change across an organisation. For example, as public awareness of supply chain ethical scandals grows, procurement will be expected to value Corporate Social Responsibility as much as other departments.

Crucially, these values can define what gets prioritised in the cost breakdown and help you navigate the jungle of information out there.

This is also where technology can play a massive role. With an expanding market in procurement technology, especially in Software as a Service (SaaS) and big data analytics, there are great opportunities to bring together the data you need in one place, rent extra information from business intelligence suppliers who can turn qualitative information into figures, and understand it all in a way that makes sense to you.

As the nature of cost changes, procurement organisations need cost breakdowns that do justice to this. It follows that they need to select the right software to support new cost breakdowns.

One thing is for sure: the day of the Excel spreadsheet cost breakdown is over.

Charlotte Spencer-Smith works for POOL4TOOL, based in Vienna, Austria.

Buy vs. Lease – The Sharing Economy and Procurement

It was tarnished as a fad, or worse still, a hipster trend. But the ‘sharing’ or ‘collaborative economy’ is here to stay. This new purchasing practice is changing the way we consume products and services in our daily life.

Batshevs/Shutterstock.com

There is hardly an article about this new economy that doesn’t discuss the way that companies like AirBnB and UBER are disrupting consumer markets.

The number of Americans who have taken part in the sharing economy has grown by 20 per cent in the last 18 months. You would be hard pushed to name another sector that has seen a similar increase.

What is the Sharing Economy?

For the uninformed, the sharing or collaborative economy refers to the peer-to-peer sharing of goods and services (normally in place of purchasing outright), and is generally facilitated through a community-based online platform.

As is highlighted above, the sharing economy has gained a lot of traction in consumer markets such as accommodation (AirBnB), transport and ride-sharing platforms (UBER), and business funding (KickStarter). There are many, many more examples.

What is less clear is how or, perhaps more importantly, when these new purchasing practices might find their way into common procurement practice. Smaller organisations, or ones with less formal procurement processes, have allowed the use of businesses like AirBnB for business travel, although this is far from the norm.

Procurement has been doing it for years

But it poses an interesting question – is the sharing economy really any different from the age-old procurement question of ‘buy vs. lease’?

‘Buy vs. Lease’ is one of the key decisions frequently made by procurement, irrespective of the industry in question. For example, when an outlay was required for a new asset, say vehicles or fleet, the ‘Buy vs. Lease’ question would be asked (and usually answered by senior decision makers) as to whether the goods should be bought, or merely leased as required, leaving the maintenance and up-keep to someone else.

Building Furniture in Berlin

This cross over between big business procurement and the small-scale personal sharing economy was highlighted brilliantly on a recent trip one of the Procurious community made to Berlin (and was kind enough to share with us!).

Friends of theirs had recently returned to Germany after seven years living in Sydney, and had moved into a new flat. The flat came completely unfurnished (no curtains, no lights, no kitchen cupboards), so significant furniture construction was required before they could fully move in. Some of the new furniture was ubiquitous IKEA gear, and thus required nothing more than an Allen key and a lot of patience to construct.

However, other items required more work and, importantly, more tools. This included an orbital sander and other wood working tools to alter a chest of drawers so that it would fit into a small space inside the new flat.

Ordinarily this would have required a trip to a hardware store and a large outlay on new equipment that would subsequently lie redundant for years to come. But in Berlin, and many other cities around the world, there is app called peerby that can help. The app allows individuals to connect with other people locally and lease/borrow items they have (at a small cost), rather than buying their own.

Cost Considerations

Interestingly, the considerations for Buy vs. Lease are the same whether you are constructing furniture in Berlin or buying plant equipment in for a mining company in Western Australia. In order to make a good decision, buyers should consider how often they’ll use the product, how core it is to their operations (if you plan on doing a lot of woodwork, maybe its worth buying the orbital sander), the cost per use, and when the product will become obsolete.

It seems the sharing economy has merely brought an old procurement process (Buy vs. Lease) to the consumer market, meaning that purchasing practices that previously could only be leveraged by big business are now available to recreational (perhaps that’s the wrong word) furniture builders in Berlin.

It remains to be seen whether or not these practices will cycle back round again in the procurement world, but under the guise of the sharing economy.

