Category Archives: Procurement News

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?

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.

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?

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?

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.

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?

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.

Do Fixed Price Contracts Endorse Embezzlement?

For many years Buyers have used ‘fixed price’ contracts – a contract that stipulates the final price regardless of the outcome.

There are a couple of common reasons why buyers use them. The first is to move the risk of the contract going over budget to the supplier. The second is to encourage the supplier to act appropriately and encourage them to complete the work under budget if possible.

While the buyer might think this represents smart procurement, this might not be the reality.

Unwelcome Contingencies

Suppliers are very familiar with fixed price contracts and recognise the risk being moved onto them. Their response is to modify their submitted price to include a contingency fund (price + contingency = submitted price).

In moving to a fixed price commercial model, the buyer is making a statement that they believe the contract has a high probability of going over the initial estimates and hence want to move the risk of this occurring onto the supplier. It is the act of pre-empting risk which pushes the supplier to include a contingency in the price.

Horror stories abound about suppliers under-estimating requirements and ending up absorbing much higher costs than expected when delivering the contract. While these stories are used as the justification for fixed price contracts, in reality this occurs less often than most believe.

If it was a common occurrence, suppliers would either go out of business due to additional losses, or refuse to accept a fixed price contract. The reality is that to deliver the requirement, the supplier generally gets their initial estimates correct or consumes a small percent of their contingency fund.

Here’s the issue…

From the suppliers’ perspective, a fixed price contract is a risk/reward model, and regardless if they deliver the contract for the stated cost or less, they invoice for the full amount. Here is where we hit an issue – assuming that in delivering the requirement the supplier has not consumed all of their contingency fund how does the supplier invoice for the full amount?

There are a couple of options here.

  1. Invoice based on Stated Costs: The buyer and supplier agree to invoice based on stated costs i.e. phase 1 will be invoiced for X, phase 2 for Y, etc. This will enable the supplier to invoice for the agreed amount. The issue for the buyer is lack of detail behind the invoice and being unable to quantify what has been purchased if challenge
  2. Itemised Invoices: The supplier provides itemised invoices, enabling the buyer to assure the business of what has been procured. The fixed price was justified based on the contract requiring a certain number of assets to deliver it (an asset could be Personnel, Resources, Time or Goods).

Yet in delivering the contract, the supplier has not utilised their full contingency fund and therefore not required all the assets predicted. This results in the supplier submitting invoices that include assets that were not actually required by the buyer, but that the supplier has to include in order to ensure numbers add up to the full amount. This could be interpreted as an act of embezzlement.

Wait…what?

Embezzlement is an act of dishonestly withholding assets for the purpose of conversion (theft) of such assets, by one or more persons to whom the assets were entrusted”

Either the buyer naively expects that the contract requires the supplier to utilise their full contingency fund, or is endorsing the ’embezzlement’ by paying for assets they know have never been delivered!

Assuming the buyer knows a contingency has been added, when they agree the fixed price, not only were they agreeing to the predicted costs but agreeing to pay the contingency fund too. In effect they have guaranteed to pay more than is required – a great way to reduce procurement savings.

Any Alternatives?

We are not actually stating fixed price contracts are embezzlement but it makes one wonder. Fixed price contracts introduce supplier risk, more often than not to the detriment of the buyer. If buyers could encourage suppliers to collaborate and deliver the contract under budget for mutual financial benefit, it might be a better solution.

A nice theory, but up until now, a fixed price contract has really been the only viable option. However, there is a new option for both parties to use – The POD Model for Supplier Innovation. The model enables a buyer to revert back to a standard price based contract, the supplier is only paid for what it takes to deliver the contract and the supplier is incentivised to deliver the contract for less to achieve higher profits. This approach results in higher procurement savings, the right supplier attitude and clarity on invoicing.

So, it is maybe now time to review the use of Fixed Price Contracts?

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]

What Do We Really Mean When We Talk ‘Talent’ In Procurement?

Depending with whom you speak, you get very different views on the subject of talent in procurement.

When we say talent, we don’t mean the ability to sing, dance or unicycle down the street whilst juggling flaming swords (although that would be a useful skill to have…), but having the skills and knowledge necessary to cope with the expanding role of procurement in organisations.

In some sections of the procurement profession, authors and business leaders believe that procurement is ‘doomed’, with procurement struggling to attract the right, talented individuals into the profession, while simultaneously limiting itself by not developing the right skill sets to deal with the changing role.

