Category Archives: Procurement News

Are You Sick Of Your CFO Asking ‘Where’s The Money?’

Where’s the money? – Marisa Menezes launches The Faculty’s Making it Stick research at the 2015 CIPS Australasia Conference.  

Marisa Menezes launches The Faculty’s Making it Stick research at the 2015 CIPS Australasia Conference.

Consider this – you’re a successful CPO with a world-class Procurement team that’s brilliant at negotiating great savings and other value. Six months ago you successfully identified and negotiated contractual benefits worth millions with a critically-important supplier – at the time, there were plenty of high-fives and back-slapping amongst the team as you signed the contract and handed it over to the business owners… but fast-forward six months to the end of the financial year, and your glowering CFO calls you into his or her office to ask those three dreaded words – where’s the money?

Marisa Menezes, GM of The Faculty Management Consultants, has made the assembled procurement professionals at CISPA 2015 very uncomfortable. She’s describing a nightmare situation that has kept many a CPO awake at night – millions of dollars in identified value won by procurement failing to make its way to the bottom line, a despairing CPO and a furious CFO. The potential consequences of poor benefits realisation are frightening – apart from the obvious anguish of seeing savings going down the drain, it damages the procurement function’s credibility. Strategically-vital supplier relationships also suffer, as maverick spend damages vendors’ margins and restricts the purchasing organisation’s ability to negotiate future contracts in good faith.

But it’s not all bad news – The Faculty has a solution for Making it Stick.

Earlier this year, The Faculty Roundtable commissioned an investigation into best-practice benefits realisation, and our researchers have conducted a series of interviews and data analysis to unearth the factors that prevent Procurement’s savings from hitting the bottom line. The results were boiled down to five key hurdles to Making savings Stick, namely:

  • A lack of enterprise-wide ownership and alignment with Procurement’s targets;
  • Silo-style working environments rather than true cross-functional collaboration,
  • Maverick spend and other non-compliance that undermines Procurement’s gains and damages supplier relationships
  • Unclear benefits definitions, measurements and validation processes that haven’t been agreed upon across the organisation, and
  • An immature cost-conscious culture that hamstrings CPO-level efforts to expand the value Procurement contributes to the organisation.

No wonder CPOs are having trouble sleeping at night – as much as 50 per cent of contracted savings are not making their way to the bottom line of Australia’s leading companies, which is equal to $138.5 million dollars across the 16 major organisations that participated in this research. Overseas, the figures are even more disheartening: a report by Aberdeen Group in 2011 revealed an industry average of only 8 per cent, an incredibly low figure.

The Faculty’s Making it Stick research a call to action for CEOs and CFO to support their Procurement functions to dramatically improve benefits realisation. It requires no less than an organisation-wide change management program to drive the right behaviours around compliance and cross-functional collaboration, and this must be driven from the C-level if organisations intend to fully realise the benefits of their supplier relationships.

Marisa takes the audience through six different “levers” a CPO can pull to drive savings all the way to the bottom line:

  • Prove it – moving the Procurement team’s focus from projected to validated savings
  • Drive cross-functional collaboration, focusing on shared goals and language
  • Expand the focus beyond costs – only possible once a cost-conscious culture is in place
  • Align to business targets – without alignment, CPOs risk having their hard-won benefits dismissed as irrelevant
  • Build rigorous benefits definitions, measurement and agreed-upon validation methodologies
  • Focus on compliance – without a culture that values compliance, nothing will stick.

The Faculty’s Making it Stick report is now available for free to download. Armed with this call to action, CPOs have the tools they need to drive meaningful change, make savings stick, and sleep better at night.

Smart Supply Chains – Gazing Into The Not-So Distant Future

The term ‘Smart Supply Chain’ might not be that familiar to you, but most people will have heard of, and understand, the Internet of Things (IoT) and Big Data. With the supply chain, and the processes within it, evolving, what are the key trends you need to be aware of?

Smart supply chains of the future

The topics of Big Data, 3D Printing and Technological Change have been discussed on Procurious independently recently, but it is the connection between these concepts within the Smart Supply Chain that organisations will be able to take advantage of over the next 12-18 months.

Some of these concepts demonstrate supply chain thinking coming full circle, while others are newer and yet to be fully embraced by organisations on the whole.

Keeping ahead of, or at least up to date with, these trends will be crucial for supply chains in order to remain flexible and competitive globally. We consider the three outlined below to be the most interesting for supply chain development, however there are many others that also could be considered.

Distributed Manufacturing

More recently, organisations have begun to bring much of their manufacturing back in house, reversing the trend for outsourcing to low cost regions. The next step in this process for many is the idea of Distributed Manufacturing.

In Distributed Manufacturing, products are manufactured across multiple geographical locations by either the primary organisation or a local partner. These locations are closer to key consumer markets, and make use of local experts for the final assembly stage of production.

Key advantages of this approach include a reduction in logistics costs, a more agile supply chain and access to a global network of experts. In late 2014, Jaguar Land Rover opened a plant in Changsu in China, aimed specifically as servicing the Chinese market. This allows a better service to a major market for Jaguar, but enables them to ensure that production quality remains high.

Additive Manufacturing

Additive Manufacturing is essentially 3D Printing by another name. Although still more expensive in comparison to traditional methods, the AM process allows for faster creation of prototypes, greater tailoring of sizes and shapes of products and much lower scrap rates.

Earlier this year, Rolls Royce announced plans to flight-test the largest ever 3D-Printed aerospace component. The company have said that the process has cut like-for-like manufacturing lead times by 30 per cent, representing a considerable saving in terms of time and cost.

A combination of Distributed Manufacturing and Additive Manufacturing could potentially allow organisations a considerable competitive advantage in a supply chain, with faster, more agile manufacturing allied with shorter lead times to consumer markets.

However, to make this a reality, we need to consider the impact of the third of our trends.

IoT, Big Data and Demand

Consumer demand is a tricky beast to pin down. With consumer behaviours constantly changing and the increased availability of products online, which can then be delivered the following day, simply using historical trends to predict demand is no longer an option for supply chains.

Now, organisations are looking towards connected networks and systems, capturing up to the minute data on where, when and how products are bought and which markets are the most profitable to service. The use of the IoT and Big Data is opening up a new way of predicting demand.