Eternal Flame

The New Year brought the tragic news of the passing of David Bowie. The term genius is often attributed to artists, though not all deserve it. David Bowie was a true genius and more.

Completely unique, forever surprising with a rare ability at multiple reinvention throughout his career. Bowie was responsible for some of the greatest music of the last 50 years and will continue to inspire artists and fans for the next 50.

His death has, of course, prompted a resurgence in sales of his back catalogue – to be re-discovered by new generations who weren’t previously familiar with his work but feel his influence through contemporary artists. Bowie was also a master of collaboration – one of my favourites being “Fame” co-written with John Lennon & Carlos Alomar. Here’s a 1975 clip of Bowie performing “Fame” live, in which his styling looks strangely modern.

Why is this relevant to Marketing?

There’s a common misconception among some marketers that the death of an artist makes their work freely available for use in brand campaigns. This is, of course, wholly incorrect and ignores the complex rules surrounding life of copyright in songs and sound recordings. This becomes more complicated for work where the artist and songwriter is the same person – such as David Bowie.

What’s Life Of Copyright?

As I explain in my new book Music Rights Without Fights, both songs and sound recordings have extensive periods of copyright protection during which time the rights owners have exclusive control of the work. This control includes the ability to grant (or withhold) licences for the work to be used in association with brand marketing campaigns and charge an appropriate licence fee.

What’s The Length of Life Of Copyright?

Here’s where it gets complicated – This varies by market and differs between songs and recordings. Taking the European Union (“EU”) as an example, Life of Copyright is:

For Songs & Compositions:

70 years from the end of the year in which the songwriter or composer died. Where the work has multiple creators, it’s 70 years from the year in which the last creator died.

For Sound Recordings:

70 years from the end of the year in which the sound recording was first commercially released.

What’s The Term For Music Beyond Life Of Copyright?

The common terms are “Out Of Copyright” or “Public Domain”.

So, I Can Use Anything From 1945 And Before For Free, Right?

No, wrong. It’s not that simple.

For songs, in theory, within the EU, any song written by a songwriter who died in 1945 or before is out of copyright – and hence could be used by a brand in an advertising campaign without payment of a licence fee. However, in practice copyright law allows new arrangements of out-of-copyright songs to be registered as new in-copyright works.

If your brand or agency commissions a new arrangement (or sources an existing recording) of an out of copyright song, chances are, the arrangement will have been registered as a new work which requires the usual licensing process and applicable fee.

For sound recordings, there’s a legal view that a new copyright exists in remastered versions of old recordings. If, for example, you have a CD version of a 1945 recording, the record company that remastered and released it could claim copyright in that CD recording. The only safe option is to source an original shellac 78 rpm disc from the period.

A Word Of Warning

The above guidance, whilst always subject to detailed due diligence, roughly applies to campaigns limited to EU states. However, where campaigns are made available online, other market jurisdictions come into play where rules differ.

For example, life of copyright in sound recordings in the USA is 95 years – so, only sound recordings commercially released in 1920 or before would be public domain. Likewise, life of copyright in songs varies across regions so non-geo locked online campaigns have high risks attached for those who rely on public domain status to avoid licence fees.

What Does This Mean For Procurement?

If your marketing colleagues say they’re using out of copyright music in a brand campaign, and therefore have no music line item in the production budget, alarm bells should ring. It’s rarely that simple and the cost of getting it wrong through copyright infringement far exceeds the payment of licence fees handled in the correct manner.

What Can I Do To Be Safe?

Here’s a quick check list once your marketing colleagues have told you which music they plan to use:

For Songs – you need clarity via detailed due diligence by a qualified expert on:

  • Death dates of songwriter / composer / lyricist
  • Identity of previous copyright owner (if work is assumed to be public domain)
  • Summary of markets in which the campaign is due to run
  • Cross-check against copyright legislation in those markets
  • Copyrights status of new or existing arrangement of the work intended for use

For Recordings – you need clarity via detailed due diligence by a qualified expert on:

  • Date of first commercial release in the markets in which campaign will run
  • Cross-check against copyright legislation in those markets
  • Identity of previous copyright owner (if recording is assumed to be public domain)
  • Availability of original shellac 78rpm disc that pre-dates copyright period

Want To Know More? Enter Competition To Win Free Book!

If you’d like to know more about music rights and how to license them with controlled cost and risk, we’re giving away 10 free copies of my book Music Rights Without Fights to Procurious members.

