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Are Your Suppliers Treating You Like a Cash Cow?

Businesses are at risk of being treated like a cash cow by their suppliers if they are not managing their supplier agreements and contracts with complete visibility.

This article was written and has been shared with Procurious by Daniel Ball, Director at Wax Digital.

We’ve all done it. Stuck with the same old suppliers year after year, because they’re doing the job and, let’s face it, it’s far less hassle to stay put than to make a change. Whether it’s for banking, car or home insurance, or even utilities, as long as prices haven’t risen too significantly, and you’re getting what you pay for, why go to the effort of changing?

For the consumer, a failure to review supplier agreements means that, at worst, you’re potentially missing out on a more competitive deal (and a complimentary Meerkat). For a business it can have much more serious consequences.

A large organisation will typically have hundreds or even thousands of contracts in place. A lack of management of these contracts can have a huge impact on business performance, bottom-line and risk. So what can organisations do to make sure they’re not milked like the proverbial cash cow?

Lack of Clear Visibility

Auto-renewing ‘evergreen contracts’ are a problem we see frequently, and they cost organisations millions of pounds in wasted budgets or unintentional spend. With no system in place to effectively manage contracts, they can easily get ignored or forgotten about, and without realising it, you’re locked in for another 12 months.

Worst case scenario, a high value contract has auto-renewed just as you sign another with an alternative supplier offering a similar service, or decide that you no longer need this service at all. It’s easy to see how missed renewal dates, contract overlaps, timely supplier reviews or intended supplier terminations can be overlooked.

This can be an inconvenient truth for large organisations whether they have a procurement function or not, left grappling to manage the contracts they have in place without clear visibility of them.

Aside from wasting money, with no control over contract terms, how can you be sure that your contracts are delivering what was originally agreed with the supplier? If you’re not in the habit of reviewing or monitoring your supplier contracts, the service you are receiving may have gradually moved away or deteriorated from what was originally intended.

The supplier may have been providing alternative quality products (substitutes), changed services levels or personnel (in the case of professional services), or altered other factors from the original terms agreed. All of this could potentially reduce the value of the original agreement.

Factoring in Change

It’s also necessary to consider the changes that will undoubtedly have occurred in your business since your contracts were first put in place. Throughout the lifecycle of a contract, it’s highly likely that your business will have changed in some way, whether that’s changes to pricing, or other things which may affect the terms of the original contract, or your organisational needs.

For example, the sum you spend with a supplier may have quadrupled since the start of your contract, putting you in a far stronger buying position. This of course should mean you are in a better position to negotiate discounts or lower rates, but it is difficult to do this without having the facts at your fingertips.

The first step towards managing contracts effectively is to have a clear and in-depth understanding of them. This won’t happen if they’re stuffed in the top drawer of a filing cabinet, or indeed held by each department that owns the supplier relationship.

The last thing any department head wants is to be going into a new budgetary period with a legacy of unwanted supplier costs to justify and accommodate. It’s one thing to have to field tricky conversations with your CFO, but another entirely using up valuable budget on historical services that are no-longer essential to you.

Your suppliers’ contracts themselves hold the answers to many of the key things you need to know in order to effectively manage them. How often do you actually review your suppliers’ contracts? And how do you get the information you need to effectively monitor, manage and measure the value they are delivering to your business?

Avoid Being a Cash Cow

Contract control gives you sight of which contracts are up for renewal in the next few months. If you’re unhappy with that supplier then you have the time to put them on notice, or appraise their performance and renegotiate a better deal. Or if you wish to invite new suppliers to bid for the contract, you have time to factor in this work and consider your options.

Effective contract management is an essential part of the supplier management process. It is only made possible if they are held in a central repository so that they are accessible for all key stakeholders.

Such a repository enables all contracts to be reviewed periodically to determine if changes are needed or even if it should be renewed at all. The growing realisation for this process to be automated has led to the adoption of contract management systems.