Big Data is being used in the automotive industry to do just that. Now, sales can be seen anywhere in the world instantly and companies who have traditionally operated ‘Just-in-Time’ systems now can keep up with this, ensuring the right parts are in the right place at the right time.

Distributed Manufacturing relies on this interconnected network of systems for exactly this reason. This improved demand planning can then be used to reduce excess stock and wastage and at the same time, provide all the data required for effective Additive Manufacturing.

The Not-So Distant Future

As these technologies advance further, and organisations become more adept at using them effectively, there is a potential for a major change to the way supply chains are organised.

And what will this mean for procurement? Beyond the increased complexity of providing for a global supply chain, could we see the advent of Distributed or Remote Procurement? Or will the profession be split up and placed wherever the need is greatest? It’s certainly a question worth considering.

Have we missed any game-changing supply chain trends? Are you working in an organisation where Distributed Manufacturing is a reality? Procurious would love to hear your experiences!

Eyes down for the other big stories we think you should be aware of this week…

Oil prices steady after U.S. drilling cut but oversupply still weighs

  • U.S. crude futures were trading at $44.67 per barrel at 8:00 IST, up 4 cents from their last settlement, pushed by a slight fall in drilling activity. “Baker Hughes reported US oil rig count fell 10 to 652 last week. The consecutive second decline suggests a low price environment coupled with low oil price hedge is starting to impact U.S. supply,” ANZ bank said.
  • The International Energy Agency (IEA) said on Friday that a cut in production from non-OPEC suppliers, especially from the United States, would lead to a rebalancing of the market by next year.
  • Despite this, the outlook for global oil markets remained weak due to strong production clashing with stalling demand, creating a market in which more oil is produced than needed.
  • The global crude benchmark Brent was trading at $48.95 a barrel, virtually flat from its last close.
  • ANZ said strong supply from the Middle East remained a concern on the supply side, while Macquarie bank noted that falling auto sales in August were acting as a drag on demand.

Read more at The Economic Times/IndiaTimes

Allianz warns of storm impact on transport and supply chains

  • With a severe El Nino event forecast and the cyclone season approaching, insurer Allianz has highlighted transport and supply chain interruption as a consequent threat for international and domestic transport and logistics. The global insurer’s Allianz Global Corporate & Specialty (AGCS) section has marked the recent 10th anniversary of Hurricane Katrina in the US with an analysis of storm-related losses, trends and global businesses preparedness for such events in future.
  • But its local operation points to issues here and in Asia that have the potential to cause financial hardship, particularly for the unprepared. “The general consensus of scientists is for an increased severity rather than frequency of windstorm events, such as Australia has experienced this year,” Allianz Risk Consulting Pacific regional manager Iain Ritchie says. “Further, with the current growing El Nino in the Pacific, climatologists are predicting even more intense weather phenomena in the immediate future, which requires risk assessment and planning.”
  • Ritchie adds that “not only is pre- and post-loss risk management crucial in mitigating the impact of increasing windstorm losses, risk management should also focus on loss minimisation during windstorm events. “Business continuity planning must also incorporate direct as well as indirect supply chain exposures to be effective.”

Read more at Fully Loaded

Tianjin explosions to affect supply chains for months

  • The deadly explosions that rocked Tianjin could create logistical delays and other supply chain problems for months to come, even as operations at the port itself return to normal, according to a new report by Resilinc, a supply chain technology firm.
  • Day-to-day operations have largely resumed at Tianjin’s port, roughly a month after two explosions killed over 100 people and caused widespread damage. However, Resilinc found a number of factors that will have a lasting impact on companies with supply chains tied to Tainjin. Chief among them: uncertainty over how China’s government will respond to the incident, which was caused by the improper storage of hazardous chemicals and is still being investigated.
  • Shippers of materials classified as hazardous should expect delays from additional scrutiny of their cargo, and stricter regulation and punishments, Resilinc said.
  • A logistics center that processed much of the port’s paperwork suffered severe damage from the explosions, causing forwarders, haulers and other logistics players to deal separately with individual terminals, putting a strain on those terminals’ capacities to handle administrative tasks. And blockages are preventing the delivery of in-bound raw materials, which impact local factories, and effects could last longer than six to eight weeks on companies within a ten-mile radius of the blast.

Read more at The Wall Street Journal

Glencore Queensland to save AUS$300 million through procurement outsourcing

  • Glencore has hired Accenture to provide sourcing and procurement services for its Australian copper and zinc business.
  • The six-year contract with Glencore Queensland, a subsidiary of the diversified natural resource company, is expected to deliver cost savings of more than $300 million over the period.
  • Under the deal, Accenture will provide end-to-end sourcing and procurement services including cloud-based sourcing, category management and procure-to-pay tools, as well as market sourcing insights and analytics to help Glencore maximise procurement and sourcing benefits. “Mining clients continue to grapple with cost pressure in the ongoing environment of low commodity prices,” said Joost van de Meent, managing director, resources, at Accenture. “Our solution will extend Glencore’s existing procurement capability to improve spend management and reduce transaction costs, while improving visibility across Glencore’s businesses.”

Read more at Supply Management

Half Of Supply Chain Managers Lack The Skills To Do Their Jobs

A new poll from CIPS reveals that half of supply chain managers lack the necessary skills.

Supply chain professionals lack the skills needed

If the results of a new survey undertaken by CIPS are anything to go by, almost half of supply chain managers fear they lack the necessary skills to carry out their jobs.

The poll found that 45 per cent of respondents felt they had not received the necessary training.

The survey was made up of 460 CIPS members who hailed from the UK, Australia and South Africa.

Commenting on the results, David Noble – CIPS’ chief executive, believes that the recovery of the UK economy is being threatened by a lack of skills. “Supply chain managers are the first line of defence for British consumers and businesses.”

He continues: “They protect shoppers from harmful products, stop our businesses from being ripped off and keep slavery out of Britain’s supply chains.

“These new figures show that our tentative recovery is being undermined by a lack of skills. Without them, we risk building our growth on human rights abuses and malpractice abroad. Supply chain professionals are doing the best they can with insufficient training but as the threats to British supply chains continue to evolve, so skills must be continuously renewed to keep up.“

Confidence takes a knock

60 per cent went on to add that procurement (as a profession) is not looked upon favourably within their business.

The figures set a worrying precedent indeed, as those without training are unlikely to conduct annual supplier audits, and just 16 per cent stated they have eyes on their entire supply chain.

