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Trade War Against China? A Supply Chain Perspective

Comments made by President-elect Trump last year sparked talk of a trade war with China. But what impact will this have on supply chains?

This article was originally published on My Purchasing Center.

The Chinese government recently raised a “tit for tat” challenge to new U.S. President-Elect Donald J. Trump over a potential trade war against China, in an editorial published on China’s international state news outlet Global Times.

The op-ed states that “[a] batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted…” if Trump decides to impose a proposed 45 per cent trade tariff.

A Special Trade Relationship

To overstate the significance of the U.S.-China trade partnership is quite difficult.

In 2015, they accounted for $659.4 billion in bilateral trade, of which $161.6 billion were Chinese imports of U.S.-produced goods. As the largest, and yet still one of the fastest-growing consumer markets in the world, China is vital to the strength and prosperity of America’s export economy.

Most notably, of the American-made products included in the Global Times statement, agricultural products ($20 billion), aircraft ($15 billion), and vehicles ($11 billion) are amongst the highest value U.S. export categories. They are therefore critical to the success of American companies operating in these industries.

From China’s perspective, it is no longer the emerging market economy of decades past. It can instead rely on its own considerable production capabilities, rather than sit by the wayside as the U.S. attempts to push a trade agenda through its considerable economic muscle.

iPhone Impact

Amongst the multi-billion-dollar trade categories, the iPhone may seem like a curious inclusion. However, despite FY2016 sales of nearly $50 billion in China market, Apple’s Chinese revenues are still projected to grow.

Beyond the obvious consequences of an iPhone sales freeze, or a 45 per cent trade tariff on Apple’s top line, there are also significant economic implications behind China’s statement from a supply chain perspective. In particular, from the viewpoint of a procurement specialist.

As the most valuable company in the world, Apple’s tremendous growth in recent years has primarily been driven by sales of the iPhone. The device made up over 63 per cent of Apple’s FY 2016 revenues.

Analyst estimates of the iPhone’s profit margins have put it at over 70 per cent of retail value. This makes it by far the most lucrative amongst Apple’s products, and likely across the spectrum of consumer technology products.

According to a recent report by BMO Capital Markets, the iPhone took an astonishing 103.6 per cent of smartphone industry profits in Q3 2016. What enables the iPhone to reap such staggering margins is largely due to Apple’s global supply chain. It entails near end-to-end cost minimisation, and an integrated procurement strategy from its hundreds-strong global supplier network.

Value Chain Activities

Apple’s value chain, from its inbound logistics and manufacturing through outbound logistics and marketing, all go through China in one way or another. Procurement plays a central role in providing each activity with the necessary resources to operate efficiently and at low cost.

A proposed 45 per cent Chinese trade tariff would fundamentally alter how, and from where, Apple procures the majority of these resources. It would also significantly drive up costs and logistical complexities throughout the whole of its global supply chain.

It is important to note that very few companies possess the in-depth supply chain practices of Apple. Therefore, integrating a centralised procurement structure into such companies’ supply chains becomes even more critical.

The prevalence of global supplier and distribution networks, like Apple’s, across modern manufacturing companies relays the important role of procurement specialists in the development of integrated strategies. These strategies must not only generate value, but also mitigate the multitude of risks associated with maintaining international supply chains.

In the event of significant geo-political and economic shocks, such as a potential U.S.-China trade war, procurement can work closely with companies to ensure manufacturing processes are harmed as little as possible.

This means that across affected countries, companies can rest assured that their sourcing, manufacturing, distribution and sales activities can be substituted quickly and cost-effectively through alternative sources, while maintaining similar levels of cost and operational efficiency.

Ultimately, no one can say for sure whether President-elect Trump will initiate a trade war with China. Or to what extent Apple and companies like it will be affected. However, companies with an established supply chain and sound procurement practices can sleep in comfort knowing that they will be prepared to face similar challenges that may come their way.

Looking Back: 3 Top Supply Chain Tech Trends In 2016

To look forward, we first need to look back and learn. What are the key supply chain trends from 2016 procurement needs to take account of in 2017?

As we look ahead to the New Year, this is also an opportune time to take a look back at the trends and innovations that began reshaping the supply chain in 2016. These trends will continue to impact procurement professionals throughout 2017 and beyond.

A Stronger Focus On Digital Supply Chain Networks

Many supply chains still utilise a mix of paper-based and technology-driven processes. However, more and more companies are moving towards fully-digital supply chain models.

In fact, in a recent survey, more than 75 per cent of respondents said that it was important or very important for their organisation’s supply chains to undergo a digital transformation.

An all-digital supply chain provides procurement teams with more visibility into their supply chain. This enables them to better understand their data, their processes, and their overall operations. Armed with this insight, it is much easier to address issues and implement improvements.

These are advantages that all supply chain professionals seek. As a result, the adoption of digital supply chain is expected to increase in 2017.

The Rise Of Blockchain Technology In the Supply Chain

All businesses are at risk of a cyberattack. Recent large-scale DDOS attacks that crippled sites like Netflix, Paypal, Reddit, Twitter and thousands of others proved a sobering reminder.