To be in with a chance of winning, follow the link below and answer all the questions there. In the event of there being more than 10 entrants who answer the first 5 questions correctly, we’ll use our fiendishly difficult tie break question to help select the winners.

The competition closes at 17:00 (GMT) on Friday the 5th of February, with winners announced the following week. You must be a member of Procurious to be eligible for the competition!

Full competition Terms and Conditions, can be found here: Music Rights Without Fights – Competition T&Cs.

ENTER THE ‘MUSIC RIGHTS WITHOUT FIGHTS’ COMPETITION

Good luck!

Think Quality Over Price When Purchasing Corporate Uniforms

Price isn’t the most important element of a uniform negotiation, according to a disruptor in the Australian uniform industry. 

An award-winning Australian uniform market disrupter has urged procurement professionals to think twice when considering haggling on price for the company’s corporate attire.

Melbourne’s modern uniform manufacturer, Cargo Crew, reveals that while procurement is far more than just being about price these days, some negotiations start and finish with price and deadline requirements. Other procurement professionals appear to be more progressive in their approach, treating the transaction as a partnership rather than a mere supplier by looking for ways to cement a strong relationship from the outset.

Choosing Quality

“We’re dealing with procurement professionals in increasing numbers, and want to help them understand the benefits of a quality uniform, which has the potential to transform the entire image of an organisation overnight,” client service director, Narelle Craig, says.

“You should never under-estimate the importance of the corporate uniform when you’re next in the market for an upgrade.

“When it comes to uniforms, price should not be the most important factor. We use audited factories to manufacture our product line, have ethical certifications not to mention using the highest quality materials and a client care team, and all of that comes at a cost. But it delivers huge value to an organisation, and removes a lot of the headaches felt by procurement professionals who have countless things to consider when ordering a uniform,” Craig says.

By choosing a quality uniform, procurement professionals are saving their company money in the long term. This is because they don’t have to replace their uniforms as often, saving the resources to coordinate re-ordering uniforms, and lessens the number of staff complaints that their uniform isn’t wearing well.

‘Fashion-Forward’ Uniforms

Cargo Crew was launched in 2002 by Craig’s sister, Felicity Rodgers, who as a fashion designer noticed a gap in the market for fashion-forward uniforms.

The business has flourished since launching its first range of Denim uniforms in 2012. Cargo Crew has dressed growing numbers of corporate Australian and New Zealand organisations including staff at Renault, Freedom Australia, ME (the bank), Dulux Group and SkyBus.

Comfort, the breathability of the fabric, attention to details such as longer length tees and shirts so staff can reach comfortably in the line of duty is paramount, Rodgers says.

“A uniform completes an organisation’s corporate story and reflect what the business stands for. Staff need to feel really good about what they wear, and again, that comes at a cost. Procurement people need to keep in mind the style, look and image they want to reflect in their brand,” Rodgers says.

“We set out to create a uniform brand that not only filled a gap in the market, but also excited and engaged our audience.”

The business is also investing heavily in operations under the watchful eye of Paul Rodgers (Felicity’s husband), who is focused on business efficiencies such as warehousing space, online ordering platforms, reporting and client management.

Cargo Crew Team

The Cargo Crew Lead Team (l-r): Paul Rodgers, Felicity Rodgers, Narelle Craig

Direct to Client Sales

Cargo Crew differs from other uniform suppliers in that it cuts out the middle man, selling a retail-quality product direct to the client rather than to a wholesaler to on-sell.

The business won the 2015 Telstra Australian Small Business of the Year Award for developing a product range with flair usually lacking in the wardrobes of corporate Australia. The Telstra Award comes on the back of 44 per cent overall sales uplift year-on-year and a growing number of corporates interested in their product, which boasts 60 variations.

In the past six months, the company’s stock holding size has grown six times. The world is sitting up and taking notice, too, with interest and orders coming from Italy, USA, UK, China, Hong Kong, Singapore, Japan, Sweden, France and more.

The emphasis on style has seen the Melbourne-based business with an online store transform the modern uniform since the company launched 14 years ago. Cargo Crew now employs 18 staff.

“We’ve noticed both small and big competing businesses try to mimic our style, brand and product range, which is actually a big compliment, but of course brings its own set of challenges to the table that we’ve had to deal with.”