Out of those polled, those who felt inadequately trained also revealed their fears over malpractice in the supply chain.

Do you agree with the results of this survey, and if so do you share the same fears? If so, what do you think can be done to improve the outlook in the short/long term?

If you haven’t had time to check out the big stories in the procurement and supply chain space this week, here are some of the main headlines.

Procurement Bill to correct ‘unsound’ practices in Zimbabwe

  • In a State of the Nation address last week, Robert Mugabe announced a new Procurement Bill would be drafted and tabled in Parliament before the end of the year.
  • The Bill will incorporate COMESA procurement guidelines which emphasise devolution of power to award tenders to procuring entities. These organisations will include government ministries, parastatals, state enterprises and local authorities, Mugabe said.
  • The State Procurement Board will also be transformed into a new non-executive procurement authority tasked with setting standards and guidelines as monitoring compliance by procurement entities and act as advisor to the government on Public Procurement Policy.
  • President Mugabe said economic growth was expected to be 1.5 per cent in 2015, instead of the initially projected 3.2 per cent, which he mainly blamed on the negative impact of drought in the agriculture sector.

Read more at Supply Management

Fast fashion is becoming a family affair

  • Step aside, H&M, there’s a new fast fashion king in town, and it’s not just for teens and 20-somethings buying $8 crop tops and $18 skinny jeans.

  • Primark, an Irish retailer owned by Associated British Foods, is the latest European so-called fast fashion brand to dive into the U.S. market. The retailer will open its first U.S. store on Sept. 10, 2015, in Boston and it has confirmed the opening of a second store in King of Prussia, Pa., this fall, with plans for seven more over the next two years.

  • The chain, with more than 285 stores across Europe – and amazingly, no e-commerce presence – is set to compete with other fast fashion European brands that are household names in the U.S., including Sweden’s H&M, Spain’s Zara, and U.K.-based TopShop.

Read more at Yahoo! Finance

UK Police forces wasting millions by paying 10x more for items

  • Police forces are wasting millions of pounds of taxpayers’ money because of the chaotic way they buy supplies, with some paying up to 10 times more for similar items.
  • Mike Penning, the policing minister, said that it makes “no sense” for forces to continue buying almost identical items separately when they can save money by acting together.
  • The Home Office published figures revealing huge disparities in the amount paid for basic equipment ranging from shirts and batons to high performance vehicles and radio sets.
  • Mr Penning said: “For too long the police have approached the market in a fragmented way, buying equipment in small amounts and to varying specifications.

Read more on The Telegraph

The most important procurement agreement you’ve never heard of

  • Australia is seeking to be admitted to an international trade group on government procurement. The agreement will mean local suppliers will gain access to the government procurement markets of all member states, which include the 28 members of the European Union and the US.
  • The group is called the WTO Agreement on Government Procurement (GPA). The WTO – the World Trade Organisation – initiated the GPA in 1981 as the ‘Tokyo Round Code on Government Procurement’. It has been expanded and renegotiated ever since, with the most recent round concluded in 2014.
  • The Government says that joining the GPA will mean “legally-binding access to government procurement markets estimated at US$1.7 trillion”, a number so large it is difficult to comprehend. China, which is also seeking to join, could add another trillion dollars to the sum.

Read more at Government News

iPhone supply chain makers set to see strong sales in September

  • Makers in the iPhone supply chain are set to see strong sales in September thanks to incoming orders for new iPhone devices which are due to be unveiled in early September, according to sources from the supply chain.

  • Most suppliers have become more positive about shipments of the updated iPhone devices recently due to higher than expected orders from Apple, which were originally perceived to be affected by sluggish global economy and weakening smartphone demand in emerging markets, said the sources.

  • Incoming parts and components orders for the new iPhones are even stronger than orders for the iPhone 6 devices in the corresponding period of a year earlier, indicated the sources, adding that shipments of updated iPhones will once again squeeze sales of other vendors including Samsung Electronics, Sony Mobile Communications and LG Electronics, commented the sources.

Read more at Digitimes

Procurement Technology: To Upgrade or Not to Upgrade?

At a recent industry procurement technology conference, I heard a presenter state, quite reasonably I thought, that risk doesn’t begin until you select a supplier.

cloud

As one of those suppliers, I’d naturally argue that the risk in selecting us is lower than our competitors but, still, it is a valid point. It is a given that staying at home less risky than travelling, but only for certain kinds of risk, of course. An outdoor, active lifestyle requires an inevitable degree of caution and hazard awareness, but then again so does sitting on the sofa watching TV.

Thus, while a procurement technology project cannot go wrong until you start, that is no case for lack of action. Doing nothing, can expose your organization to even greater risk in the long term.

So what should you be doing? What should be your approach? A challenge, surely, is when to put a stake in the sand and commit to a particular project in an environment where change and new product announcements are increasing year on year.

Time and again, one hears of companies locked into a legacy system that is too important to ditch and too costly to upgrade. How can that be right?

In the past couple of decades, we’ve seen a big shift in the types of technology solutions that are considered suitable for the workplace. At a time when most large business could only comprehend huge, cumbersome systems, integrated on a very large scale and at enormous cost, those who elected to search for best-of-breed solutions for each requirement, from a range of providers were looked upon as cutting-edge thinkers, almost the avant garde.

And yet, today, attempting to build a robust, transformed, next-decade-ready procurement practice on a mish-mash of different procurement software tools for sourcing, contracts, P2P and SRM is likely to be considered a very risky strategy indeed. More and more businesses are looking for a single procurement software solution to assist in that transformation process.

So, times have changed and seemingly come full circle, but have they really?

I’d say they haven’t. Today’s complete end-to-end procurement technology solutions are as far removed from the ERP systems of 20 years ago as your choice of personal computing device is from that which you were using during the same period.

The only common theme is the notion that you can do everything in one place. The difference is that now you can do so much more than was ever possible in the past.

What drove businesses at the leading edge to seek out best-of-breed solutions was the need for increased power, control and efficiency delivered by innovative technology, something they could definitely not find in the old, megalithic systems.

The advent of a whole new architecture underlying the modern world — with its cloud, wireless and mobile technologies — has made it possible to conceive of one single solution that is powerful and flexible enough to deliver what a global business needs in terms of control and management, but remains agile and responsive enough to keep the modern procurement practice on the leading edge.

