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Does Cost Plus Encourage Lazy Procurement?

Many thanks to Market Dojo for giving Procurious permission to republish this article.

Cost plus (definition, adjective): “relating to or denoting a method of pricing a service or product in which a fixed profit factor is added to the costs.”

You could argue that every item or service sold is cost plus.  In other words you need to make a profit to stay in business so everything purchased has to have a margin added so the final sale will be more than the sum of their parts.

The area of cost plus that I would address is where the client has agreed to buys products or services from a supplier and the final price for those bought off the contact is not known.

This unknown value will be created from a cost plus relationship to ensure a profit is maintained. However, if the client continues to pay, where is the incentive for the seller to ensure they are procuring the goods or services at the market price.

Surely the client should be ‘on the ball’ and focus on year on year cost reductions although many times complex and varied builds on a contract prevent this.

‘Should cost’ exercises would be a useful tool in a perfect world if we all had the time but isn’t that why you are together with a trusted supplier?  Surely the supplier would focus on procurement costs so their sales exercises would be more competitive?

You would think so, but what if the market is not so competitive. In fact, does the cost plus model mainly arise in non-competitive markets dominated by larger players?

If this is the case you could draw the conclusion that procurement is not being driven in the right direction due to a number of unbalanced forces (cost plus, lack of competition, lack of customer focus). This bad practice could easily spiral downwards.

Will increased globalism be enough to shake up these suppliers or will the customers drive better value? Either way it often seems that procurement in these type of industries can be an afterthought that is of little importance.

Viva la procurement revolution.

Market Dojo is a pioneering software-as-a-service (SaaS) company that offers professional, intelligent and easy-to-use online negotiation software and accessible eSourcing software. Find out more at www.marketdojo.com.

Automation Can Unlock Savings In Accounts Payable

Research shows Accounts Payable Automation is a top trend when it comes to improving the procure-to-Pay cycle.

With enterprises realising the continued inefficiency of mostly manual, paper-based Accounts Payable (AP) processes, new research provides insight to the top trends for improving the procure-to-pay cycle.

According to “Total Transformation: Trends and Value Drivers for AP and Procurement,” written by Ardent Partners, top performing AP functions are indeed driving greater process efficiencies and delivering strategic value to the enterprise. Leading the way is the continued focus on AP automation. 83 per cent of respondents to Ardent’s survey believe that within two years, AP processes will be largely automated.

“Ardent Partners research has shown that automation is a critical element for enterprises seeking to drive value across their procure-to-pay processes,” said Andrew Bartolini, Chief Research Officer. “When P2P processes are linked and automated, procurement and AP groups can operate on a platform that promotes collaboration, visibility, and efficiency.”

Ardent found that following AP automation, stronger AP and procurement partnerships, evolving AP staff skillsets, and greater involvement in working capital optimisation are the top trends for greater efficiency. The research suggests that organisations of all sizes must leverage the strategies and technologies that can jointly transform AP and procurement, leading to significant competitive advantages.

“While many organisations are realising the benefits of AP automation, that is just one part of the equation,” said Jim Wright, Vice President of Sales at Corcentric. “This important research suggests that a more holistic approach and breaking down silos between procurement and AP is what will ultimately drive down costs and inefficiencies.”

Procurecon Asia: Evolution from Operational Procurement to Strategic Procurement

At this time of year, the events season is well underway and many of us are already starting to think about applying what we’ve learnt to our 2016 activities.

I recently attended the ProcureCon Asia Conference 2015 at The Amara Hotel in Singapore. I wanted to share my pre and post event thoughts on Procurious.

The ProcureCon Asia conference is aimed at CPO’s and senior strategic procurement leaders within Asia Pacific. I was fortunate enough to have secured a pass to the event. This is third year the conference has run and my first time in attendance.

According to company’s website: “ProcureCon Asia has firmly established itself as Asia’s only gathering for global and regional CPOs and Asian heads of procurement actively engaged in the evolution towards full strategic procurement”.