Cargo Crew has increased the partnerships it has, expanded its range, held a pop-up event in Sydney and even started its own publication, The Crew Review. It also has plans under way to develop a new division of the business for corporate clients, soon to be announced.

Rethinking Procurement Metrics

Last year, I attended the ProcureCon Marketing event in London. The event was focused on procurement marketing and digital services and attended by procurement professionals from across industries.

Freedomz/Shutterstock.com

Over the course of the event, I attended a number of sessions and it was interesting to hear that pain points in procurement are very consistent across industries. Much of the debate during one of the sessions focused on the story of PepsiCo eliminating their procurement marketing department to give marketers more flexibility and faster turnaround time.

I really don’t believe this will be a trend among corporations, but it has made me think about the importance of raising procurement and sourcing’s supplier knowledge, efficiency and internal partnership. Is procurement seen as a valuable partner or a roadblock?

Procurement Building Trust

The answer depends on the company. Factors such as senior leadership support, employee perception or experience with procurement and how successfully procurement has built internal relationships and value lend to valuable positioning for procurement and sourcing.  For some, it is a steep hill to climb.

What we heard at ProcureCon was that savings metrics are important but they need to be balanced with other important metrics that are more aligned with internal business partners’ goals. Focusing on helping them meet their objectives can go a long way in building trust, partnership and good reviews.

Enabling sourcing and procurement to be more efficient, proactive and knowledgeable is critical. Often under-resourced (we also heard that from all industries), innovative tools that elevate current workflow and processes are essential. Some organisations have built them in-house, but their people still struggle or spend too much time searching and gathering good market intelligence.

Giving procurement access to better and faster information is a must and will enable procurement to keep up with fast-moving functions such as media, marketing and digital. It was good news for our team and validated once again that tealbook fills a much needed gap and supports a new wave of strategic sourcing professionals that are looking ahead.

The Innovation Debate

The topic of innovation was also pretty hot. Some of the roundtable discussions I attended debated the meaning of innovation. Innovation doesn’t always have to come in the form of catalyst ideas. Small changes and innovative thinking can also add tremendous value to day–to- day process and relationship building.

When it comes to disruptive innovative ideas, I heard that companies are not always walking the talk. They want employees to be innovative, but ideas are not often implemented. The main roadblocks come from fear of failure, lack of budget or efforts/time involved championing the idea internally. In our group, we explored ways to overcome these barriers and enable employees and companies to foster innovative thinking. I liked the following ideas:

  1. Putting a budget aside yearly to champion two or three innovative ideas from procurement employees.
  2. Build a culture that allows failure, to foster innovative thinking without fear.
  3. Allow for one or two pilot programs per year to assess interest and adoption.
  4. Set metrics based on the outcome from the above.

I welcome your own ideas about how to enable innovation within your company. How would you like to be measured on innovation? What can be done differently to allow procurement to be forward thinkers and enablers while ensuring that internal business partners immediate needs are quickly addressed?

Stephany is the Founder of tealbook, an online company helping procurement and supply chain professionals gather comprehensive, credible and up-to-date supplier information in order to assist with due diligence processes. For more information, visit the tealbook website.

3 Ideas To Support You In Developing A ‘Circular’ Supplier Relationship

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. It is time to act.

There is no such thing as ‘business as usual’, and collaboration with suppliers is key in the transition to a better and more circular world. Suppliers should be involved in the ‘circular innovation lifecycle’ – from initial idea all the way to manufacturing and continuous improvement.

Supplier relationship management is a key tool. The question is, what can you do in order to view suppliers as actual or potential partners, who can help you “stay ahead of the curve” in terms of going more circular?

The question is also how you can expand the scope of interaction with them beyond purchasing and fulfilment transactions and tap into their expertise and capabilities to drive innovation, enter new markets, improve quality and exchange insights about marketplace trends?

Idea #1: Understand Even More About The Relationship

It is key for the supplier to understand your business in detail, as well as for the buyer to understand the supplier’s business too. You need to understand the cost and value of their entire supply chain. Without a thorough understanding of all costs, from raw materials through to the end product or service, and the value provided by each supplier in the process, a supplier relationship cannot be, first, evaluated and, second, further developed.