That is why many organisations and supply chain teams have started to adopt blockchain data structures to protect their valuable information.

A blockchain is a data structuring approach that groups data together into ‘blocks’. Every block cross-references the previous block and the following block to ensure the data is valid, creating a “chain.”

In addition, the full chain is not stored in a central location. Rather different blocks are stored on different computers and networks at the same time. Only those who have authorised access to the blocks within the chain can access other blocks and implement changes.

As a result, data stored in blockchains are very resistant to tampering, making it extremely secure in the face of cybersecurity risks.

Major companies are beginning to incorporate blockchain into their supply chains as part of their invoicing, auditing, and inventory-tracking processes. For example, IBM launched a platform to test blockchain technologies to track high-value goods. And Walmart used Blockchain to tackle food safety.

Blockchain gives supply chain professionals a means of combating cybersecurity threats while ensuring that items can be tracked in a transparent and secure way.

“Uberization” Takes Hold

If you’ve ever taken an Uber from the airport or rented a vacation home through a service like AirBNB, you are already familiar with the benefits of an on-demand, pay-per-use service. Now, the supply chain is getting familiar with them as well, as procurement professionals seek to leverage the approach to manage inventory and reduce costs.

For example, companies are now offering on-demand warehousing services, which could reduce (or eliminate) the need to maintain expensive distribution centres.

Just as procurement professionals are looking to benefit from the trend, companies are looking to capitalise on it. Boeing is betting big on the pay-per-use model and is leasing their planes to Amazon for its Air Cargo network. In the retail space, companies such as Nordstrom’s, Costco and Whole Foods are implementing new options for customers.

About a third of all supply chain professionals see Uberization as a disruptive and important element of the supply chain.

In the past year, these three technologies had a big impact on supply chains and the people who work in them. And they will continue to shape the supply chain in 2017. However, they aren’t the only ones. What other technologies do you think will play an essential role in supply chains in the New Year?

No More Supply Chains? Another Procurement Term Bites the Dust

With the advent of the supply ecosystem, the concept of the linear chains is outdated and misleading. Perhaps it’s time to let this term disappear.

broken supply chains

Introducing Watson Supply Chain from IBM. Get to know Watson here.

The thing about chains is that they’re linear.

No matter how complex they might be, supply chains are sequential by definition. They stretch from one geographical point to another, each link representing one of many upstream or downstream businesses that make up the whole.

But in a hyper-connected, interdependent world, the concept of the chain no longer does justice to the complexity of a supply manager’s role. Any attempt to map out a modern international supplier network will end up looking more like a cluster diagram, or a series of cogs and gears.

Or, to take an analogy from the natural world, a “supply ecosystem”.

Supply Ecosystems versus Supply Chains

To unpack some of the key differences (and similarities) between ecosystems and chains, let’s examine some key terms.

  • Interdependency

While a single link in a supply chain is only directly connected with its two immediate neighbours, each part of an ecosystem relies upon every other. This has been referred to as “super-connectivity” or “hyper-cooperation”. This comes with enormous benefits in terms of visibility, data collection and knowledge transfer.

  • Cooperation

Rather than having a single purchasing organisation sitting at the top of a supply chain, a supply ecosystem may involve a network of competing business with shared challenges. Collectively, they create and nurture a sourcing base that will benefit their individual businesses and the ecosystem as a whole.

  • Fragility and resilience

When a link in your linear supply chain snaps, the whole structure is at risk of collapse. A supply ecosystem is similarly fragile, as each component has its own important part to play. However, the difference is that the entire extended stakeholder network can work together to rapidly replace any missing part.

  • Knowledge

While organisations are eager to unlock potential innovation among their suppliers, they are often frustrated by a lack of visibility beyond the first-tier, or the neighbouring link in the chain.

Within the super-connected ecosystem, there is an increased flow of data, and better exchange of skills and knowledge. This means shared challenges are more likely to be solved through crowdsourcing among the entire network’s talent pool.

Again, problems will be tackled and solved with the conviction that what is good for the overall ecosystem will also benefit every member therein.

IBM Watson Gets It

IBM Watson helps supply professionals illuminate risks and opportunities to make better decisions through a proactive, predictive and innovation supply network.

The cognitive procurement technology leverages the entire ecosystem rather than the usual first-tier suppliers. This enables collaboration across every supplier organisation in your network to identify gaps, share capability and mitigate risks before they become obstructions.

The Supply Management Lexicon is Changing

The procurement and supply management profession is changing rapidly, and the language we use is changing with it. In 2016 alone we’ve gone so far as to declare obsolete three frequently used terms in procurement:

Do you agree that these terms have passed their use-by date? What other frequently-used supply management terms are also likely to disappear within the next decade? Leave a comment below!

Procurement exists in an ever-changing environment. Keeping up to date, even with terminology and concepts, can be a struggle. However, technology, like Watson Supply Chain, can help by making information available wherever we are. Find out more here.