This event is one of the more important dates on the Asian procurement calendar. Procurement professionals from across the region flocked to Singapore to network and listen to an impressive list of speakers.

I was personally looking forward to meeting new and old procurement colleagues and hearing from thought leaders on how our profession is progressing in Asia Pacific. I was particularly interested to compare how Asia stacks up against the rest of the world in terms of our procurement best practices especially given the technological changes driving business.

How did our region compare globally and what are the opportunities now and in the near future? What does it mean for procurement as a profession?

Developing Procurement Maturity in Asia  

The conference theme was about progressing procurement strategically in Asia (to reach 3rd generation procurement and beyond) and there were many workshops that discussed that in more detail. I had also seen various industry data to indicate that Asia Pacific was behind other regions in procurement maturity (e.g.)

Report from Procurecon Asia

Having been a procurement professional working in the technology and automotive sectors for many years and having led a number of innovation projects (i.e. regional Ariba and MSP rollouts etc.), I was aware of that there was some differences between the maturity of procurement functions in Asia vs. the rest of the world.

Asia has seen massive economic progress in the last decades with impressive innovation and developmental steps taken by many companies and countries. A lot of the conversations at the event focussed around whether procurement was maturing at the same rate as the rest of the Asian economy.

There are a great number of individual industry leaders in Asia and there is no reason why Asia cannot be seen as global leader across industries in future years. We just need to be clear around how to get there.

Maturity Requires Talent

I think one of the most important steps to achieving procurement maturity in Asia is the development of future talent. We need top talent to ensure we have an ongoing skill base our companies require and as a driver of innovation and high standards into the future.

I know CIPS has a development plan with thousands of new students enrolled in China, I am not sure about other countries? CIPS now has an office in Singapore, which is great. ASEAN countries definitely need more procurement graduates entering into our profession, as those countries will provide strong growth, both now and into the future.

Innovation is Critical to Success in Asia 

The path to procurement maturity is unique to each business and industry sector. All companies and entities are coming from different starting points and have different drivers and priorities. What is common to all procurement teams based across Asia is the need to come up innovative solutions to the regions unique challenges.

While there was some discussion and workshops covering innovation and disruption topics, I felt the event could have gone into a little more detail on these areas. Something to think about when it comes to themes for next year’s event perhaps?

Measuring Procurement Maturity in Asia 

Going forward, how can we measure regional progress in Asia as a whole? It was possible to get some gauge at the conference, but given the vast size of the Asia Pacific region, the event was a tiny sample size.

It would be good to be able to out measures in place that would us understand regional procurement development in Asia Pacific.

The Role of China 

There were many questions and discussions about China throughout the conference. What is happening within? Have they come to the end of the growth road with rising costs and what it means for our profession? All agreed China has many years of progress ahead still, along with many challenges. Second tier Chinese cities and regions are already beginning to grow and play a role in the complex China story. This will continue for many years to come.

In summary, the event was a great experience; there was an impressive line-up of speakers and a room full of regional and global colleagues in attendance, so it was well worth the trip just for that.

During my three days in Singapore, I was able to have many one and one discussions and understand how these Asian based procurement professionals were managing their challenges.

Sadly, a couple of days does not really allow the time needed to have deep discussion on many topics but I am sure everyone had personal takeaways and made many new contacts as I did.

See you all there next year.

How Can We Better Manage Compliance Across The Supply Chain?

New research states that half of global firms have faced supplier non-compliance challenges.

2014 was a year marred by risk… Whether we’re talking about plentiful product recalls, compliance and environmental issues, or devastating data security breaches – it seemed supplier compliance management was never far from the spotlight.

Today, companies are increasingly being held responsible for the actions of their suppliers, thus breaking the long-held tradition of the buyer turning a blind eye. Ultimately the blame and consequences of the actions lay at the gates of both parties – forcing buyer and supplier to tackle tricky compliance issues head-on.