These systems deliver a simple and secure way to store contracts which are easy to audit and provide automated alerts and reminders if an agreement is due to expire. A full contract management system within an integrated source to pay process can further streamline the process by automatically adding newly sourced suppliers’ contracts to the repository for future tracking.

So don’t risk becoming a cash cow to your suppliers because contracts were signed and filed away years ago. A structured and more formalised approach to contract management is the key to unlocking operational efficiencies, compliance and savings.

Manage Your Business Logistics like A Pro

How do companies make sure that their business logistics foundation supports all the qualities required to remain competitive in their industry?

An efficient, responsive, understandable and, above all, dependable supply chain is crucial for business success and ROI in today’s on-demand environment. A company that gets their business logistics wrong, and runs a disorganised and ineffective supply chain, is ultimately going to less profitable than its competitors – no matter the business.

Complexities of Logistics Management

Mediocre resource management usually leads to an inferior final product. Companies need to explain to their customers where their supplies come from, otherwise they risk losing customers’ trust, and even more important, orders.

In addition, competing on price is very difficult if you do not have a strong and practical logistics process. Ineptitudes in supply and delivery chains lead to higher operational expenses and lost productivity.

Nevertheless, managing business logistics is easier said than done. It requires at least a fair amount of knowledge in order to be executed correctly. Therefore, here are a few tips for managing logistics at your company, all of which are worth taking into consideration.

  • Use the Newest Logistics Software

The only way for your company to compete with the opposition is to keep pace with them, or to be one-step ahead of them. New technology is becoming more and more available, and you need to take advantage of it. The market for SCM (Supply Chain Management) software has been growing steadily for the last couple of years.

Although automating the movement of merchandise through a warehouse does require a decent investment, the equipment will pay for itself over time. Moreover, by automating the procedure, you will eliminate human error and speed-up the movement of goods.

  • Maintain Strong Relationships along the Supply Chain

Always remember that your supply chain is only as strong as its weakest link. Make sure that you build and maintain a strong relationship with your vendors and suppliers, so that the goodwill you earn will keep your operation running smoothly for years to come. One bad relationship could potentially ruin your entire supply chain and cause failure.

  • Continual Logistics Monitoring

You could accomplish this by using shipment-monitoring software. This enables you to see what is happening at every step in the process, and take care of all blockages and problems before they affect your customers. Furthermore, monitoring and reviewing each move you make will help control your costs and find the way to deal with weaknesses in your organisation.

  • Utilisation is the Key

Being ready for seasonal changes and demand is second nature in every business. Using innovation and utilisation to plan ahead is the key. If you are managing a warehouse, you should certainly look into the best possible solution for your pallet racking.

Whether it is taking full advantage of every inch of your storage space with improved warehouse management, or using the latest fleet management software to make your mobile enterprise more cost-effective and efficient, you are making better business decisions when you insist on complete utilisation. In addition, making those decisions through better, up-to-date data, are the first step in planning future success. So always think forward.

Make Logistics a Competitive Advantage

Sometimes, your logistics may seem like a burden, but it is also a competitive advantage. By optimising your shipping and storing processes, you can reduce your shipping costs, and make your product as competitive as possible. By improving your logistics management you will have a meaningful impact on the management of your overall supply chain and, eventually, the efficiency of your business as a whole.

The Value Companies See With Sustainability Standards

As societal responsibilities grow, many organisations are turning to sustainability standards in order to demonstrate their supply chain transparency.

The discussions on Procurious reflect a number of questions procurement professionals face when trying to implement a sustainable procurement policy. Just what is sustainable procurement? Does it cost more to source sustainably? Have I got the time and resources to meet my own or my company’s targets? What value will sustainable sourcing bring to the business?

With the focus extending beyond environmental and sustainability issues to fair and ethical treatment of labourers and producers, the responsibility can be broad.

Increasingly, procurement managers are recommending sustainability standards as a way to ensure independent, transparent assurance of their supply chains. Partnering with a sustainability standard can help companies, which do not have the knowledge or capacity, to manage all aspects of responsible sourcing on their own.