We know this, because we’ve built such solutions. Having seen procurement professionals wrestle with the old, monolithic systems and then struggle to make sense of a patchwork of different tools, this really does feel like something quite new.

The most exciting thing of all is the speed at which we can now innovate and address new demands in the ever changing world of procurement. And gone are the days of the business not being able to afford an upgrade. The question today is: cannot you afford not to upgrade?

4 Key Collaboration Takeaways That Will Make Your Job Easier

One of the key topics at the Big Ideas Summit 2015 was the concept of innovation in procurement and the supply chain. Many organisations look for innovative solutions from suppliers, but how easy are these to come by? And are suppliers rewarded for this?

4 key takeaways for successful collaboration

Saying that innovation is a key pillar for an organisation, and actually being able to successfully embed an innovation strategy, are two very different things. Supplier innovation can be tricky to nail down and many procurement departments are not looking in the right areas.

How it can work

For some organisations, it’s about working with the right suppliers. Craig Muhlhauser, CEO of Celestica, spoke at the Procurement Leaders ‘Ovation’ event in July, and spoke about how he brings about innovations for his organisation and for the companies they supply to.

According to Muhlhauser, both organisations need to be open to change in ways of working and ask questions in order to understand the other party’s point of view. Where procurement is concerned, Muhlhauser believes that the profession needs to be less prescriptive to suppliers, leave specifications more open and use the expertise of the supplier to uncover innovation.

This collaborative working relationship has successfully borne fruit across a number of industries. In the automotive industry, Brose, a German-based supplier, worked closely with its customers to produce a new door unit, way ahead of its rivals in terms of quality and innovation.

The key for Brose had been procurement on two sides – their customer, but also internally in order to allow them to build collaboration and trust with their own suppliers to make innovation a reality. Supplier collaboration has also helped to improve supply chain sustainability in the NHS in the UK and led to GAP Inc. being named the winner of the GT Nexus Innovation Award 2015.

Both positive examples have highlighted the work of procurement in supporting the innovation.

Why it fails

Failure to generate innovation, or sustain innovation in the supply chain can come down to a number of factors, although it would be hard to pinpoint one in particular as a key culprit.

A common issue can be with one or both parties not fully engaging in the process. In the Brose example, one supplier involved had to make a financial commitment before a production contract was signed. Payments like this are certainly not common, but here help to build the commitment and trust between the two parties.

Strategy is another common issue. Where strategy is too rigid, or where the strategy is simply pointing to procurement savings, innovation will suffer as the parties in question have approached it with the wrong mind-set. Where innovation is seen as a step to future learning and opportunity, research has shown that it is more likely to endure.

The other side to the strategy argument is that often procurement functions do not formalise the innovation process. Formal programmes are often reliant on senior stakeholder buy-in, something that procurement may struggle with if they lack credibility in the organisation.

Just Reward

While formal programmes and investment can help to drive innovation, it’s worth remembering that rewards or incentives for innovation will help the process. In some cases, procurement has been tasked with saving money, so spending more to achieve innovation is not rewarded.

Suppliers who feel like they will be supported and rewarded are more likely to go the extra mile and suggest innovation to procurement. Building incentivisation into contracts can help to formalise the relationship and underline the support on both sides.

The Real Question

“Is procurement open to innovation?”

That’s the real question. There are good examples of innovation in procurement and supply chains, but plenty more where there is inactivity or hesitance. Have we as procurement professionals been painted into a corner, where savings and the bottom line are the only things that are considered?

We better hope not, or, as Craig Muhlhauser argued, it’s adapt or cease to exist.

Have you got any good examples of innovation in your procurement department or supply chain? How do you encourage it? Let us know on Procurious!

Here are some other stories that are vying for our attention this week:

FTSE edges towards 6,000 after China shock

  • The FTSE 100 was down 2.9 per cent in the first minutes of trading this morning, after stocks in China closed more than eight per cent lower. The market was at 6,014 points, its lowest this year. If it falls below 6,000, it would be the first time it has fallen that low since the end of 2012.
  • The selloff came after a chaotic day of trading on Friday, when weaker than expected manufacturing data caused European markets to plummet. The FTSE closed 2.8 per cent lower, while the S&P 500 crashed below 2,000 points for the first time since February this year.
  • Meanwhile the Vix volatility index, also known as the “fear index”, spiked 16 per cent to 22.2 points. The Chicago Board Option Exchange Volatility Index is thought to be a gauge of investors’ nerves.
  • Markets had spent the past few days falling steadily, as investors worried the Chinese central bank would stop its support of the stock markets.

Read more on City A.M.

Hills chief defends close links with Woolworths’ Masters hardware chain

  • The new chief executive of battling Hills Ltd has defended an outsourcing deal for the company’s iconic Hills hoist clotheslines and garden products that means a large chunk of the range is sold through Woolworths’ ailing Masters hardware chain.
  • Grant Logan, who took over as chief executive of Hills from Ted Pretty in May 2015, says Hills shareholders will need to be patient as the company marks its 70th anniversary because it will take time to restore profits across the company to an acceptable level after major upheaval and transformation, which have resulted in the Hills share price tumbling to a record low.
  • Mr Logan also admitted that the integration of some of the businesses that Hills bought over the past couple of years had been handled poorly and exacerbated problems as the company transformed from an old-world manufacturer to one focused on security systems, communications and health services. “We moved too quickly and as a result, we wobbled our supply chain,” Mr Logan said on Monday.
  • Heavy write-downs foreshadowed on August 7 triggered a slide to a bottom-line loss of $86 million for 2014-15. This compared with a net profit after tax of $24.8 million a year ago.

Read more at The Sydney Morning Herald

Gap to test ‘Fast Fashion’ model in select stores

  • The San Francisco-based apparel retailer said it plans to test small batches of product in its Gap stores this spring and then quickly buy more if the goods are selling.
  • Popularised by fast-fashion chains like H&M, the model allows retailers to jump on trends and quickly adapt to changing shopper behaviour. The strategy has underpinned a turnaround at Gap’s Old Navy unit, which has posted a string of sales gains. This spring will mark the first time the retailer is using it at its namesake division, where sales have slumped. Gap Chief Executive Art Peck said on a conference call that the company was trying to build this capability as quickly as it can.
  • In addition to sourcing goods faster, Gap has hired new executives and closed underperforming stores. Profit fell to $219 million for the three months to Aug. 1, from $332 million a year ago, partly because of charges related to the Gap brand overhaul. The company said it expects to record $130 million to $140 million in restructuring charges for the year, including for the store closures.