At the same time supply chains are growing larger, heightening both the impact and odds of non-compliance incidents. As a result companies, customers, NGOs, and regulators are rapidly stepping up their efforts to manage and monitor compliance across their suppliers. The expectation for companies to develop comprehensive supplier compliance policies,  along with regular audits and inspections to evaluate supplier compliance is a heavy cross to bear…

In order to gauge the challenges presented MetricStream conducted an in-depth survey that looked into the ways organisations across industries are managing, measuring, and monitoring supplier compliance. Respondents were made up of 100 supplier compliance and governance professionals from various industries.

The survey found…

The survey contains seven main areas of concern. We’ve highlighted some of key the findings below.

Non-compliance issues around management systems and documentation are widespread

The most common area of non-compliance was around management systems and documentation (59.5 per cent). This highlights non-compliance with a company’s internal documentation such as product specifications and quality policies; or, absence of systems and processes at the supplier’s end to ensure compliance with external regulations.

The other dominant area of supplier non-compliance pertains to Environment, Health, and Safety (EHS) standards (29 per cent). In the last few years, some of the world’s most reputed brands have been criticised after their suppliers were found to be violating environmental norms, or running factories that were unsafe and exploitative.  Companies will need to find ways to strengthen supplier compliance with EHS standards, keep pace with new regulations and guidelines in the field, and resolve or mitigate compliance issues before they occur.

Local laws are often overlooked

Only 43 per cent of respondents focus on local laws while drafting supplier policies. This could be a cause for concern, especially since local laws vary from one region to the next. For instance, the minimum age for employment in China is different from that in the US. If companies overlook these differences when drafting supplier compliance policies, they could face regulatory penalties.

Compliance information is only gathered when potential suppliers are being evaluated

Most of the respondents indicated that their organisations gather supplier compliance information either when evaluating a potential supplier (50 per cent), or while onboarding a supplier (26 per cent). Only 19 per cent of organisations gather supplier compliance information when adding a new product or service to the supplier’s portfolio.

To read the full findings you can download the report from here.

Understanding The Chinese Yuan And The Fluctuating Economy

Down, down, up. The revaluation of the Chinese Yuan…

About five years ago I stopped ‘doing’ procurement and starting writing about it.

One of the very first pieces I ever wrote was for Procurement Leaders. The article focussed on the impact the value of the Chinese currency (the Yuan) has on supply chains and more specifically the role that the Chinese government has allegedly played in manipulating this exchange rate for the benefit of its economy.

Manipulation 

China has, in the past, been accused of deliberately altering the value of the Yuan in order to make its products appear cheaper and thus more desirable in the export market. The strongest opposition to this practice has come from the US, who feel this manipulation has adversely impacted domestic suppliers as many American’s elect to buy cheap Chinese goods over US made products.

The US have also claimed the currency manipulations are anti-competitive and highlighted they have hindered the progress of US firms in China. By having a weak Yuan in relation to the US dollar, companies like Apple, that price in USD, found it more difficult to compete in the Chinese market with local suppliers who could produce a similar product at a lower price.

Despite the fact the value of the Yuan is not subject to market forces, but rather, is set by a team of economists, China has always maintained that its currency was fair and not been deliberately manipulated.

The debate continues

Jump forward five years and the value of the Yuan is once again making the front page of global business newsfeeds. Last Monday (August 10th) The People’s Bank of China announced it would make a ‘one time correction’ to the value of the Yuan.

This action, and accompanying confusion, sent global currencies into a spin. The Yuan dropped 2 per cent against the US dollar in a day.

Despite announcing only a ‘one time correction’ to the Yuan, The People’s Bank of China announced a further devaluation of the currency on Wednesday of last week. This caused analysts to fear that China’s wavering economic performance may be worse than they initially thought. Commodity prices and share values have continued to drop on the news.

To add further confusion to the situation, on Friday (August 14th) the central bank opted to raise the value of the Yuan against the dollar. The Bank has come out and stated “the market will play a bigger role in exchange rate determination.” Perhaps they were keen to show the value of the currency can go up as well as down?