Certification can work as a tool for managing the full range of issues. This is particularly the case for commodities, where environmental and social sustainability can be complex, and where the producer can be many links down the value chain.

Changing Procurement Process

However, making changes to well-established procurement processes is easier said than done. Businesses need to be clear on the value of choosing sustainability standards to meet their sustainable sourcing goals.

ISEAL Alliance interviewed existing users of sustainability standards – retailers, manufacturers, traders and others – on what they saw as the value of working with credible sustainability standards (certification systems), like those that are members of ISEAL.

It became evident that the value of certification was high, but it varied depending on the type of business, the sector, the geography, or other factors.  The interviews also showed that certification was not always valued in the way one might expect.

While market differentiation and increased sales were mentioned by a few companies, the potential value of a visible ‘ecolabel’ was never the primary reason for the partnership.  Instead it was often about supply chain challenges.

Companies revealed the value of sustainability standards to their business in five key areas:

  1. Making complex supply chains more understandable. This included providing better traceability, simplifying what is asked of suppliers by using agreed standards, and generating better relations with producers.
  2. Mitigating risk. Rigorous auditing, transparency of origin, and outsourcing assurance of responsible practices to local experts, helped companies mitigate risks of sourcing from complex supply chains.
  3. Ensuring sustainable supply for the whole industry. Several companies noted that by their investment in certification, they were strengthening the reputation and ensuring a sustainable future for the whole sector.
  4. Meeting consumer expectations. By communicating compliance with sustainability standards, companies said they were increasing consumer awareness of sustainable sourcing and creating market differentiation for their products.
  5. Reflecting a company’s values and heritage. As well as aligning companies’ goals with their values and maintaining trust, certification also provided a way to engage more deeply with employees.

Click here to read interviews with M&S, IKEA, Mars, Woolworths, Wilmar, De Beers, Domtar, Bumble Bee Seafoods and Tetra Pak.

Strengthening Commitment

ISEAL also recently created an online tool for companies to understand what good labels look like.  The site, called Challenge the Label, explores five universal truths of a credible claim or label. It aims to help procurement professionals have deeper conversations with their suppliers and partners, before choosing to develop or use a green claim on or off product.

Many companies also use their own codes of conduct or auditing programmes, and they see these as complementing their use of certification. While those interviewed agreed that the sustainability landscape is changing dramatically, they also said that their company’s commitment to certification will only deepen over time.

The goal for procurement professionals has to be to embed sustainability into everyday business. Using sustainability standards can help to deliver cost savings, address supply chain risks and ensure transparency. Making procurement decisions today in a manner which preserves resources for future generations as well as for future business makes good sense.

Is Procurement Serious About Sustainability?

When price is king, and procurement is often accused of “bullying” suppliers, can we really say procurement is serious about sustainability initiatives?

This article is by Gerard Chick, Chief Knowledge Officer, Optimum Procurement Group.

As we entered 2016, many of us will have made New Year’s Resolutions. It strikes me that this is as relevant to our professional lives as it is to our personal lives.

Eating or drinking too much is as unsustainable as exercising too little. The above all have outcomes that are bad. We know they are bad, and we also know that to change them is hard.

Last year, the newspapers and other media outlets were teeming with stories about procurement professionals using “bullying” tactics against suppliers, and with claims that big brands were using their power to squeeze suppliers. Inevitably a breakdown of trust (amongst other things) began to emerge, and this clearly needs to be resolved.

We read about farmers protesting against Morrisons’ terms of contracts. We read about Majestic Wine dropping their chief buyer after its pre-tax profits dropped by almost half, and supply chain relationships became tense after it asked suppliers to give them cash towards new warehousing. We also read about Carlsberg facing hostility from its suppliers after it extended its payment terms to 93 days.

Regrettably, such practices are all too common. The tactics used by big business towards suppliers have become a standard feature of today’s marketplace, where price is king and any means of reducing costs seems to be considered valid.