President Trump and Procurement – The Impact

As the weeks unfold, we begin to get a better understanding of what impact a Trump Presidency will have on procurement.

trump impact procurement

There is, of course, no need to introduce the events of Tuesday 8th of November 2016 to readers. On that day, Donald Trump won enough Electoral College votes to be elected as the next President of the USA.

The implications for the procurement industry may at times be daunting and hard to anticipate. However this article should shed some broad light on some of the possible implications. Two of the main implications are infrastructure spending and trade deals.

In terms of Trump’s policy platform, detail is so often conspicuous by its absence. In his “Contract with the American Voter” however, he has outlined extensive policy proposals for his first 100 days as President.

Impact on Infrastructure

The first likely impact is infrastructure, which is one key tenet of this “contract”. Despite having far-right positions on many areas, Trump does have more centrist positions on some areas, especially infrastructure investment.

This may well boost the economy, albeit fuelled by debt, unless highly ambitious funding mechanisms come to fruition. He has vowed to spend $1 trillion on infrastructure over ten years. This would of course require huge procurement expertise for large road and bridge building and various other industries. We will have to wait and see what happens with building walls, however!

But the real impact of this expansive infrastructure spending would not be the huge procurement processes required, but more the method through which it may be achieved.

Whilst it is far from certain how the incoming administration could fund such a project, while providing perhaps the biggest ever tax cut, he would also need Congressional approval.

Public-Private Partnership Proposals

The infrastructure is not proposed as fully funded by the federal government, but largely through public-private partnerships (PPPs). If this sets a trend, the implications for funding of public services in the USA and other countries, especially developed market economies such as Western Europe, could be significant.

PPPs such as this have been generally successful in some cases and rampant failures in others. In the UK’s National Health Service for example, they have been a highly controversial mechanism. Many argue PPPs have fostered long-term financing issues, and harmed patient care and outcomes.

Further, many argue that the privatisation that PPPs cause brings about fundamental change to the relationship between the state and citizens. With this, public services are delivered based on promises of profit. For infrastructure investment to go ahead, it has to be based not on the gain for society, economy or environment, but where a surplus can be extracted.

Impact on Global Trade

The second main impact will be Trump’s influence on global trade, which is a driver of prosperity worldwide, alongside his threats of protectionism. Since the global financial crisis, cross-border trade has stagnated. This has been the longest period of stagnation for over 70 years.

Trump has an overtly protectionist stance. He has already threatened to hike tariffs on imports from China and Mexico, as well as pull out of the North American Free Trade Agreement (NAFTA) with Mexico and Canada.

In broad economic terms, this would increase living costs for domestic citizens. It would, without any doubt, be reciprocated by other countries such as China (as early noise coming from Beijing confirms). It would also affect jobs in export industries in the USA and the USA’s economy as a whole.

For public procurement in the USA however, this could also be significant. American public services could be restricted from products they currently source cheaply from abroad.

The increased costs from domestic purchases have to be made up from somewhere, such as savings in other areas, purchasing lower quality goods or increasing costs for users of public services.

The same could be true in Canada and Mexico. If the USA pulls out of NAFTA and applies tariffs on Mexican and Canadian goods, reciprocal protectionism would restrict Canadian and Mexican access to high-quality goods and services sourced from the USA.

Global Impact

Outside North America, the implications could also be significant for procurement professionals around the world. President Obama has been pushing hard to ratify the world’s largest ever free trade agreement – the Transpacific Partnership (TPP).

This opens procurement markets, and removes tariffs, between 12 countries, including Australia, Japan and Vietnam. Trump has confirmed he will cancel this deal on his first day in office. This will deny public procurement across all participating countries the opportunity to increase procurement competitiveness and reduce sourcing costs. It’s also likely to decrease the choice of the goods and services available for purchase.

The same is true with the Transatlantic Trade and Investment Partnership (TTIP). The trading impact of TTIP, between the USA and European Union, would have been huge. Whilst talks reached an impasse in 2016 when negotiating procurement market access, Trump is likely to be the final nail in the coffin.

TTIP again would have been a boon to procurement teams in all countries, with increases in competition and decreases in price for all countries. This would have provided European contracting authorities with tariff-free access to high-quality American goods and services and vice versa.

Despite the threats of uncontrolled climate change and protectionism, the impacts of a Trump presidency are really yet to be known. Yes, Trump may have secured his “contract” with the American voter. But the contract will be re-tendered in under four years. The outcome of that really is unknown.

3 Key Qualities That Help Create an Agile Team

Plenty organisations talk about creating an agile procurement team. However, few actually put the qualities in place to increase their agility.

creating agile teams

I recently attended The Hackett Group’s 2016 ‘European Best Practices Conference’ in London, where Nic Walden, Senior Procurement Advisor, led a Procurement workshop on creating agility.

Speaking to the 40 or so procurement leaders in the room, Nic noted that increasingly agility is the defining trait of world-class procurement teams, both today and in future.