For the time being, it appears Chinese goods will continue to be relatively cheap compared to the rest of the world. Some analysts have predicted that a flow of cheap Chinese made products will flood foreign markets (haven’t they already?) The uncertainty of over China and its currency is also likely to cast a continuing shadow over the tumultuous global commodity markets.

How To Spot Supplier Risk During Pickups & Deliveries

When your transportation vendor picks up or delivers your cargo, you should take some time to check for risky behaviours. This article reviews what to look for to ensure you’re not working with vendors that will put your business at risk. 

Thanks to Spendrix for granting Procurious permission to republish this article. This article is the second in a series on how to identify various types of supplier risk. Catch up with the first in the series.

To wrap up our series on identifying supplier risk, we examine what you should look for during pickups and deliveries. Earlier articles in the series covered the importance of risk profiling as well as other situations where you should look for supplier risk.

When it comes time for a transportation vendor to pickup or deliver your cargo, review this checklist to ensure you’re not working with a carrier that will put your business at risk.

Equipment

One of the first things to inspect during pickups and deliveries is the equipment used to transport your business’ cargo. Before any cargo is loaded, identify the exact truck and trailer being used for the job. Make sure the truck and trailer aren’t damaged from previous trips. Also, check the deck of the trailer to make sure it’s intact; and that the rest of the trailer is rust free. Finally, inspect tires for adequate tread and proper inflation.

Before your cargo is ever moved, make sure your transportation vendors’ equipment is in good condition.

Driver State

Another serious risk factor to look for during pickups and deliveries is the physical and mental state of the driver that will be responsible for transporting your business’ cargo. Drivers will spend a lot of time with your cargo, so it is in a shipper’s best interest to ensure their driver will be safe. Obviously, check that your driver is not under the influence of any drugs or alcohol. Just as important, make sure they aren’t groggy or tired, which can be just as dangerous as having alcohol in your system.

Also, do your transportation vendors help ensure driver compliance by maintaining organised and up to date logbooks? Do they have a detailed understanding of their drivers’ hours of service, and work to avoid violations? If not, that vendor and their drivers could be putting your entire business at risk.

If you ever have any doubts about the state of a driver, don’t be afraid to speak up. Checking the mental and physical state of the driver transporting your cargo is a crucial way to protect your business from supplier risk.

Personal Protective Equipment

During pickups and deliveries, make sure your transportation vendors’ employees are using the proper personal protective equipment for the given job. OSHA requires, “protective equipment to be provided, used, and maintained in a sanitary and reliable condition wherever it is necessary.” This includes safety glasses, respirators, steel-toed boots, work shirts, gloves, hard hats, and hearing protection.

Unfortunately, workplace accidents do happen, but using the proper equipment goes a long way to minimise these accidents and protect workers. It is also a good idea to make sure the proper first-aid medical equipment is available if needed.

If your transportation vendors provides personal protective equipment and mandates its proper use, this is a great sign you are working with a reliable and safe carrier. However, if you repeatedly see carriers engaging in risky behaviours during pickups and deliveries by not using proper safety equipment, you may want to consider a different vendor for your transportation needs.

Securement

Properly securing your cargo is one of the most important steps for minimising damage. Therefore, you need to make sure your transportation vendors’ securement equipment and practices won’t put your cargo at risk. First, check all securement equipment for damage and the effects of ageing. This means inspecting chains for rust, tarps for holes, and straps for tears.

Also, ensure carriers are using the proper equipment for the type of trailer. Flat decks need corner protectors, and blocking and bracing should be used if loading a van. Finally, ensure your transportation vendor tightens down all cargo before the truck moves anywhere.

Making sure your business’ cargo is properly secured during pickups and deliveries dramatically lowers the chances of an accident involving your cargo. By checking your transportation vendors’ securement practices, you can spot risky behaviours during pickups and deliveries.