Contemplating Behaviours

And yet procurement frequently claims it is in the van when it comes to issues regarding sustainability. Some supply managers are, but many aren’t. A more sustainable supply chain is needed, but it will only emerge when the breakdown in trust between suppliers and procurement is resolved.

Let’s take a step back. The word frequently used in the media was ‘bullying’, but perhaps if we are to put this right we should contemplate ‘behaviours’. A better word, I feel, and one we can focus on in a more professional manner.

Perhaps these behaviours reflect that many of these people are simply unskilled and, even worse, unaware of it. The difficulty being that it is hard for them to recognise their incompetence, which in turn leads to inflated self-assessments of their skills and abilities.

Bad relationships are not just about negative publicity and brand damage, but also impact on the ambitious sustainability targets many businesses are now setting themselves.

Take climate change. Up to 90 per cent of the greenhouse emissions linked to a company are generated outside its immediate operations, with the lion’s share often occurring in its supply chain.

Collaboration Over Compliance

Moreover, business’ struggle for economic survival must not come at expense just about anything else! Big business characteristically operates in a top-down manner. Supply managers issue suppliers with codes of conduct and environmental targets, and oblige them to comply. The result is an exploitative game between suppliers and auditors sent out to verify farms, factories, working conditions and so forth.

Not only is compliance difficult to achieve, especially beyond the second tier, but it’s only half the story. A more effective solution would be for procurement professionals and suppliers to work together to develop innovative solutions to supply chain issues and to help ensure each others’ sustainability.

It strikes me too, that the smaller, more agile supply organisations (as well as procurement organisations) are more likely to be able to innovate than the behemoths of big business, stuck in their cycle of annularity and the need to satisfy shareholders at all costs.

Tapping Supply Base Creativity

So how can companies looking to become more sustainable tap the creativity of their supply base? The first and most obvious answer is to cut the double-messaging. Corporate procurement teams are frequently blindsided by a ‘cost-out’ mantra. The risk this poses is it frequently supersedes all other agendas and that is simply not sustainable.

The perennial issues of time, cost, quality and service will always feature in procurement decisions, but social and environmental considerations must be factored in as well. Alignment is key. For example, Marks & Spencer prohibits its procurement teams from purchasing any product that can’t meet at least one of the goals of its corporate sustainability plan.

This often leads suppliers to view such demands as a box to tick. To remedy this, suppliers need to be incentivised. New ways of working need time, resources and dedicated attention – all of which are at a premium for small suppliers.

Changing Behaviours

What is needed is a change in behaviours and the development of more trusting relationships. Ideally procurement organisations need to co-invest in the long-term research and development with their key suppliers.

As mentioned above, annularity dominates the mind-set and behaviours of many large companies. They simply focus on the short-term and would rather sit back and wait for proof of concept, than stump up the cash and experiment.

Ultimately, talk of sustainability-focused supply chain innovation will only ever begin to take effect when the breakdown in trust between suppliers and buyers is resolved. That requires a shift from a model based on adversarial brinkmanship, to one of mutual interest and transparency. The more open and honest a corporate customer is about its sustainability challenges, the higher the chance of generating innovative solutions.

Perhaps now is the time for procurement professionals to make a New Year’s resolution.

3 Key Steps to Effectively Improve Manufacturing Operations

As the name suggests, reducing manufacturing complexity is no simple task. Success in this area requires careful planning, analysis and implementation.

Simplifying manufacturing operations should always be done in a way that doesn’t adversely impact product performance or customer preferences. Top performing organisations typically take the following three key steps to identify opportunities to reduce complexity:

  1. Analyse drivers of complexity and key market trends

Higher customer expectations for customisation and service have increased manufacturing complexity. These expectations demand greater flexibility in operations, but can also improve overall revenue opportunities.

However, increasing complexity has also been highlighted as the cause of  significant cost increases. These cost increases can be attributed to lower performance levels, or increased inventories of materials or finished goods.