Read more at The Wall Street Journal

 

GCC airport construction 2015-19 to grow by 8 per cent

  • The GCC’s airport construction market will grow at a compound annual growth rate (CAGR) of 7.86 per cent between 2014 and 2019, a report has found. TechNavio’s report, Airport Construction Market in the GCC Countries 2015-2019, states that airports offer numerous economic benefits to the region.
  • “GCC countries are well-known worldwide for the infrastructural achievements” provided by airports, such as job creation, tourism, and the facilitation of imports and exports.
  • “The oil-rich countries, in their efforts toward economic diversification, are investing heavily in transport infrastructure, such as roads, railroads, and airports,” the report continues.
  • Additionally, international events such as World Expo 2020 in Dubai, Qatar National Vision 2030, and 2022 FIFA World Cup in Qatar, “considered as brand-building events by the respective nations, have necessitated massive airport construction activity in these countries”, the report adds.

Read more at Arabian Supply Chain

NHS competition could waste millions says Labour, after Care UK complaints

  • Labour has warned that the NHS could be forced to spend millions on competition lawyers after the UK’s biggest private healthcare provider demanded an immediate investigation into a decision to award an elective care contract to a local health trust.
  • Care UK has been branded a bad loser after lodging a complaint with the NHS watchdog Monitor over the management of a contract by commissioners in north London.
  • Monitor has now begun an investigation into the decision by four GP-led clinical commissioning groups (CCGs) to award a contract to the Barking, Havering and Redbridge University Hospitals NHS Trust. The trust said it was extremely disappointed by the investigation and warned that it would delay the opening of a care centre.
  • Andrew Gwynne, the shadow health minister, said the new competition rules could force the NHS to waste millions on competition lawyers.

Read more at The Guardian

National Coalition for Public Procurement formed in the US

A coalition for public procurement has been formed in the US.

Public procurement coalition formed in the US

Volunteers from three of the largest U.S. procurement programs for public agencies, educational institutions and nonprofit organisations have joined together to establish The National Coalition for Public Procurement (NCPP)

The NCPP will serve to drive best practices in public cooperative procurement, focusing on transparency, competition, integrity, auditability and process.

Marc Selvitelli (who will serve as NCPP’s Executive Director) said: “NCPP was founded on the belief that uniting customers and potential customers with national and regional purchasing organisations will ensure the most ethical and best business practices.”

NCPP’s founding organisations include the National Intergovernmental Purchasing Alliance Company, the National Joint Powers Alliance and The Cooperative Purchasing Network.

In addition to regular interactions with public procurement practitioners and contract purchasing organisations, NCPP will provide an independent forum for members to collectively address cooperative contract procurement concerns. Members also will have the opportunity to participate in advocacy issues with a united voice, and they will have access to a variety of resources to advance best practices in public procurement.

“A major factor in selecting SmithBucklin was its expertise in starting and managing a new organisation,” said Todd Abner, NCPP Chairman. “Additionally, SmithBucklin has substantial experience in managing associations that are active in procurement and supply chain.”

“It is a privilege to help launch NCPP,” said Matt Sanderson, Executive Vice President & Chief Executive, Business + Trade Industry Practice. “We look forward to helping establish NCPP as a powerful voice in advocating excellence in public procurement.”

Supplier Collaboration? You Must be Joking

There are numerous articles talking about the value that remains untapped within the supply chain, if only buyer and supplier could collaborate. But what does it mean to collaborate?

Collaboration is key

If you were to look up the definition of Collaboration, it is either:

  1. To work together
  2. To co-operate treasonably with the enemy

And for many procurement professionals, number two may still be closer to the mark than number one!

Assuming the correct definition in this case is ‘to work together’, what could collaboration offer the buyer? What is the untapped value in the relationship?

Supplier Innovation

Following the award of the contract, between order placement and delivery, there is time. What if the supplier could apply their knowledge and experience during this time to see if they could deliver the contract for less?

This is called ‘Supplier Innovation’ and involves the supplier applying their expertise and knowledge to the contract in the post-contract award phase to save the buyer money.

The real question is, if the supplier could deliver the contract for less, would they tell the buyer? Unfortunately, in most cases, the answer is no.

If Supplier Innovation occurs between order placement and contract delivery, theoretically it could be applied to all contracts. Therefore, in order to access the untapped benefits of supplier innovation, the buyer needs to ensure the correct incentives are in place before awarding the contract. But how can you do this?

Gain Share in Contracts

The answer is relatively simple. In order to collaborate, both parties need to understand how they benefit – answering the “what’s it in for me?” question. Unless both parties see value in collaboration, it is likely to remain an ‘if only’ situation.

For suppliers to collaborate with buyers, they need to see financial benefit. One way traditionally used to incentivise suppliers is a Gain Share. A gain share is a risk/reward commercial model used to incentivise suppliers to achieve specified objective. If the supplier achieves this objective, they receive more revenue.

Gain shares have some interesting characteristics which include:

  • The objective is pre-defined and negotiated prior to contract award – This is counterproductive to encouraging Supplier Innovation, as the supplier does not know if innovation is possible until they are in the post-contract award phase.
  • Gain shares can be complex and time consuming to negotiate and therefore used selectively – This is also counterproductive to encouraging Supplier Innovation, as the buyer needs this capability in all its contracts.
  • Gain shares are a risk/reward model – Again this is counterproductive, as, by definition, you cannot predict if innovation will occur and therefore it has to be achieved without increasing the risk of the supplier.

It seems clear that there is untapped value within the supply chain, if the buyer and supplier collaborate. Yet, how this is to be achieved while using current commercial models remains a mystery to many.

If we could have supplier Innovation available within all our contracts, encouraging and rewarding suppliers when they innovate without risk, costs or effort to either party, have we finally found a way to access the untapped potential that resides within the supply chain?

Well, there may be a new option that both buyers and suppliers can use – The POD Model. The model is a scalable (can go into every contract) model that encourages suppliers to innovate (without increasing the supplier risks) within the contract. If innovation occurs (without making it a supplier obligation), it generates additional savings for the buyer and increased profits for the supplier (addressing the “what’s in it for me?” question). And best of all, it’s free!