Remember that supplier strategies go two ways. Most companies focus on what suppliers can do for them rather than on what they can do with the supplier to lower costs. A true partnership leverages the total production cost – and knowledge to both parties’ advantage.

Also I suggest that if you work with LCA (Life Cycle Assessments) that you share them with your suppliers, so they can understand where your critical areas are and where they can help you improve or at least generate ideas for improvement. Perhaps it does not environmentally or economically make sense to create a closed loop, just as an example. Perhaps a dialogue with the supplier and a look at the LCA will show that.

Idea #2: Share Meaningful And Critical Information

Share critical information as early as possible. Information is the grease that makes an integrated supply chain work. Sharing information constantly, with appropriate security and confidentiality, is critical for successfully managing a supplier relationship. Make relationship meetings meaningful. Relationship meetings should focus on critical issues, areas for supplier improvement and discussions on how the buying organisation can improve the relationship.

Idea #3: Define Clear Objectives For Your (Circular) Relationship

If you decide to use SRM as part of your toolbox then it is key to define objectives clearly and specifically. At the same time acknowledging that many of the benefits of SRM may be hard to track and measure with precision.

As a matter of fact evidence also suggests, that suppliers that are engaged through SRM programmes are more willing to put in effort and resources above and beyond what is contracted. More than half of respondents in a recent survey conducted by State of Flux say that their key suppliers’ senior management team is more committed to their partnership as a result of their SRM activities, while the same proportion see improved account management as a result.

Other examples of additional commitment from suppliers include: proactive ideas for continuous improvement (46 per cent); collaborative problem-solving (45 per cent); and priority access to the best people and resources (21 per cent). All of these can help the business stay ahead of the curve and implement more circular business models.

You can download the latest research from State of Flux here

Why You Should Consider Carefully Before Hiring Temporary Labour

Examining your demand costs for temporary labour may make you think twice about bringing in extra help during busy periods. Jon Milton, Business Development Director at Comensura, explains.

The use of temporary labour to bolster a permanent workforce when needed is a no brainer, but have you ever stopped to examine the bigger picture? Have you ever considered whether you really need that extra pair of hands, or if there could be an alternative option? Or, have you thought about the objectives the temporary assignment will deliver or how to make sure this spend comes in on budget?

Demand for temporary labour can be caused by a multitude of factors: the need for extra support during particularly busy periods; short-term planning creating the need for a ‘quick fix’ or ‘firefighting’ solutions; or even temporary workers remaining on assignment even after the original reason for their hire has now gone.

Know Your Demand Costs

Before committing to hiring temporary staff it’s important to consider your demand costs. These costs are the direct result of hiring managers from within your business ordering temporary workers without first justifying the need for the worker, or not fully assessing alternative approaches. In many cases, an understanding of demand costs may mean the full cost can be eliminated, which has the potential to deliver significant savings on temporary labour.

For most businesses, the realisation that demand for temporary labour exists is when the hiring manager asks their line manager to approve a temporary hire or when an internal request for a purchase order is made.

But the starting point for any business case evaluation should be to assess the need for non-permanent extra staff and if justified, how much the business is prepared to spend. It’s important to be clear from the outset and agree an approach to evaluating the internal demand for temporary workers rather than just reacting when requests are made.

Evaluation and Consideration

The process for evaluating the business case for temporary workers should take the following into consideration:

  • usage of temporary workers in different business units
  • the seasonal demands placed on the business unit and its capability to meet demand via its permanent employee headcount
  • the business unit’s workforce plans and how critical a flexible workforce is to deliver an efficient, lean operational performance
  • the complexities of your organisational structure and your approach to decision making, is it centralised or devolved?
  • your priorities as a business – for example, those that need to keep tight control of costs should centralise the approval and assessment of the business case

For those hiring managers and business units with a relatively low or infrequent demand for temporary labour, presenting an informal and individual business case will help ensure temporary labour assignments are appropriately planned, scheduled and authorised.

However, for those that regularly use a large number of temporary workers, it makes sense to create an annual business case for each temporary worker category. The plan should assess the historical usage patterns and expected future demands on the job categories so that the workforce can be appropriately planned, scheduled and authorised. For example, in a warehousing scenario there could be one business case for warehouse operatives and another for fork lift truck drivers.