Overall, we’ve covered three areas where you can identify supplier risk – communication, on-site evaluations, and pickups and deliveries. By looking for risky behaviours during these interactions, you can help protect your business from the consequences of supplier failure.

Ben is a business development professional currently working with Spendrix. He enjoys the challenge of helping a young company grow. Ben is passionate about risk analysis, business administration, and technology issues affecting the transportation and logistics industry.

Supply Chain Analytics Are ‘Looking In The Rear-View Mirror’

Is this what the future of supply chain analytics looks like?

A new study that highlights the current and future state of supply chain analytics has confirmed that the future of supply chain analytics is visual, multi-sourced and predictive.

According to the study, the majority of today’s supply chain analytics are “looking in the rear-view mirror” when it comes to evaluating performance, but realise the potential value of adopting advanced analytics.

More than 40 per cent of respondents said they are still almost exclusively backward looking when it comes to data analysis. However, the vast majority expressed the belief that predictive analytics would bring value to users, enabling them to leverage data at the point of decision. Additionally, more than 88 per cent of respondents ranked advanced analytic capabilities as an outstanding or good opportunity for their organisation. Respondents also noted that making improvements in data and analytic capabilities was either a high priority or something they were already focused on doing.

The study revealed that while companies are realising the value and urgency of implementing advanced analytics, few feel they are where they need to be. When evaluating their own current capabilities generally, less than 10 per cent felt they had high levels of user system flexibility and empowerment, data visualisation and supply chain risk management capabilities.

“Despite early stages of maturity, companies see significant potential from improvements in data management and analysis,” said Dan Gilmore, President and Editor in Chief at SCDigest. “Not surprisingly, improved supply chain decision-making tops that list, while similarly, becoming more ‘forward-looking’ was the number one opportunity identified by respondents from improved data management and analytics.”

The Qlik-commissioned study is a result of a global survey launched by SCDigest of its readership around the subject of how companies are planning to leverage their supply chain data, including the capabilities they have in place now or intend to develop over the next few years.

Procurement Technology and Procurement Software – Are they Any Different?

Often used interchangeably by enterprise clients and vendors alike, are the two concepts really the same?

It’s all in the perception and the word. Technology is more current, more relevant, and encompasses the full landscape of neat innovations that are offered to us in increasing numbers.

Software, well, it’s a bit old-fashioned really. It’s more flabby-old-floppy-disk than app-store-chic.

Consider the growing range of tiny little devices that extend the range of things we can do with our smart phones. Little buttons, tags, sensors and switches are reinventing and redefining the way we use our phones. There are buttons that you can program to push and play music, push to order takeout food, and so on.

But however much they devices are pushed to the forefront — with a focus on tablets and wearable devices, and the potential impact they will have on our daily lives — the truth is that these gadgets are just the means of access to the software.

These gadgets are appealing and exciting, and the prospect of having everything at the push of a button is irresistible. But look under the covers and the reality is somewhat different.

Because, in fact, you won’t be programming the buttons at all. The button is just a switch that says, “I’ve been activated”. It is the app on your smart device that translates that activation into a result.   Although, of course, it isn’t even that simple. App, we all know, is an abbreviation of application. In other words, a way of using the underlying power of another system. Software applications, in essence, are devices for instructing an operating system to do something clever.

We think the cute little buttons are smart, but they are just a veneer of glamour over the real miracle, which is the vast repository of information and decision support that is available to all of us.

This is where the power lies in procurement technology, not in the fact that you can approve a purchase order on your wristwatch, but the fact that you can do it wherever your wristwatch happens to be. The distinction is that it is the underlying software that enables the gadgetry, mobility and flexibility to work the way you need to.

And it is the software that needs to be crafted cleverly to deliver the business results you need. Code that is written to do clever things based on requests and demands. The software needs to work the way you do, and the developers need to understand the business requirements you have.