So no, we’re not joking when we talk about collaboration. Can you afford not to?

About the Author POD Procurement: POD Procurement created The POD Model and provides consulting and training on its implementation. The POD Model is free to use and can be found on the CIPS knowledge website. For additional information please contact [email protected]

Big Data Will Revolutionise Supply Chains – And Here’s Why…

We know what you’re thinking – “Not another article on data”! But stick with us as, like data itself, the information on it keeps evolving. And can you really ever know all there is to know about data for your business?

Big Data Will Revolutionize Supply Chains - And Here's Why...

Every individual in an organisation comes into contact with data, and is in some way responsible for that data too. We all spend a lot of time with data at home too – it helps to inform our personal purchasing decisions, from coffee to holidays.

Using Data

The main problem, from both a personal and organisational point of view, is how to use the data we have (this is, of course, after working out what data to use first). For now, we’ll just focus on organisational data that can be used to inform procurement and supply chain decisions.

Increasing connectivity, plus an abundance of devices with the ability to collect data, means that decision making and analytics can be carried out with a greater wealth of information. In procurement, this data helps inform spend analysis, identification of correlations and drivers and trends across purchasing activities.

Identification of trends helps procurement create accurate predictions and improve spend management by knowing when and where items are being used and at what rate. This can assist with assessment of requirements, standardisation of products in a catalogue and will ultimately make a positive difference to budgets.

Data Quality

Dr David Hames, Founder of Science Warehouse, believes that data will be a driver in organisations in the future, both in B2B and B2C transactions. Speaking to Procurious at the Big Ideas Summit 2015, he caveated this by highlighting a concern that many procurement professionals have – data quality and integrity.

In order to be used effectively, David states that data needs to be:

  • Cohesive
  • Comprehensive
  • Accurate and detailed
  • Subject to Quality Control from experts

It’s difficult to guarantee all of these, but unless you can be confident in the quality of your data, you can’t be confident in the value of your analytics.

Cyber Security

Data integrity is another concern for organisations. Greater connectivity has lead to concerns that individuals are organisations are more vulnerable than ever to cyber attacks.

Sony Pictures, Ashley Madison, Carphone Warehouse and the US Government – in the past 6 months all of these have been high-profile targets for cyber attacks.

A report by Quocirca this year highlighted the concerns that organisations have around data security and data protection. Only 29 per cent of the organisations surveyed marked themselves as very confident about data security (this figure dropped to 16 per cent across the retail and distribution industries), while 10 per cent they were not confident at all.

Those who were very confident showed common policies around education of employees, defined and streamlined approaches to security and highly co-ordinated approaches to both internal and external threats to security.

The Secret to Good Data

Is there a secret to good data? We’d love to say that there is an easy solution for organisations, but it’s not as straightforward as that.

Good starting points include training and educating employees, having robust processes and policies and having someone who can check the quality of the data in the systems.

And, if you’re using an integrated system for procurement and other departments (e.g. Finance; IT), make sure your data is good before you switch on, otherwise you’re going to be fighting a battle from the off. Good data in, good data out. Bad data…well, you know the rest.

Do you have a secret to good data? A success story of leveraging data in procurement and reducing costs? We’d love to hear all about it, so get in touch.

And to set you up for your water-cooler/coffee line conversations this week, here are all the key headlines in procurement and supply chain.

Coca-Cola bottlers agree three-way Europe merger

  • Three of Europe’s main bottlers of Coca-Cola products are to combine in a $27bn deal to simplify manufacturing at the world’s largest drink maker as it seeks to cut costs at a time when consumers are shifting away from its famous sodas.
  • Coca-Cola Enterprises, the US-based bottler with exclusive Coke licences in several western Europe countries, will merge with its Iberian and German counterparts in the latest consolidation of the Coca-Cola Company’s supply chain.
  • The merger comes as Coca-Cola is confronting a decline in fizzy drinks sales, especially in developed markets, which make up almost 70 per cent of the company’s overall revenues. In response, the drinks group is looking to cut costs to boost profitability. Initiatives have included reducing the size of beverage bottles, generating more profit per ounce, as customers fall out of love with excess.
  • In an internal memo to staff, James Quincey, president of Coca-Cola in Europe, said the deal would improve the company’s ability to respond more swiftly to changing consumer trends. He added that the merger would enable the bottlers to improve efficiency in its supply chain, sales and distribution.

Read more at the FT

Britain in Summer Rush of Supply Chain Contracts

  • Supply chains for two of Britain’s largest defense programs have benefited in the last few days from a rush of production contract awards by industry primes BAE Systems, General Dynamics and Lockheed Martin.
  • By early August, with Parliament on its summer recess and people’s minds here turning to the beach, it’s normally a quiet time on the announcement front for defense. The last few days were different, though. Fourteen contracts from across supply chains that include equipment from Austria, Germany and the US, as well as the UK, were announced for three British programs.
  • The contracts illustrated the increasing globalization of defense supply chains and emphasized the continued willingness of the British to look overseas for equipment. It’s something the British government hopes to see reciprocated more by its allies.
  • International supply chains, and Britain’s role in them, were on British Procurement Minister Philip Dunne’s mind when he visited Washington recently and talked up Britain’s ability as an equipment supplier. “We have been actively encouraging US and other non-UK domicile primes to come into the UK to explore our supply chain,” he said in a speech July 28.

Read more at Defense News

Fast fashion propels Zara into shopping stratosphere

  • Amancio Ortega, the co-founder of Zara, is now the world’s second-richest man, putting him above Warren Buffet and just behind Bill Gates. On Wednesday his Inditex parent company, under which Zara sits, reached a valuation of €100 billion for the first time in its 30-year history.
  • Of the eight brands housed under Inditex, which was founded by Ortega and his former wife Rosalia Mera in 1985, Zara is the flagship and, as of December 2014, represented 66 per cent of total sales.
  • Zara’s in-house design team can have an item in stores within three weeks. That’s three weeks from the beginning of the design process to the time it lands on the shop floor for us to buy.
    Where most companies will lock in 100 per cent of the forthcoming season’s stock six months in advance, Zara only locks in 15 to 25 per cent that far in advance, according to tradegecko.com.
  • By the start of the season that percentage will have increased to 50 or 60 per cent, meaning the remaining 50 to 40 per cent is still up for discussion; if a new trend appears mid-season, Zara has the capacity to follow it and get its interpretation into stores, while its competitors can’t.
  • Similarly, if things aren’t selling, it has the ability to alter them or simply discontinue supply. This is aided by the fact that between 51 and 55 per cent of Zara’s clothing is manufactured in what the company describes as “proximity” markets; Spain, Portugal, Turkey and Morocco, instead of Asia.