On the other side, some business leaders believe that the next generation is key and that, with a bit of effort, procurement can turn this around and attract the key talent it requires. By using social media, CPOs can understand how to stay ahead of the game and attract good procurement professionals, while strides can also be made by investing time and effort at university level students.

The Bad News

Spend Matters Editor, Jason Busch, argues that procurement skill sets are not changing with the times, or at least not changing as quickly as the skill sets in other parts of the organisation. A further argument is that the people who you have in procurement now, are not necessarily the people you need to take the profession that next step.

It has been widely quoted that 70 per cent of companies in the UK feel they have a shortage of skilled staff. The story is the same across the world, with similar results being posted in Australia and North America.

CPOs are expecting and demanding more from their teams, but have concerns that individuals are missing the crucial skills required for success. Among the ‘missing’ skills are some biggies too:

  • Negotiation
  • Stakeholder Engagement
  • Strategic Thinking
  • Adopting of Technological Enablers

However, for some, the issue is being able to combine all the basic procurement skills with subject matter expertise, something that is becoming less common in an age where the workforce is more mobile and less likely to stay in one place for an extended period of time.

What’s the Problem?

For a while now, associations such as CIPS and ISM, and organisations like Procurious, have been trying to change the perception of procurement as a career. However, old attitudes and perceptions are proving hard to shift.

The next generation coming through education now are looking at procurement and not seeing the potential for advancement and a perceived limited career path is dulling the attraction. It’s only recently that procurement or supply chain heads are taking up executive positions at major organisations in the public eye (think Tim Cook at Apple).

Financial compensation at the top level of the profession is also not keeping with pace with other functions. While CFO compensation has gone up by double digits on average each year, in some cases CPOs have been lucky to see a 3% to 4% increase.

The Good News

If that all sounds pretty bleak, there is light at the end of the tunnel. In the first 6 months of 2015, organisations have been making very public efforts to attract new talent and showcase procurement.

The UK Government has launched a new public sector procurement apprenticeship scheme, highlighting the experience to be gained working on high profile, high-value projects that affect millions of people. You can find out more about the scheme here.

Other organisations, like NHS Procurement and Skills Development Scotland, are actively working with universities, realising that by recruiting these fresh minds, they are also accessing a valuable source of innovation, new strategic viewpoints and thought processes.

How to Do It

There’s no sure-fire way of attracting the ‘right’ talent to your organisation as different people always look for different things. But we’ve pulled together some good tips for you to think about:

  • What is Procurement? – Define it well, offer prospects, tell the wavering students why this is a great opportunity
  • Pass on Skills – Around 60 per cent of procurement uses mentorship; ensure that skills are passed on and not lost
  • Professional Development – A big one for the ‘millennial’ generation, but critical for helping to retain talent too
  • Interesting Roles – Being able to be mobile, work on different projects and gain experience across the function
  • Grow Talent – Make sure you hire the right people. Assess things like cultural fit and personal values
  • Social Media – Don’t underestimate the power of social media and learn how it can benefit you

Procurious founder Tania Seary is travelling through Australasia in the next few weeks and will talk about procurement talent. Why not let us know if Tania is visiting your organisations, or contact us if you’d like to get her to come and talk to you.

Meanwhile, here are the big news headlines that should be catching your eye in procurement and supply chain this week.

Key takeaways from George Osbornes’s summer Budget

  • The government announced plans for a new apprenticeship levy, which would be paid by all “large employers”. Eddie Tuttle, senior policy and public affairs manager at the CIOB, said: “The government has set itself an ambitious target of delivering 3 million apprenticeships over the next five years – equivalent to 600,000 new apprenticeships a year. The introduction of a new apprenticeship levy is a big ask for business, but one that recognises the acute skills shortages industries such as construction will face in the future unless significant investment is made in training. And if the government is to deliver on its ambitions, more needs to be done to promote construction as a viable career path.
  • An increase in the national minimum wage, now branded the “National Living Wage” that will rise to £9 by 2020, should help some low paid workers. Iain McIlwee, chief executive of the British Woodworking Federation, says: “And looking at the direct impact on SMEs in the construction supply chain, while an increase in the minimum wage for the lowest paid is welcome, we cannot ignore the fact that such increases have a knock-on effect throughout a business, creating inflation in a firm’s total wage bill.“Our latest State of Trade survey among Britain’s joinery manufacturing firms already reveals that 73 per cent of respondents had seen a sharp increase in labour costs, and this is fast becoming a constraint on business.
  • The government is inviting bids for a new round of Enterprise Zones, which will encourage towns and districts to work with local enterprise partnerships to develop bids.
  • And finally: Public sector pay will increase by 1 per cent a year for four years from 2016-17.