In order to reduce complexity, it is important for organisations to understand the key market trends that are driving demand. Once trends are understood, they can then be analysed in order to develop new manufacturing strategies.

  1. Examine best practices of top performing organisations

Understanding what top performing organisations are doing is a key way to establish industry best practice. However, best practice should typically act as a guideline rather than a hard rule. Any strategy for complexity reduction should be tailored to fit an individual organisation. What works for one organisation may not necessarily work for another.

It is often difficult to replicate the best practices of top performing organisations, as best practice will be linked to a number of factors. However, by using this as a guideline, organisations will be able to identify where changes can be made.

Data on best practice is not always readily available. You can use the Hackett Group’s repository of key best practices is a good place to start gathering data. This will ultimately allow you to carry out your analysis and plan new strategies.

  1. Benchmarking against Key Performance Indicators

Many potential metrics and KPIs are available to measure the performance of an organisation’s manufacturing complexity. Using these KPIs will allow organisations to benchmark themselves against industry leaders.

Of all the available metrics, there are several that The Hackett Group recommends using to indicate the overall effectiveness of complexity reduction initiatives:

  1. Production Rate as a percentage of Maximum Capacity
  2. Total Inventory Turns (Raw, Work in Process (WIP), Finished Goods)
  3. Finished-Product First-pass Quality Yield
  4. Scrap and rework costs as a percentage of sales (see below)

Manufacturing Complexity Reduction_Slide 6

As with all metrics, it’s important to be measuring the right things. The SMART (Specific, Measurable, Achievable, Relevant, Timely) rule will also help you ensure that good data is output from them. You should be looking to limit the number of KPIs to around 6 or 7.

The Hackett Group’s Perspective

Reducing manufacturing complexity is a crucial element of a successful supply chain. Through reducing complexity, organisations will typically see a number of improvements. These include:

  • Reduced overall product cost
  • Stock Keeping Unit rationalisation
  • Improved product performance
  • Reduced product development cycle
  • More motivated and specialised workforce
  • Increased manufacturing flexibility
  • Better product planning and scheduling
  • Improved supplier relationships and performance

Reducing manufacturing complexity is a crucial performance indicator in itself for the supply chain. By driving changes across operations, organisations will start to see improvements in their supply chains, and will move towards being a top performing organisation.

If you want to learn more about trends, best practices and metrics you can use in manufacturing complexity reduction, download the Hackett Group Supply Chain Insight Report here.

Marcos Cominasa is a Director in The Hackett Group’s Strategy and Business Transformation Practice. He has over 18 years of management consulting experience, and specialises in improving supply chain operations for Fortune 500 companies.

What Tinder Can Tell Us About Job Hunting – Part 3: Playing the Game

Tinder can be a whole lot of fun. Like Snap, but infinitely more stimulating. But it’s not a game, and needs to be treated with the respect it deserves, or people can be left hurt and disappointed.

Read Part 1 and Part 2 of this series.

This series of articles was co-authored with Andy Storrar, Digital Marketing Specialist.

Your search for a new job is the same. Like Tinder, you could take a YOLO approach, frantically swiping right on everything and waiting to see how many matches you get, but I wouldn’t recommend it. Recruiters and Employers keep databases of candidates. You don’t want your earlier flurry of applications for completely inappropriate jobs to undermine your chances of an interview for the perfect one next week.

So act with consideration, select your targets carefully, and the validation you gain from achieving a fantastic match will be all the greater. And you know that feeling of “Tinder Remorse” that can occur if you’ve swiped left too quickly (or swiped right without thinking properly)?

Well, it’s worse when it’s being pointed out to you by a recruiter that you’re not appropriate for this role either. So slow down, and give careful consideration to what you want from that big next step.

Stay Organised

Now, nobody’s suggesting you’re going to be as active as my friend Robin. She’s pretty much a Tinder pro. Last time I asked her, she was averaging 3 first dates and the same number of follow-ups each week. She barely has to buy dinner, let alone drinks, and is the proud owner of an insanely long list of matches, even after deleting the ones who open their messaging with “Hi, how are you?”