Read more at Telegraph

Cargill to map canola oil supply chain

  • Food firm Cargill is to map the supply chain of its high oleic canola oil as part of a transparency initiative.
  • From October, the ‘Knowing Your Roots: from farm to table’ programme will take customers and consumers through the whole supply chain, from seed development and the farmers who grow the canola, through oil processing and packaging, to the food service operators and food ingredient manufacturers who use the product, and to consumers.
  • Cargill said it could provide a transparent supply chain because it is a high oleic canola oil supplier and also a seed company. “Understanding where food comes from is a priority for consumers,” said Kristine Sanschagrin, marketing manager of Cargill Specialty Seeds & Oils. “This initiative offers our customers the opportunity to tell that story.

Read more at Supply Management

Trust, Shame and Reputations – Truth & Lies in Accounts Payable

It’s comforting to think that if fraud exists, it exists elsewhere – anywhere in fact other than right now – in your organisation and your own department.

Truth and lies in accounts payable

Thanks to APN for granting Procurious permission to republish this article

In fact, it’s that assumption which makes life a whole lot easier for those hoping to embark on a life of Accounts Payable (AP) crime.

Of course, no-one likes to think that someone they work with could be capable of fraud, and yet the truth is – fraud happens – and it happens quite a lot. And you’re not looking for a shady character in a badly judged mac with dodgy eyebrows. Statistically it’s likely to be “John” who’s worked for the company for the last 15 years. Perhaps “John” feels entitled after all the unrecognised hard work he’s put in. Perhaps it’s his way of righting a long standing wrong. Who knows.. but most of all – John is doing it because he can.

Of the many high profile fraud cases of recent months – they have all carried some element of shock – the trusted Head of Lloyds Fraud and Security for example, or the Manager of the Birmingham Dental practice involved in a £1.4m invoice fraud. Both were trusted employees with considerable access to the financial systems and the knowledge of how to navigate around them to their own advantage.

So we know that an excess of trust plays into the hands of fraudsters – but in some cases there’s another set of human emotions at play too – shame, embarrassment and perhaps corporate ego, or pride.  Back in the early 2000s, I had some involvement with a large (and to remain nameless) organisation who fell victim to a series of “threshold frauds” (those where the invoices sat just within the threshold for approval).

Percentage wise, the amounts were tiny – but after two years – the scheme had netted the perpetrator a considerable fee. And although the employee was “asked to leave”, the matter was not taken further – in a damage limitation exercise for the reputation of the organisation. So instead of serving as a warning to others, the fraudulent activity was swept under the carpet.

As it’s unlikely (and not particularly desirable) that we collectively decide not to trust our employees and fellow colleagues – it makes sense to adopt practices and technologies which can allow us to indulge our natural instincts while keeping appropriate checks in place. Most of the time people conducting fraud are simply taking an opportunity – it’s not necessarily a lifestyle choice and they’re not necessarily experts at hiding their actions.

For example, many fraudsters are caught because when something works once, they’ll try it again and again until they forget to be cautious. Implementing a series of automation solutions can provide many of the answers, but only if it’s placed at the centre of a tight set of thoroughly examined procedures.

Of course, a tightening of processes within accounts payable can have significant effects on areas other than just controlling fraud. If payments are being analysed for duplicates and master supplier files are being checked for erroneous entries and the AP manager has a new step by step process to follow from receipt of PO through to payment, analysing a series of pre-determined metrics along the way – then the cost per invoice goes down and the savings go up. All of which is good news for the business and great news for the reputation of the AP department.

Twelve Warning Signs to Look Out For

  • Invoices from various suppliers on similar stationary
  • Suppliers with incorrect VAT numbers
  • Transactions which are out of the ordinary – ie late at night
  • Excessive voids or credits in the receivables ledger
  • Large number of invoices, especially to a particular supplier, just beneath the approvals threshold
  • Few, or unclear reasons for a particular service
  • Suppliers with PO Box addresses, home addresses etc
  • Erratic employee behaviour – always in early or late
  • Sudden, or unexplained employee departure
  • An increase in duplicate payments
  • Excessive amounts of rounded up, or down invoice amounts (frequently ending in 5 or 0)
  • Above average payments to a supplier

 “Fraud and falsehood only dread examination. Truth invites it.” Samuel Johnson.

Accounts Payable News® (APN) is a trusted information base with direct access to 14,000 key decision makers in the finance sector across a variety of different industries. 

Does Artificial Intelligence Have A Place In Procurement?

With the recent innovations in artificial intelligence, will the supply chains of tomorrow be at the mercy of robotic overlords? If so, do we have anything to fear?

Does artificial intelligence have a place in the supply chains of the future?

There’s a change happening on factory floors the world over, as robots and automation increasingly replace the manual (human) workforce of old. We’ll dip into the possible effects artificial intelligence (AI) could have on production and procurement practices as we go along, but first, a bit of scaremongering… Elon Musk has previously aired his own warnings while giving a talk to students from Massachusetts Institute of Technology (MIT), saying:

“I think we should be very careful about artificial intelligence. If I had to guess at what our biggest existential threat is, it’s probably that. So we need to be very careful… I’m increasingly inclined to think that there should be some regulatory oversight, maybe at the national and international level, just to make sure that we don’t do something very foolish.”

Of course it’s perfectly natural to fear change. We must also be mindful that artificial intelligence is still very much evolving, and at this stage it’s an unknown quantity. There are some camps that fear the worst, that AI represents the destruction of mankind, with robots and humans embroiled in a bitter battle for survival. Flesh vs. circuits, the human condition vs. sentience…

Not so according to Mustafa Suleyman – Head of Applied AI at Google DeepMind, who instead believes that this modern intelligence will help tackle some of the biggest problems facing the world today (think access to clean water, financial inequality and stock market risks). Indeed, the work of DeepMind was something Wired Editor David Rowan touched on at Procurement Leaders’ London gathering earlier this year.