Read more at Construction Manager

Nordic report calls for less fast fashion

  • A new report which has mapped out a more sustainable road-map for the Nordic textile industries recommends that replacing fast fashion, reducing resource inputs and encouraging local sourcing should become key priorities.
  • The report was commissioned by the Nordic Council of Ministers and includes work from the National Institute for Consumer Research, the Sustainable Fashion Academy, the Nordic Fashion Association/nicefashion.org, the Swedish Environmental Research Institute and the Copenhagen Resource Institute.

Read more at Ecotextile [subscription site]

India’s Snapdeal to invest $200m in strengthening supply chain services

  • India’s largest online marketplace, Snapdeal, is planning to invest around $200m in bolstering its supply chain services including warehousing, logistics and training and sale assistance.
  • The company aims to be able to host around 1 million sellers over the next three years.
  • In March, Snapdeal had acquired a 20 per cent stake in Gojavas that helps it with last-mile delivery. Following the acquisition, Snapdeal had committed to invest between $150 and $200m over the next one year in logistics and supply chain.

Read more at LBR

What I Learnt At The Social Enterprise World Forum

Last week I attended Social Enterprise World Forum (SEWF) 2015 in Milan, Italy. It has been described by some as the “Davos meeting” of the Social Economy.

Procurious asked whether I’d like to report on my experience for the community – how could I not accept? It brings me great pleasure to present you with some interesting  takeaways through my seasoned CPO’s eyes:

First of all, a bit of background…

Social Economy in the European Union counts as 10 per cent of the European economy (GDP) and represents more than 11 million workers (4.5 per cent of the active EU population).

Social Entrepreneurship is 7.5 per cent of the active population in Finland, 5.7 per cent in UK, 5.4 per cent in Slovenia, 4.1 per cent in Belgium, 3.3 per cent in Italy, 3.1 per cent in France, etc.

Basically, the main objective of Social Businesses is to generate a significant impact on society, the environment and the local community.

Indeed Social Enterprises contribute to smart growth by responding with Social Innovation to needs that have not yet been met.

They also create sustainable growth by taking into account their environmental impact and by a long-term vision. For example Social Enterprises often develop efficient ways to reduce emissions and waste or use of natural resources.

They are the heart of inclusive growth due to their emphasis on people and social cohesion.

During the three day event the sessions with key expert speakers (movement leaders, policy makers, investors, entrepreneurs) covered several topics linked to social entrepreneurship such as Innovation, Social Impact, Impact Investment, Inclusion, Welfare, Social Justice, Environmental Sustainability and the Sharing Economy.

Besides GDP, the “Social Progress Index” is often talked about. This is a real way to measure the social impact and the “Value” generated across a country.

I realised, better now it had been confirmed to me, this is really a new growing “world” that has the potential to have an impact on Procurement and Supply Chain too.

Social Businesses can offer a wide range of products and services, not only to serve consumers  and public sector, but also to profit companies. 

In fact if we look at the potential products and services provided by the Social Enterprises (as well as their level of quality and competitiveness), profit companies should seriously consider to explore and buy from them.

Social Value was one of the big themes discussed (somewhat passionately) at the 2015 Procurious Big Ideas Summit. Watch a video of the panel session in question here

Additionally, the social impact of that kind of sourcing may positively affect the companies’ CSR programme.

Regulations may also help to expand the sourcing from Social Enterprises and the diversity suppliers base, for instance look to the “Suppliers Diversity Programme” in the US.

Furthermore I was involved as moderator and interviewer at the SEWF speaker’s corner and had the chance to meet several international charismatic Social Entrepreneurs who shared their experience. Out of this came an extraordinary selection of ideas to supply profit companies.

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Why Supply Chain Risk Should Be On Your Corporate Agenda

Contribute to a wider understanding of organisational barriers to supply chain risk management.

Over the past decades the world has experienced several major natural and manmade disasters. Events such as the 2010 Eyjafjallajökull eruptions in Iceland and the 2011 Tōhoku earthquake and resulting tsunami in Japan have a profound impact on companies operating in the same country or even on the other side of the world.