As a leading global developer of procurement software, we at GEP recognize that procurement technology is a big deal. Mobility, usability, accessibility and all the other abilities determine how you can work. But it is the underlying understanding of the business needs, encapsulated in the software that drives the tech that determines what you can do.

Procurement technology is rapidly growing and evolving, but at its heart, it is driven by good old-fashioned software.

Whether procurement professionals need gadgets to make working practices more automated is not yet clear, but what they will always need is results.

So there it is, procurement technology and procurement software — two distinct things that are interdependent on each other for success.

Paul Blake leads the technology product marketing team at GEP, a leading global provider of procurement technology solutions that help enterprises boost procurement savings and performance. Read Paul’s first blog here.

Why Supplier Risk Management Is Still The Big Thing

“Supplier Risk” is no longer a buzzword or an emerging trend. Nowhere is this more evident than for the food and retail industries, where what started with the horsemeat scandal in 2013 now seems to be haunting Europe as the nuts-for-spices scandal.

Yet risk is an issue that cuts across many industries, around the world. The increasing globalisation of company supply chains compounds risk—and at the value chain level. Such risks have a material impact on companies, resulting in supply chain disruptions, material losses, and reputational damage.

Figure 1 shows the most prominent supplier-related risks that companies are exposed to currently.

supplier-risk

According to a November 2013 survey by PwC, 55 per cent of respondents believed that they had experienced at least one significant supply chain disruption over 2011–2013, and these disruptions increased costs for 42 per cent of the respondents and affected customer service for 39 per cent respondents.

Clearly, the need for proactive supplier risk management is no longer simply a nice-to-have—and that’s why 70.6 per cent of the CPOs surveyed for Procurement Leaders’ 2015 Trend Report noted that the time dedicated to risk management activities will increase in 2015.

What are Organisations Doing to Manage Risk?

A February 2015 Procurement Leaders article compares supplier risk to an iceberg. The top 10 per cent of the iceberg, which is visible, is financial risk. The remaining 90 per cent—the portion that is hidden below the surface—includes executive changes, geographical and political risks, and the risk of natural disaster, risks that progressive organisations are increasingly turning their attention toward.

A 2012–2013 Capgemini survey of CPOs lists some of the strategies employed by companies to manage supplier risk:

  • Switching to multisourcing for key inputs
  • Continuously monitoring supplier performance, and taking actions to mitigate emerging risks
  • Putting a clear process in place to continuously assess, mitigate, and manage supply risks
  • Developing a process to proactively analyze potential risks, and building supply chain contingency plans
  • Using external consulting service providers to help identify and mitigate risks
  • Training procurement teams in advanced supply risk management techniques
  • Implementing relevant technology solutions to support and manage supply risks

Take a look at several examples of how global organisations are working to mitigate risk across different areas of the supply chain:

Ford

Companies with widespread and complex supply chains can find themselves at sea while identifying high probability risks, especially those that have the highest impact on their bottom line. As such, organisations turn to new and sophisticated tools to help identify and mitigate risk—as was the case with Ford.

In December 2013, Ford announced a new supplier risk management strategy, developed in collaboration with MIT’s Dr. David Simchi-Levi. Assessing Ford’s supplier risk was a challenging task, given that the company sources thousands of components from ~4,000 tier 1 suppliers. The risk assessment model was based on Dr. Simchi-Levi’s Risk Exposure Index approach, and concluded that a short disruption pegged at 61 per cent of the tier 1 firms would not have an impact on Ford’s profits. Yet a disruption in supplies from 2 per cent of the firms studied would have a substantial impact. Leveraging this analysis, Ford has focused its efforts on those firms that account for the highest supply chain risk. 

EID-Parry

For companies that rely significantly on a single geography, commodity, or supplier, it is essential to diversify their purchasing in order to reduce the impact of any disruptions in supply from that single source.

India-based sugar manufacturer EID Parry is expanding its business outside the state of Tamil Nadu. The company’s Executive Chairman A. Vellayan assured shareholders at a July 2014 annual general meeting that they will see long-term benefits of the company’s policy of spreading out its sugar mills across a number of Indian states. 