The number of dates she goes on is limited only by the miserly 7 days in each week and her own level of tiredness. But how does she keep track of where she is in these multiple simultaneous processes?

Robin keeps a spreadsheet. No, seriously. As a procurement professional, you’ll probably have come across one or two of these. I’d hazard Robin’s is a little less numerical than some, but the principle is exactly the same. It’s helped Robin keep track of conversations, venues, insights and key facts about her suitors, and helped her avoid embarrassing situations relating to her busy social life.

Robin may be an extreme example, but the tangled web that we can weave in online dating can often be reflected when job hunting. It’s quite usual to be chatting to and meeting several people in the same month through Tinder, and just as likely that you’ll be wooing several different employers simultaneously, and at varying stages of each relationship.

A simple spreadsheet can be an effective and diplomatic way of managing your information. You should be making notes of your conversations with recruiters anyway, but putting them all into a single document with sensibly indexed and easily referenced categories is a move you won’t regret.

Do Your Research

Information isn’t just gained from meeting a date or a potential employer, of course. Research is key too. We’ll deal with that in another article, but remember that it works both ways. Google will likely lead you to a wealth of insight about a prospective employer.

It will also allow them (like a Tinder match who knows your surname) to find out an awful lot about you. Remember your digital footprint, and consider restricting public access to any social media accounts that might not represent you in the best light.

There’s more than one game in town too. Tinder is certainly one route to meeting people, but if you’re looking for a partner you definitely shouldn’t restrict your search to Tinder alone. Apart from an ocean of different dating websites, you know that friends, colleagues, social activities and even chance encounters are all chances to ‘match’.

Vary Your Habits

And so it is that varying your job searching habits can reap rewards too. You won’t always find your perfect match via the search engines and even the most successful and broad-ranging of the job sites can only individually claim market coverage of a fraction of the whole.

Employers’ websites, industry publications and blogs, direct approaches and your own trusty network are all capable of revealing unadvertised opportunities. You’ve just got to make sure to keep your eyes open, remain alert to all of them, and be capable of managing the process efficiently and sensitively when opportunities appear.

The search for a new job can be a heady and exciting business – as of course can the fast-moving search for romance on Tinder – but you need to understand the rules, and learn the subtleties and complexities of the whole process, if you’re going to play this game well.

Will Amazon Over-Stretch Its Supply Chain with ‘Dash Replenishment’?

Back in March last year, when Amazon announced its ‘Dash’ button service, many people thought it was an early April Fool’s joke. As it turned out, the online giant was completely serious.

The first Dash devices went live this week and, although currently there are only a small number of products available with Dash Replenishment, it’s clear that Amazon has plans to expand its range and deliver another service that promises to disrupt and change the way we shop for frequently used goods.

Dash Button Partners

For those of you who don’t know, the Amazon Dash Button is a wifi-enabled electronic device, aimed at making re-ordering commonly used consumables and household goods easier. Each Dash Button is unique to a specific product, and when the button is pushed, an order is placed for that product through the user’s Amazon shopping app.

The Dash Buttons exist in two formats. First, the Buttons are built into electronic equipment (think printers, washing machines, etc.) and are used to reorder consumables specifically for that equipment. The second format are buttons, sold individually, for specific products (washing powder, toilet roll) that users can leave in convenient places around the house to assist with their shopping.

To begin with the Buttons will only be available on request to Amazon customers who are already registered for Amazon Prime. Once requested, customers will then link the Buttons to their existing accounts.

To date, Amazon has announced Dash deals with a number of electronics manufacturers, including Samsung, Whirlpool and Brother, as well as with large FMCG organisations like P&G, for products like Tide and Bounty.

Supply Chain Pressure

It is a testament to Amazon’s willingness to push the boundaries of their business model that they would even try this sort of service. Not known as a site where household items are commonly purchased, Amazon are looking to leverage their experience in current activities and try to change our shopping habits. Again.