“More agile functions will be better positioned to respond to complex business problems. They can make and implement important decisions quickly, respond rapidly to changes in business demands or priorities, and maintain or improve cost under volatile business conditions”, explained Nic.

But how do you go about developing your team, improve efficiency and move from low to high agility?

Using The Hackett Group’s model, Nic divided the qualities that contribute to agility into three categories:

  • Adaptive Organisation
  • Information Centricity
  • Agile Service Execution

1) Is Your Team Adaptive?

Perhaps most importantly, an agile team must be an adaptive one. There are several ways to achieve this within your organisation:

Keep Learning

With mobility, cloud, artificial intelligence, and supplier networks accelerating at an unprecedented rate, Nic urged workshop participants: “Even if you are not a technologist, it is never too late to become one.”

For example, what are these new technologies? And how might we apply them to create value for our teams and business?

Are you continuously transforming your team’s capabilities to ensure they’re keeping pace with the evolution of the business? To be sustainable, change management should be embedded in your team with the opportunities to continuously upgrade, learn new skills and employ new capabilities.

Change your Strategies

Top management looks to procurement teams to help the business execute purchasing strategies more successfully. In turn, this enables the business to become more agile and innovative.

There is no need to stick to traditional approaches when considering how best to include fresh thinking and new idea generation in your supply base. Leadership teams should make quick decisions, be calculated when it comes to risk taking, and seize opportunities to think and act differently.

Adapt to your Talent

The Millennial Generation represents one of the greatest potential challenges to managing and adapting to talent in the next year or two.

Surveys tell us Millennials are likely to remain in a job for three years or fewer. Training strategies need to be modernised to reflect this accelerated reality, as well as changing learning styles and preferences. Strategies like 70-20-10 that get people up to speed faster and the use of more interactive, workshop and team based formats should be preferred.

The pace at which open positions can be filled affects operational agility, as does the efficiency of your organisation’s on-boarding process.

Given that staff turnover can be high, as in the case of Millennials, it’s crucial to save time here in order to maximise the contributions employees can make to the business.

2) Is information, knowledge and intelligence centric to all your team does?

Perhaps the greatest opportunity remains for many organisations to leverage information to enhance decision making. This opportunity can be looked at much broader than only historic spend data.

Is your team able to navigate information effectively? Do you have the insight to take necessary decisions quickly?

Invest in the right technology

Nic highlighted how “world-class procurement organisations spend 23 per cent more on technology per FTE, and invest a greater proportion of their budget than the peer group on systems and tools to enable analytics capability.”

The right technology, implemented correctly and consistently across teams, is worth the investment.

Know your stakeholders

Make it a priority to engage with and meet your key stakeholders in order to understand their needs, the problems they face and therefore the data needed to solve these problems.

Decision-making should be based on actual information and KPIs tracking value delivery mutually aligned across your team and stakeholders.

Harness the Value of Big Data

It all starts at quality data. Big Data has the potential to transform analytics with real-time intelligence. Procurement leaders are realising that higher-quality information can help them drive greater business value.

Big Data has been a game changer when it comes to customer analytics, offering an unprecedented ability to quickly model massive volumes of structured and unstructured data from multiple sources.

Enhanced and more granular demand sensing and forecast accuracy are obvious examples for procurement and supply chain teams.

Automate Your Reporting

Adopting automated reporting and dashboards helps to streamline information, saves your team time and significantly reduces human error.

Real time reporting allows for speedier, pro-active decision making which will help your organisation to quickly achieve strategic alignment. What’s not to love?

3) Does your team execute service in a responsive, customer centric and agile way?

In an agile team, Nic notes that talent is “empowered, accountable and incentivised to focus single-mindedly on the customer – the internal stakeholder.”

Use Focus Groups To Prioritise

Set up focus groups to provide “voice of the customer” recommendations into what really matters. Your team’s product and service offerings should be designed from the outside in, beginning with the customer experience.

What outcomes or challenges will deliver optimum value? New innovations that your team seeks to implement should be driven as a result of customer and stakeholder feedback.

Act holistically

Try to create an end-to-end customer experience that cuts across multiple procurement (and sometimes other function) processes.

From the beginning, engage and involve the key players (ex. legal, finance, R&D, etc) in the processes that affect the customer experience.

Women in Procurement – An International Survey

Gender imbalance in business is clear to see. But, in procurement, how do professional associations stack up in terms of percentage of women members? 

Women in Procurement Study

Procurious recently launched Bravo: Celebrating Women in Procurement. Join the discussion here.

It’s well documented that females represent less than 5 per cent of CEO positions in S&P-500 companies, but organisation with greater diversity have enhanced business results.

Less described is the status of female participation across the procurement profession. So I decided to explore this using data from international Purchasing Associations (PAs).

Feedback from 22 PAs having a subscription base of around 230,000 members was received. I found that, on average, women accounted for 41 per cent of the membership base. However, the figure is skewed because the largest association is close to 50 per cent.

In reality, the majority of the other associations are in the 20-35 per cent female membership range. This also makes them a long way from gender parity.