Essentially, the business case for hiring any temporary workers should consider customer demand and the cost of temporary resources. Also, ask yourself what the measureable outcomes from the additional resources are and whether your business objectives will be met. And finally, consider other employment options, and if other projects or tasks can be put on hold to reprioritise resources.

What are the Key Procurement Trends for 2016?

Did you successfully predict the key procurement trends in 2015? Chances are good that you were able to pick out at least a couple of the major themes appearing in the news and industry reports. But what does the coming 12 months have in store for the profession? Ethics, sustainable procurement, relationship management, technology and social media – these were just a few of the topics highlighted by the Procurious community when asked this question in 2015. Sure enough, a number of these themes were prominent in news stories and organisational strategy last year.

Roll on 12 months and there is a fresh set of trends to keep up with in order to remain relevant. We’ve picked out a few that we think will be making headlines, prompting discussions and keeping organisations on their toes in 2016. 

Technology

  • Rise of the Cloud

Last year we spent a lot of time discussing the Internet of Things (IoT) and its growing impact on procurement. However, it’s clear that many procurement teams have yet to get to grips with the Cloud. However, procurement has a great opportunity to leverage Cloud software in a number of ways, including as part of supplier collaboration.

The Cloud will allow ordering to be streamlined, increase visibility across the supply chain and allows for changes to be made more easily, even when goods are in transit.

Del Monte has already taken this step by moving its supply chain data to the cloud. The company can now access a wealth of global data, create orders, place contracts with suppliers and collaborate with partners, all in real time. Thus far, it has led to a 56 per cent saving in customs broker costs, better visibility and a 26 per cent reduction in inventory due to better information on goods in transit.

  • Improvements in eProcurement

As technology advances, systems that have been around for a number of years will have to play catch-up. Spend management and eProcurement systems are just a couple of those platforms that are in need of a reboot (while taking into account that organisations still need to be more selective when choosing theirs).

Better technology will allow for faster purchasing activities, and eventually enable an experience more comparable to what we are used to as individuals when we shop online. This will, in turn, mean that rules are less likely to be bent to “get the job done”, maverick spending and policy breaches should decrease, and procurement can stop being seen as a roadblock.

People

  • Meeting the Needs of Millennials

In truth, this could have fallen into the Technology section, but it’s important from a people perspective too. Millennials have high expectations, sometimes unrealistic, as to how procurement could and should be done, particularly when it comes to technology. Businesses need to be up to date as far as technology and connectivity go in order to meet these expectations and retain their millennials, as well as deal with other millennials working in the supply chain.

Why is this a people issue? Because if you’re not doing this, someone else will be and the best millennial talent will get a job with them instead.

  • Meeting the Students

Organisations need to know where they are going to get the best people to fill their job roles, plus meet the rising expectations of the business. Universities and colleges are prime places to be doing this.

Work experience, apprenticeships, placements and sponsorship are all great options for organisations to attract current students and new graduates and school leavers. 2016 could be the right time for you to speak to the educational institutions near you and see what you and they can do together.

Risk 

  • Cyber Security in Contracts

Research suggests 78 per cent of organisations have experienced a data breach within the past two years. This goes beyond the high-profile examples of 2015, but puts a spotlight on the need to account for this risk as part of procurement contracts.

A lack clarity on who is responsible for the data within supply relationships, and how it can be stored securely, as well as plans for contingencies should a data breach happen, could leave both procurement and large parts of their supply chains exposed.

  • Supply Chain Transparency

Ok, so this isn’t necessarily a new procurement trend, but it’s one that’s going to get even more focus than in previous years. You just need to look at the new towards the end of 2015 (think Nestlé) to see stories of slave labour in supply chains.

From paddock to plate in restaurants and the food supply chain, to tracking clothes from the plant they were created from, there are a variety of areas that can and will be tracked.

Technological advancements (such as the Cloud), increasing mobile empowerment and increasing public scrutiny in this topic will certainly cause this to be close to the top of the vast majority of procurement departments’ risk agendas.

What do you think will be the key trends? If you have your own ideas, why not start a Discussion and share them with the rest of the community.

Mergers & Acquisitions in the Transportation Industry – A 2015 Retrospective

If you are already working in this sector, you do not need me to tell you there have been significant mergers and acquisitions in 2015. More are expected and you may be affected. The blog today reviews some of these events.