However, some experts have warned that Amazon might be putting too much pressure on their service management systems and supply chain by introducing another service that is built around fast delivery and high levels of customer service.

With an increasing number of customers using Amazon’s Prime next-day delivery service, the launch of Amazon Prime Now one-hour delivery in some cities around the world, not to mention the roll-out of Prime Now Restaurant delivery in some American cities, it’s not difficult to see where issues may arise.

Neil Penny, product director at Sunrise Software, comments: “Amazon’s Dash Replenishment is the retail giant’s foray into instant gratification and user convenience, with the model using connected devices to potentially provide limitless access to products while also removing any effort from the user themselves.

“However, the more seamless and predictive a service appears, the more work must go on in the background to meet these mounting expectations. While the idea is great on paper, it is questionable how realistic it will be for most firms with their current fulfilment strategies.”

Customer Expectations

As with anything else that Amazon does, customer expectations will be high. The retailer will have to work hard to ensure that the expectations are met for both product availability and delivery times.

In order to make sure that this venture succeeds, Amazon will have to work closely with its own service providers and supply chain to ensure that the products currently available under Dash Replenishment are available when required, and that the service providers can meet deadlines for stock delivery, delivery capacity and order prioritisation.

And should the current model succeed, it may see Amazon expand the products available, both for the inbuilt and individual buttons, as well as having other companies follow suit with their own products.

Penny states, “While Amazon’s new service is launching with products like print and washing supplies, the automatic model is likely to see widespread adoption across other companies and industries in the next few years.  With IoT-enabled devices becoming increasingly more commonplace, more firms will come under pressure to adopt similar approaches.

“Being able to keep track of the complex web of suppliers and service level agreements and respond to demands quickly will be an absolute requirement for any service provider hoping to keep up with demand.”

Is There A Case For An Annual Price Decrease Letter?

The Consumer Prices Index (CPI), the UK’s key measure of inflation for goods and services, was negative for two consecutive months in September and October 2015, and recorded a tiny increase of 0.1 per cent in November 2015.

art-sonik/Shutterstock.com

This article was originally published on Future Purchasing.

This is a world away from when I first walked into a purchasing department in 1982. Back then the inflation rate was 8.6 per cent and older buyers could still tell war-stories about the eye-watering 24 per cent inflation rate in 1975.

As L. P. Hartley said in his novel The Go-Between “The past is a foreign country, they do things differently there”.  And, of course, suppliers and buyers did do things differently to deal with continually rising labour and raw material prices.

One of the main differences was that every supplier sent an annual price increase letter (and we were fortunate if they limited themselves to just one increase a year).  In the weeks leading up to the arrival of the letter there would be a phoney war of leaked information and rumour from the suppliers until the fateful day, usually just after the supplier had settled on a pay increase for their workers, when the post trolley would come rattling around the smoke-filled office and deliver the bad news to your in-tray. Typically there would be a couple of paragraphs highlighting major cost rises in raw materials, energy and labour, followed by an explanation of how the supplier had sought to minimise these increases before the sting in the tail: “therefore, we have no alternative other than to apply a price increase on all corrugated cases and trays of 6.5% to be effective in 4 weeks time”.

Both parties knew that the letter was simply a signal to let negotiations commence. For me it was also a signal to review volume allocations between suppliers, look for alternative sources and trial different specifications. Then, after a few rounds of negotiation, we would settle on the new, usually higher, price for the coming year.

The idea of an annual price increase has been consigned to history. But given the recent deflation statistics is there a case for an annual price decrease? Suppliers are still making capital investments in manufacturing plants, implementing quality programmes and achieving manufacturing efficiencies to reduce costs and increase margin, so why not?

These days, whenever buyer requests for a price decrease are reported in the media we invariably read about “strong-arm tactics” from “bully-boys” who have sent an “extraordinary letter”. But why is a price decrease so abhorrent when it was perfectly acceptable for suppliers in the past to demand price increases?  Is it simply that we have some long-held conviction that prices only increase over time? I know that when the more sophisticated suppliers receive price decrease letters today they view them as a call to the negotiating table (just as I did back in the eighties) and, perhaps, an opportunity to increase volumes or secure longer agreements.