PAs also reported that typically only 30 per cent of females attend their conferences and events, and that, correspondingly, a little under 20 per cent of women present at them.

There are also considerable differences between the national PA’s on how they are currently addressing the topic. Barring a few exceptions, most of them having no active forums.

Recent Procurement Studies

Various aspects of this topic have been outlined via a variety of different media. The most notable ones include:

Nonetheless, so far gender participation from a PA perspective has not been explored.

Methodology

Over 30 national PA’s were approached for their participation in a “Women in Procurement” survey. The following 22 replied: Australia, Austria, Argentina, Belgium, Canada, Denmark, France, Germany, Greece, Hong Kong, Indonesia, Italy, Japan, Netherlands, Poland, Portugal, Russia, Thailand, Turkey, UK, USA and Vietnam.

The PA’s were sent a survey that had a combination of quantitative and qualitative questions.

Women in Procurement – The Findings

The percentage of female members from the individual PA’s has been clustered and summarised into four groups. Of the 22 respondents 21 of them provided relevant data.

This identifies that the majority of the PA’s have considerable opportunity to approach membership gender parity:

The consultancy named “Catalyst” reports gender participation at different organisational levels in a pyramidal format. Unfortunately, despite trying to explore role level with the PA’s, they did not have enough data to be able to compose any related trends.

One exception, CIPS, the UK purchasing association, has a variety of member levels, differentiated by certification. The highest, most senior level (called Fellows) had 17 per cent women (despite being a cluster 4 PA).

Nonetheless, an interesting trend was noted in the decreasing differences between percentage membership, percentage event attendance, and percentage speaker/presenters.

For the PA’s as a composite group the trend was 40 per cent, 30 per cent and 19 per cent respectively. Not quite the pyramid, but certainly a trend with procurement women having decreasing visibility.

Furthermore, it does beg the question why is there a decreasing participation, and, what can PA’s do to achieve enhanced parity?

Maintaining Highest Level of Inclusion

Despite being informed by the MD of one PA that they “simply weren’t interested in this topic”, the survey research has been able to collate snapshots from different global PA’s and related associations addressing the Women in Procurement opportunity.

This includes:

  • CIPS-MENA (Middle East and North Africa) branch hosted a “Women in Procurement in Saudi” in May 2016. It is the first of its sort in the Middle East.
  • Procurement Leaders have launched in September 2016 an interesting microsite.

When talent compares a prospective career in Procurement with Finance, Marketing, Sales, IT, etc., our track record as a profession might be a problem. And it is hardly enough just to be aware of the issue.

Procurement Associations have an obligation, not only to their members, but to the organisations and communities that engage them, to maintain the highest possible standards and society inclusion.

Enhancing the Profession

What should Procurement Associations do to enhance the attractiveness of the profession…?

On 5th October 2016, CIPS-Switzerland held a “Women in Procurement” evening event. Over 80 participants enjoyed presentations from three great speakers. We now have plans to start a CIPS-Switzerland WiP forum.

The first letter of the word inclusion is “I” – what can “I” be doing about a topic of interest or an arena that needs addressing? It’s your turn now…!

John Everett is the CIPS-Switzerland branch chairperson as well as the EMEAI regional purchasing director for The Dow Chemical Company. His 30-year career spans product innovation, business development, procurement and business services leadership.

Carving Out a Niche in the Supply Market

Large organisations are no longer a closed shop for small, niche suppliers. In fact, they are now being actively sought out for their skills.

carving a niche

Procurious is at ProcureCon IT in Amsterdam this week. Stay up to date with what’s happening on Procurious, and by following us on Twitter.

The procurement profession has started to come to the conclusion that bigger isn’t always necessarily better. This is particularly the case when it comes to suppliers. Larger suppliers may be able to offer lower costs, and greater security but when it comes to agility and innovation,  niche suppliers are the ones for the job.

Traditionally, these smaller suppliers have been bunched into the ‘tail spend’ classification. However, procurement has realised that by allowing the tail to wag the dog, as it were, opportunities are being missed. Niche vendors have creative and unique methods of communicating and innovating that procurement should be tapping into.

Identifying and managing niche vendors was the topic of a very informative panel discussion at ProcureCon IT this afternoon. Chaired by Procurious founder, Tania Seary, the panel also included:

  • Soren Mølby Henriksen – Head of Procurement Innovation, Danske Bank
  • Claire Tapping, Head of Sourcing & Commercial – IT and Business Process Outsourcing, Rolls Royce
  • Samantha McCarthy, Global Procurement Manager IT, Reckitt Benckiser

Niche Suppliers a “Source of Innovation”

The question for procurement often isn’t finding smaller suppliers, but how to engage them. Traditional procurement processes are set up for larger suppliers, and it’s a much too onerous process for suppliers without similar resources.

But, as the panellists pointed out, large organisations are now turning an increasing amount of attention towards niche suppliers and adapting their contracts accordingly to be less risk averse.