The increased complexity and global nature of modern supply chains has the direct effect of reducing visibility of suppliers across the supply chain. Few organisations are aware of the full risks that second and third tier suppliers pose (Jüttner, 2005; Manuj and Mentzer, 2008), whilst a survey by the Business Continuity Institute found that more than 40 per cent of reported supply chain disruptions originate with second- and third-tier suppliers (Business Continuity Institute, 2013).

Supply chains are subject to a wide range of risks on both domestic and international level. Increased complexity of supply chains makes it more difficult to assess the likelihood and impact of disruptions, thereby potentially increasing the risk exposure. In addition to risks resulting from increased supply chain complexity, firms are exposed to operational disruptions due to quality problems, supply variability and capacity constraints. The past decade has also shown an increase in disruptions following natural disasters and terrorist attacks (Sheffi and Rice, 2005).

The direct effect of supply chain risks

Operating in such a connected world with high volatility hampers organisations in fulfilling their primary goal: shareholder value creation. In carrying out its business operations to maximise shareholder wealth a firm is exposed to risks that, once materialised, can have negative operational consequences and cause disruptions. Kleindorfer et al. (2003) exhibited how supply chain disruptions have a significant detrimental impact on both short and long-term operations and

financial performance. Shareholder value decreases by almost 11 per cent by these disruptions (Hendricks and Singhal, 2003) and organisations that experience disruptions, on average, experience a 40 per cent stock price decline (Hendricks and Singhal, 2005).

The effect of natural disasters on your supply chain

Implementing the right strategies

Implementation of a business continuity plan, dual sourcing strategy, and close cooperation between supply chain partners are mentioned as the most used actions in order to reduce exposure of the supply chain to potential disruptions or to mitigate the impact (MIT Forum for Supply Chain Innovation, 2013). There is however an inherent struggle with mitigating supply chain risks in today’s globally linked organisational models. The networks of interrelationships that build up a typical supply chain in its entirety hold exposure to risk. Whilst one link in the chain may bear the direct impact of a disruption, the actions of other members in the chain will have consequences for the entire network.

Research suggests that companies with mature and flexible supply chain and risk management capabilities are more resilient (lower impact and faster recovery) to supply chain disruptions. These companies have a clear focus on proactive (ex-ante) SCRM as opposed to only taking a reactive (ex-post) approach. This in turn leads to better operational and financial performance compared to firms with immature SCRM capabilities (MIT Forum for Supply Chain Innovation, 2013).

Overcoming organisational barriers by strengthening the business case

Even though advances are made, supply chain risk management activities still take up organisational resources in terms of managerial time, increased buffer inventory, etc. The major losses incurred by organisations in the aftermaths of events such as the Iceland volcano eruption and the tsunami that hit Japan, have shown that proactive SCRM is still in its infancy with most organisations. Several leaders have however emerged and shown the distinct value of proactive SCRM, thereby increasing the business case for organisations.

Saenz and Revilla (2013) demonstrate the importance of proactive and reactive strategies in dealing with unexpected disruptions through the example of how Cisco Systems, a communication

technology firm, successfully mitigated the impacts of the 2011 tsunami in Japan almost without a loss in profits, whilst the total economic losses are estimated on at least $217 billion. Having developed their risk mitigation strategies after the difficulty in dealing with the Hurricane Katrina’s aftermath, Cisco was able to evaluate the disruption impact for more than 300 suppliers – from tier 1 to raw material providers, listed more than 7,000 affected parts by number, assigned a risk rating to each part and charted a mitigation response within 12 hours.

Case studies like this help strengthen the business case for implementing (proactive) SCRM strategies. The apparent lack of proactive SCRM strategies adopted by organisations is an area that requires further research in order to convince business leaders of the importance of SCRM (Simangunsong et al., 2012).

Have your say

To assist practitioners in this analysis, the below survey has been created. Based on the findings of the survey responses and follow up interviews we will be able to identify what kind of risk mitigation strategies are used in specific industries and gain deeper insights into strategy selection antecedents and organisational barriers. By completing the survey below you will directly contribute to this valuable analysis and as a thank you, you will receive a free copy of the academic research once it is completed. Completing the survey will take approximately 10 minutes and it will be open until the 26th of July.

Contribute to a wider understanding of organisational barriers to supply chain risk management.

For any questions or further information, don’t hesitate to contact me directly.