David told us how DeepMind had created a “generalised artificial intelligence” – the earliest example of which was able to not only play Space Invaders, but master it to become the best player in the world. While this demonstration is certainly impressive, how can it translate to real-world scenarios?

The answer lies in Big Data as DeepMind observed: “We have global information overload from overwhelming systems complexity – they’re so complex and interlinked it’s possible that the US financial crash in 2008-9 caused the Egyptian revolution” [a time of widespread corruption and a stagnant economy that led to a national bread shortage].

If all of this (Big) Data is just sitting around, waiting for consumption, then why shouldn’t we make it available to robots for analysis and dissemination?

Indeed, the significance of Big Data has not gone unnoticed by procurement’s leading lights…

A 2010 paper entitled ‘Artificial intelligence in supply chain management: theory and applications’  reviewed the past record of success in AI applications to SCM and identifies the most fruitful areas of SCM in which to apply AI.

Similarly in an incredibly-thoughtful piece, Author of Supply Chain Visability.com -Jonah Saint McIntire, observed: “In time, as new generations of the AI are deployed, something truly game changing will occur. This is because machine learning will cross human learning capabilities fairly slowly. Remember that intelligence is modular and, as a result, machines may exceed humans in some forms of learning while lagging in others. The real breakthrough occurs when all necessary forms of learning are dominated by AI rather than human intelligence.”

He goes on to make a bold claim : “Our ability to manage data to the advantage of our supply chain and company will become a significant, perhaps even singularly important, part of supply chain visibility. It’s within the context of a mounting tsunami of data and the need for data-management that we must expect increasingly “intelligent” software to be deployed. The main users of supply chain visibility will probably switch from people to computer programs.”

This ‘bold claim’ was supported in an article written by Lora Cecere, founder of Supply Chain Insights – in which she said:

“Today’s supply chains are more complex than before. While the structured data and the systems that use them will not go away, new forms of data offer new opportunities for companies to solve previously unanswered problems. These new data types—from mapping and GPS sensors, to voice, images and video—do not fit into traditional applications or data models. That’s the bad news. The good news, as we learned in a survey of 53 IT and supply chain managers, is that companies are beginning to recognize that they have a problem and that they need to respond. While there is a general lack of understanding of big data terms and technologies, there is an awareness that supply chain best practices are moving from insights into supplies to leveraging insights into demand.”

If AI can help us realise that we have a problem, why then should we be fearful of this new technological dawn?

John McAfee – infamous programmer and creator of the world’s first antivirus software,  has long insisted “that if you are a ‘routine cognitive worker’ following instructions or doing a structured mental task,” then it is your job that’s most at risk from the inevitable rise of the machines… How does this make you feel? As ever we’re keen to hear your thoughts, so fire away in the comments below.

Meanwhile here are the other stories you need to be reading in procurement and supply chain this week.

Fears over state of Chinese economy increase supply chain risk

  • Concerns over the financial health of Chinese businesses have pushed supply chain risk up for the third consecutive quarter, according to the latest CIPS Risk Index.
  • Worries a speculative equity bubble is about to burst, and that state lenders have been supporting employment by lending to struggling businesses, meant the index rose to a figure of 80.1 in the second quarter of 2015. This compares with a reading of 78.7 for the first three months of the year, and the highest since the end of 2013.
  • Andrew Williamson, global leader and leading economist at Dun & Bradstreet which co-produces the index, said: “We became increasingly concerned in April that corporate finances in those industries that clearly have excess capacity were becoming increasingly distressed. Local governments have been propping up employment by pressuring banks, further exacerbating legacy financial misallocations in the country.
  • CIPS economist John Glen said: “The increasing trend in global risk that was observed towards the end of 2014 and predicted to increase in the early part of 2015 has materialised.

Read more at Supply Management
UK companies to produce anti-slavery supply chain reports, says UK PM

  • Companies with turnover of more than £36 million will have to publish an annual slavery and human trafficking statement, under a clause in the Modern Slavery Act that comes into force from October. 31 Jul 2015. The measure will cover all businesses who do business in the UK and have supply chains elsewhere in the world, UK prime minister David Cameron said.
  • The statement must describe the steps taken to ensure slavery and human trafficking is not taking place in any of a company’s supply chains or their own business – or state that they have taken no steps on this. Speaking in Vietnam, Cameron said that the “scourge of modern slavery has no place in today’s society and I am proud of all that Britain is doing to wipe it out … But there is still much more to do”.

  • The planned disclosure measure “is one of the first of its kind in the world and it will be a huge step forward, introducing greater accountability on business for the condition of their supply chains,” Cameron said.

Read more at Out-Law.com

Supply Chain Risk: Five Worst Offending Countries For Human Rights Violations

  • Awareness of supply chain risk has been steadily growing among publicly listed companies all over the world. Today’s news is not reassuring: the risk of organizations breaching international human rights regulations has risen significantly over the last quarter as key Asian economies adapt to tougher economic conditions, according to a report just out.
  • Rising labor costs in China have led companies to diversify their supply-chains into other high-risk countries such as Vietnam, especially for electronics, apparel, and footwear says the British Standards Institution (BSI). Its latest Risk Index Report out today identifies China, India, Vietnam, Bangladesh and Myanmar as the five highest risk countries for human rights violations.
  • These countries account for 48 per cent of global apparel production, 53 per cent of global apparel exports and 26 per cent of global electronics exports – making it very clear which are the industry sectors most likely to be at risk. The latest report also warns that efforts by Asian governments to boost their economies are resulting in a greater prevalence of child labor abuses to become more present in supply chains.

Read more at Forbes

Barclays Africa launches supply chain challenge

  • Barclays Africa Group Ltd (Barclays Africa) has launched the Barclays Africa Supply Chain Challenge, the first of several initiatives being driven into Africa with the aims of sparking ideas to drive the digital evolution on the continent.
  • According to Stephen van Coller, Chief Executive of Corporate and Investment Banking at Barclays Africa, the Challenge is about improving supply chain transparency for African businesses. “The journey of a product from manufacturer to consumer is often disjointed and inefficient and there is currently a huge amount of interest in finding ways to increase the transparency of provenance, not least of which is the use of blockchain technology,” commented van Coller.
  • The Barclays Africa Supply Chain Challenge is open to entrepreneurs and developers, between the ages of 18 and 35, who are based in Africa.