Soren Mølby-Henriksen  noted that, within five years, banks won’t exist. The future of banking is digital, and it might take niche vendors to help this evolution.

Danske Bank recently stepped into the start-up market to source innovative suppliers. Mølby-Henriksen discussed why start-ups were such a big focus for Danske Bank’s procurement team. The set up in the procurement team is to address specific “pain points”. The bank has brought together a variety of suppliers, including start-ups, to conduct a dialogue on solving these issues.

Once solutions are found, they are documented, and then matured to see how they can be implemented. Although the process is relatively new, it’s found some solid support amongst Danske Bank’s suppliers.

Another positive for the procurement team is that it’s also helped to reduce negotiation time, as many discussions are happening up front.

Engagement a Mindset Shift

While Danske Bank appears to have found a way to engage niche suppliers, it’s still an issue for many organisations.

Claire Tapping discussed how there can be some initial pushback when it comes to engaging smaller companies over concerns that it might be too risky to do so.

But she believes it is often proven easier to negotiate with niche vendors who aren’t restricted by a hierarchy of governance and teams of lawyers trying to mitigate risks. Another benefit of niche vendors is that they have a smaller focus. As such, they tend to do what they do to a higher standard than a larger organisation.

Leveraging competencies, while keeping suppliers engaged can also be a challenging proposition.

The panellists agreed that the impact of disruptors, such as blockchain and bitcoin, on the Financial sector was driving a need for change. But, this change involved a serious mindset shift for many of the financial organisations.

Procurement needed to shift it’s business angle to fully understand what they were doing before they entered the market. The vendor space in IT and technology is a completely different beast, where suppliers might not work with you if your business isn’t trendy enough.

Agility & Responsiveness Key

The final tips for engaging niche suppliers was the key role that agility and responsiveness played for procurement. Claire Tapping highlighted the issues procurement faces in keeping pace with business changes.

Relationships and engagement with the suppliers would rely on procurement becoming a “customer of choice” for the smaller suppliers. Without staying more agile, procurement could face a situation where the supplier is brought in by the business. If this happened, procurement is left playing catch up, and its value is diminished.

For procurement in financial services, niche suppliers open up a whole host of possibilities. As Tapping reminded us today, many organisations bring in the smaller vendors because they don’t know what they want!  Once the suppliers are on board, there’s more new thinking in order to ensure great engagement.

How this plays out will be interesting to see, as procurement in other industries will need to do likewise, probably in the very near future.

What Tech Start-Ups Need to Know About M&A Deals

While M&A deals have decreased in 2016, broken deals are on the rise. So what do tech start-ups need to know before getting involved?

M&A rules

Christina Wojcik, vice president of legal services at Seal Software, breaks down the steps to consider throughout the M&A process.

With over $5 trillion in deals signed in 2015, it was a record breaking year for M&A activity. However, 2016 does not appear to be following suit.

Over the first eight months of this year global M&A dropped to $2.2 trillion with 28,720 deals. This is compared to $2.9 trillion with 30,894 deals at the same time last year.

In fact, 2016 appears to be a record year for broken deals instead. Between Brexit concerns and US anti-trust regulations, an increasing number of deals are breaking down before they become official.

The Unknown 

M&A deals are complex events that require overcoming a hefty number of obstacles. These include corporate governance, forms of payment, legal concerns, contractual issues, regulatory approval and tax issues.

It’s very challenging to fully assess and understand the kinds of contractual risks, restrictions, obligations, and exposure companies will take on after the deal is closed.

Uncovering this information requires many hours of manual contract review work from either a law firm or lower-cost legal service provider. Before they can even begin reviewing the documents, organisations first must find and centralise all the relevant contracts.

This may sound simple, but tracking down thousands of contracts, which have been created in varying formats, across different departments, and stored in various locations over the years, is an arduous and sometimes overwhelming undertaking.

The Real Work

Once all contractual documents are collected, the real workof extracting contract data begins. It’s vital that the data be useful before closing a deal. Legal teams must review a host of provisions, and not fully understanding assignment or change of control provisions can be especially detrimental to the dynamic of the acquisition.

If your contracts cannot be assigned, or if change of control triggers automatic termination for cause, the strategic value of the acquisition may be called into question. This can, in turn, lead to many hours of renegotiation.

In addition to assignment and change of control, here are a few more to consider:

  • Be aware: Auto-renewal

Many sales organisations work to negotiate auto-renewals and every procurement department dreads tracking auto-renewal provisions. If the goal is to terminate a contract within the specific notification period, you must know which contracts contain the provision and the window for cancellation.

A missed auto-renewal can result in hidden costs that most companies will not have considered. One of our customers, a large energy company, discovered they were auto-renewing a lease costing $400,000 per year on property they didn’t use, three years after a takeover.

  • No nonsense: Non-competes & non-solicits

Monetary damages can also occur if a company breaks a non-compete or non-solicit clause. It’s important to know whether contracts include these provisions, as a non-compete is a promise from both the buyer and seller to refrain from engaging in activities with competitors.