P&G

Suppliers that engage in practices such as unsustainable sourcing of commodities, use of child labor, and unsafe manufacturing practices pose a grave threat to the reputation (and ultimately economics) of companies that source from them.

A case in point is Procter & Gamble. Following a February 2014 Greenpeace report on the deforestation practices of some of the company’s palm oil suppliers, the company released an extensive no-deforestation policy aimed at encouraging sustainable sourcing practices among suppliers.  

Kellogg’s

Similarly, Kellogg’s announced its commitment to purchase only deforestation-free palm oil, with a target date of December 31, 2015. The company also introduced a new responsible sourcing policy that seeks to reduce the impact of its supply chain on climate. This includes the provision of resources and education to help suppliers increase their resilience with respect to climate change, optimise the use of fertilizer inputs, reduce GHG emissions in their agricultural practices, optimise water use, and improve soil health. 

The Underlying Trend

In an environment of increasing supplier-related risks, it is crucial for companies to strengthen supplier engagement in order to mitigate threats such as supply discontinuity, over-reliance on key suppliers, and reputational damage from supplier activities. To gain competitive advantage, it is important for them to identify, assess, and efficiently monitor and manage such risks—piecemeal or as part of a broader integrated strategy. The underlying trend, though, is clear—as procurement departments mature and organisations grow, an integrated risk management strategy will be the most effective path forward.

By Ankit Abraham Sinha, Senior Analyst, & Sidharth Sreekumar, Assistant Manager – The Smart Cube, a global professional services firm specialising in custom research and analytics. 

Bottled Water Makes A Splash As Popularity Soars

It seems that bottled water is making quite a splash…

As summer temperatures invariably rise, keeping effortlessly cool and on top of your hydration game is certainly a challenge.

In these health-concious times more and consumers appear to be shunning the carbonated drinks of old, in favour of healthier bottled alternatives.  If researchers are reading the market correctly it’s time for us to fight the sugar cravings, as the well-publicised links to obesity, not to mention dehydrating effects of our favourite sugary beverage mean the signs this year suggest sugar is out and h20 is very much in…

This comes just as Coca-Cola has revealed its second-quarter results. The numbers show that its North American carbonated drink volumes rose just 1 per cent, compared with a 4 per cent increase in noncarbonated drinks, including double-digit growth in its Smartwater range.

According to beverage industry experts contributing to a report into the market conditions within the United States, taste-makers are convinced that the popularity of bottle water will soon make it the non-alcoholic beverage of choice.

However the report also observes: “The market for bottled water is also being roiled by a number of disruptive forces, even in the midst of this generally upbeat view of the bottled water category.  For one thing, as supermarkets stock their shelves with loss-leading cases of plain bottled water, simply competing on the basis of volume and price no longer seems to make sense to marketers of major brands.”

Flavour of the weak

The research highlights another potential area of resistance too and that concerns flavour. With consumers attempting to rationalise their lack of enthusiasm for the liquid saviour by bemoaning its lack of flavour.

In order to answer these detractors, marketers are introducing new bottled water products in an assortment of vibrant colours, exotic flavourings and fashion-forward packaging. Another relatively new innovation that could help boost the bottle’s appeal are water enhancers. Introduced by Kraft Foods in 2011, water enhancers can completely transform your otherwise plain water into something that little bit more exciting.

According to a marketing executive with the DASANI brand, around 20 per cent of households buying bottled water also buy liquid water enhancers. As liquid water enhancers multiply in terms of numbers and innovative characteristics, they are likely to play a major role in shoring up the bottom lines of major beverage marketers.

The report too highlights the buying power (and influence) Millennials hold over the fate of the bottled product, commenting: “While consumption of premium European sparkling water brands has long served as a status symbol for urban elites, premium still water packaged in designer bottles has become the fashion statement du jour for more and more Millennials and GenXers.”