If you have not been following this sector, you will find recent financial details that are astounding and outstanding. Do not be deceived by recent lower annual growth figures in this industry when they are reported only in terms of percentages. This distorts the real growth, as the annual revenues in this sector are so large.

Company revenues, in many cases, are growing rapidly year on year. The sector reported revenues, globally, totalling $750 billion in 2014. Thanks also, without doubt, to the fact that eighty percent of Fortune 500 companies use some form of logistics and transportation provider.

But, why have there been so many recent mergers and acquisitions in the Transportation industry? Answer – consolidation is a must to stay competitive. The key word is scale. This is heard again and again when executives in this sector are interviewed.

Participants and Key Players

The participants are the firms who provide logistics services to customers for part or all of their supply chain management functions. These third party logistics (3PL) providers typically specialise in warehousing and transportation services, scaled to customer’s needs. Sometimes a service provider also offers value-added services, such as production or procurement of goods, and is a third-party supply chain management provider (3PSCM).

Many of their customers are reviewing their Supply Chain Roadmap to allow it to fit better to their business strategies. By contrast, the end game strategy that has led to some of the recent mergers has left some observers puzzled. But of no doubt is the importance of these changes, especially when one notes the size of these mergers, both in terms of geography and their financial size.

These have included for example, CMA CGM taking a 67% stake in the APL container group for S$3.4bn. The CMA vice-Chairman stated that the focus is on “scale”, adding that this is now “more critical than ever to capitalise on synergies and capture growth opportunities whenever they arise”.

Although more freight is being carried, global rates for freight have seen a decline, but sharp declines (40%) in costs of bunker fuel. So for CMA CGM they saw group net profit over 9 months approach $613m as opposed to $392m in the same period last year.

Sector Inertia

DSV Group (subject to UTi shareholders approval that is expected Q1 2016) will acquire US based UTi Worldwide Inc., who operate in 58 countries with 21,000 staff and have revenues of US$3.9 billion. Once again, ‘scale’ is the word used by the UTi Chairman.

However, there are now reports a rival bid may appear. DSV had stalled on the acquisition plan some time earlier when reports in the financial press caused a share price rise in UTi stock. The share price then fell following revised UTi profit forecasts.

Then there is Kintetsu World Express and their purchase of APL Logistics. Singapore NOL selling its APL Logistics division, making the transaction one of the largest in recent years. The state owned shipping line of Singapore will collect $1.2 billion from the sale.

This will give Kintetsu a much larger footprint. NOL were keen to point out that when calculating a purchase price based on a company’s financial results, the sale price obtained was well above the current market average for acquisitions in the sector. NOL sold both its logistics arm and shipping line business this year.

Further inertia in the sector was proved with announcements from FedEx confirming plans to acquire TNT Express for $5 billion. Confirmation is expected in the spring of 2016. This will make the combined company the second largest delivery service in Europe.

TNT shares rose 10 per cent when reports surfaced, saying a green light is expected from the EU antitrust regulators. A formal declaration is due by mid-January, although UPS continues to lobby against this acquisition. The firm tried to buy TNT three years ago but were stopped by the EU Commission, due to the estimated 30 per cent control they would be seen to have of the total market.

Why now?

It will not come as any surprise that mergers and acquisitions are seen as the vehicles of choice to build company size. But these logistics companies are themselves seen as targets, with potential, by private equity investment firms.

Changes in the global financial markets may have led to brakes on acquisition plans prior to 2014, until such time that target company share prices had become weaker, or rather, not seen as being over-priced. This, together with other factors, has meant that 2015 has been a bumper year for M&A.

As if to confirm the pace of announcements, Japan Post recently announced they would buy Toll Holdings of Australia for $5.07 billion. Toll has come a long way from its roots in 1888 in New South Wales, delivering coal!

 

3PL companies are being asked by many of their largest customers to supply more services, and indeed many want to and know they have to. Companies want to offer a wider range of services to make them the one and only provider of transportation services to these major customers. This objective makes a wider geographical footprint a must have, and this, along with recent private equity involvement and strategies, also explains the 2015 dynamism in the sector.

Acquisition provides an easier route to achieve many of these aims, albeit with potential staff repercussions that are seen in any industry. Most commentators agree that these changes will continue. Whether the financial benefits that result from an acquisition match the forecast is another topic, but by that time the seller is out of the equation.