A non-solicit clause prohibits a company from trying to lure or hire the other company’s customers or employees. This is particularly relevant when two companies in the same industry merge, as many of each company’s existing customers or partners are likely competitors.

  • Identify: Indemnity

The acquiring company should clearly understand what the target company has agreed to indemnify. These limitations of liability can be very complex and should be heavily negotiated prior to closing an M&A deal.

These are often the most negotiated provisions and typically have cross-references which makes them especially difficult to fully comprehend.

Careful review of the indemnification provisions of each contract is needed to ensure that these provisions align with the combined entity’s indemnification standards and practices.

  • Limit: Unlimited liability

When startups are motivated to close a new deal, especially with big, recognisable brands, they will often accept potentially unacceptable provisions. This is commonly seen with limitation of liabilities. Accepting unlimited liability does not necessarily pose a large risk to a startup, because they have much less to lose.

However, it can pose a significant risk to established organisations with much higher exposure if they accept that unlimited liability. It becomes very important for the acquiring company to quickly identify contracts containing unlimited liability. They can then look to renegotiate, amend, or possibly terminate, the contract.

We worked with a software giant which bought a startup and discovered it had inherited numerous unlimited liability provisions. A small problem for the $1.5 million startup, but a much bigger problem for the $1 billion company.

The Silver Lining

As M&A activity increases, especially within the startup world, knowing what’s in contracts is more important than ever. Having easy access to and visibility into contracts data is essential.

Due to the time sensitivity on many M&A deals, and the manual labour often required to analyse contracts, most companies resort to sampling just a small portion of the target company’s contracts. They assume that if the sample passes the test, the rest will as well.

But, countless cases prove that this approach exposes the acquiring company with risk they had not anticipated. Luckily, current contract technology offers machine learning and natural language processing solutions.

This allows organisations going through the M&A process to streamline the due diligence process, to consolidate contracts, pinpoint and understand risk, and uncover vendor consolidation opportunities.

Contract Intelligence Can Reduce M&A Concerns

Contract intelligence solutions can also help to alleviate some of the M&A concerns companies have when it comes to Brexit. By gaining full insight into the terms impacted by the separation from the EU, such as governing law, currencies, and other commercial terms, companies may find that the merger, acquisition, spin-off, etc. will actually give them a competitive advantage or provide for growth.

By extracting metadata and clauses through a sophisticated search and analytics, businesses can quickly understand the risk and opportunities in those contracts and determine if there is still value to the deal. This will help facilitate closures with the added security of fully knowing what is being acquired.

So put away the extra water or paracetamol. By understanding contract terms, you’ll prevent the post-deal hangover that so many rushed deals result in.

Christina Wojcik leads the Legal Service Channels division, globally, at Seal Software. As VP of Legal Services, Christina engages with legal industry partners to create best-in-class solutions to meet the complex contractual needs of Fortune 1000 organisations.

Seal Software is a leading provider of contract discovery. It uses artificial intelligence and natural language processing to help companies efficiently uncover what’s in their contracts.

Getting Ahead of the Cognitive Technology Wave

There’s a paradox in artificial intelligence and cognitive technology. They can help us stay ahead, but also be the cause of major disruption.

cognitive technology

Introducing Watson Supply Chain from IBM. Get to know Watson here.

“The future always comes too fast.” Those are the words of Alvin Toffler, the best-selling author and futurist known for his works examining the impact of technologies.

It seems paradoxical that the technologies that help us stay competitive in today’s global business environment can also disrupt industries.

For example, if your career spans 25 years, you probably have some personal perspective on this disruption. We’ve seen the Internet, enterprise software, and mobile phones emerge and evolve – and now could never imagine doing business without them. They’ve not only transformed our businesses and industries, but our lives and our world.

Some technologies cause ripples, some cause waves. Some businesses and industries benefit from the resulting changes, and others fall behind. A few businesses see changes on the horizon and take action. Yet others get swept up in the tide.

The Next Wave: Cognitive Technology

What’s the next wave? The next game-changing technology on par with the Internet, enterprise software, and mobile devices? Many analysts point to artificial intelligence, also known as cognitive technology.

Cognitive technologies are no longer the realm of science fiction. According to TechRepublic (ZDNet), technology and economics are aligning in a way that puts us at “a tipping point after which the use of artificial intelligence will become commonplace.”

IDC estimates that, by 2020, 50 percent of all business software will incorporate some cognitive computing functionality.

Also, the Pew Research Center noted, “By 2025, artificial intelligence will be built into the algorithmic architecture of countless functions of business and communication, increasing relevance, reducing noise, increasing efficiency and reducing risk across everything from finding information to making transactions.”

The Thinking Technology

Cognitive technologies actually understand, learn, and think through any objective, problem, or question you present, and then offer detailed answers, analysis, or solutions. They reason and learn like a human, but at enormous scale and speed, providing deeper insights and intelligence.

Cognitive technology presents a tremendous opportunity to business and procurement. For example, with cognitive technologies, procurement organisations can provide very detailed supplier assessments in just minutes, drawing from a wide range of data sources.

Additionally, they can provide much more in-depth risk assessments and uncover previously hidden sources of disruption and risk. And procurement can become more adept at innovating, providing the business new insights and opportunities.

In sum, cognitive technologies can unlock unimagined new insights, enable enhanced decision making, and deliver highly optimised outcomes and value.

Opportunity or Disruption

The opportunity for cognitive technology is tremendous, but organisations need to look ahead and prepare. Procurement leaders should start thinking how cognitive technology will transform roles and organisations. They must re-skill their team with talents that enable this shift.

Perhaps the best ways to do so are to start cognitive projects in certain key areas. Think about what projects or processes in your organisation could most benefit from cognitive technology.

As you apply these technologies to certain tasks and processes, you’ll begin developing internal capability and expertise. And you’ll begin to enhance the skill set of your professionals.

Another way to prepare for the cognitive future is to develop and hone data analytics skills and projects. Even in the absence of perfect systems or perfect data, analytics programs can provide tremendous value.

Levels of procurement and analytics maturity can vary and evolve over time. However, analytics can immediately play a key role in enabling procurement transformation and success, across a number of areas, including:

  • Savings and value creation;
  • Risk mitigation; or
  • Supplier development and innovation.

Research shows that the most successful procurement organisations take a more comprehensive approach to analytics technologies. And such programs build the foundation for application and success of cognitive technologies.

The future is always just around the corner. But some waves of technology innovation are bigger than others. Cognitive, by all accounts, is one of those big waves.

For those who fail to prepare, it guarantees disruption. For those who take the reins, it presents tremendous opportunity.

What if you could see the supply chain road ahead and mitigate risks before they become obstructions? For procurement, this helping hand can come from IBM Watson Supply Chain. Find out all you need to know here.

Supplier Engagement – The Advent Calendar Challenge

This Christmas, why not turn your advent calendar into a supplier engagement challenge? Sorry, there’s no chocolate involved…

advent calendar challenge

An idea came to me during a recent commute. With the shopping days to Christmas rapidly counting down and as we start to look forward to the season’s festivities, I thought about my son’s advent calendar and the treats he’ll find behind each door.

Then I thought about a way to turn this into a powerful and productive challenge to build, reinforce and develop relationships with suppliers.

Here’s my idea. There are 17 working days this December – 17 doors. Behind each day’s door could be opportunity, problem resolution and innovation!

The challenge is simple – to call a different supplier each day and have a conversation. Simple. Too simple perhaps. So there’s a Beginner, Intermediate, and Advanced challenge depending on how comfortable with supplier engagement you are.

Beginner Level

The easiest suppliers to speak to ‘should’ be the ones you currently do business with.

Call one of your current suppliers each day during December. Thank them for their help this year. Tell them what they’ve done well, how they’ve helped you and your business. Also, tell them what you’re looking forward to improving on with them in 2017.

Practically too, this is a great opportunity to find out what the supplier’s business hours will be over the festive period to ensure that contact arrangements and any contingency plans are in place if required.

Be interested in their plans for the festive break. Finally, make sure there’s something in the diary for 2017 to continue the conversation.

Intermediate Level

The intermediate level is to call a supplier you’ve never spoken to before (but which might be relevant to your business of course).

Find out what they do and how they do it. What have been their biggest achievements this year and what have they got planned for next year.  By this stage you are likely to have either ruled them in, or out, as interesting for the future.

If of no interest, that’s fine – but maybe they’ve got something very relevant to offer you in 2017 and they could help you. If that’s the case, book a follow up meeting for January! And yes, Public Sector friends, this is ok!

Advanced Level

The hardest group of suppliers to pick the phone up to might be those that have responded to your RFx and Tender processes this year, but which have not secured any of your business. Or suppliers whose contracts have expired and you’ve gone your separate ways.

Call one of these suppliers each day during December to thank them once more for their participation in your process or previous contracts. Find out how business has been for them this year, and whether the feedback you gave them has been useful to them and how they have developed or improved.

Ask them what they are looking forwards to next year and think about whether there might be an opportunity to re-engage in future.

Reward

Whilst an advent calendar themed challenge is a bit of fun, the benefits of this challenge I hope are obvious.

From practical information like opening hours over Christmas through to discussing, and potentially solving, real business problems. From identifying potential innovation opportunities to just finding out what your account manager is doing for Christmas, these conversations could add real value to you and your organisation.

Remember, as you walk past shop windows at this time of year, that you are your own personal shop window. And you are your company’s shop window to its suppliers, past present and future.

These conversations will build your personal brand and your company’s brand too. You might even have a list of ideas and opportunities to look forward to on that difficult first working morning after New Year too!

Share your Stories!

As it is the season for sharing. Please comment or reply and share your feedback on this challenge and on some of the conversations you’ve had. No one is going to check you’ve made 17 calls, but if everyone makes some calls, I’m sure there will be some direct value from it.

Enjoy connecting, and Season’s Greetings to you all!