There are less contentious ways of securing short-term price decreases and certainly better ways of securing long-term value improvements from suppliers but there is a little bit of me that wishes the annual price decrease letter was a more acceptable part of the toolkit – if only because I had to field so many of the annual price increase letters all those years ago “in a foreign country”.

We’d like to hear your views on the best ways to achieve short-term price savings without creating bad press.Let us know your thoughts in the comments below and share using the social media icons below.

Lessons in Accounts Payable Fraud

In these days of greater reliance on technology to save us from the perils of fraudulent activity, it’s interesting to consider that tip-offs and accidental discovery remain the two most pertinent methods of detection.

This article was originally published on APN.

So what does this tell us about the way AP departments are run?  Overall, it points to a degree of complacency and perhaps overwork.  With more people unemployed, the remaining employees are expected to do more with fewer resources.  Without doubt this is an environment where fraud can flourish.

In addition, perhaps because of the new technology, there has been a move away from the labour intensive checking evident in the past.  In a busy AP environment, some managers are happy to leave the ‘checking’ and controls to the technology.  However those controls and that technology are only as effective as those who monitor it.

Yes, technology can stop duplicate payments going out for example, but if it’s flagging up errors in the vendor file time and time again without the appropriate action being taken – then somewhere along the line the checking systems have broken down.

Look out for the Warning Signs

  • Unexpected Invoice Number Frequency

Using “Benford’s Law” we can expect numbers to behave in a certain way – i.e. that the number one will be the first digit 30 per cent of the time, and the number six roughly 7 per cent of the time.  Therefore if you have invoices starting with the number seven, 40 per cent of the time – it could be time to investigate.

  • Multiple Invoices Under Checking Radar

A supervisor may only be allowed to process invoices up to a certain amount – i.e. £3,000 or less.  The easiest way to skim a few pounds off would be to create an invoice or two just below the approval amount at say £2,900.  Therefore a part the checking process should include a routine check on all invoices at just below any approval levels in the department.

  • Rounded up Invoices

It would seem unlikely – but this is one of the most frequent reasons why fraud is uncovered – fraudsters use rounded up figures.  So a simple test would be to go through your vendor list and flag up any with a suspiciously high volume of rounded up invoices.

  • Unusual Employee Activity

While 99 per cent of the time employees are working for the benefit of their organisations, occasionally they are working against.  If an employee is consistently and unexpectedly in the office early and/or leaving late, works weekends or nights – it’s probably worth running a quick check.  By nature perpetrators are those who don’t play by the rules, ignore internal controls and who may be contracted workers or temporary.

As I mentioned earlier, fraud is rare and is not something which many of us will come across on any large scale during our working lives.  However, during times of difficulty very occasionally the ethics of some begin to get a little blurred around the edges – whether that’s petty cash, payroll or travel and entertainment fraud – it still impacts on your organisation’s bottom line and ultimately its viability.

How an Agile Supply Chain Can Enhance New Product Development

Is your Supply Chain bolstering or hampering the success of your company’s new products?

Josh Nelson, a Director in The Hackett Group’s Strategy and Business Transformation Practice, discusses Supply Chain and New Product Development.

An agile supply chain can deliver value to the new product development (NPD) process (outlined in Figure #1) by quickly and pragmatically supporting new products / innovation through the core supply chain processes – plan, procure, manufacture, and deliver.

NPD SCIR Report Slide 1

Figure 1: The New Product Development Process

The Hackett Group’s Perspective

Supply chain plays a critical role across the NPD process, because it drives both the investment of capital into production and distribution capabilities and, in many cases, the critical path for launch dates. Yet, the large task of driving agility and flexibility throughout the supply chain may seem daunting to leaders.

As a starting point, The Hackett Group suggests assessing your current capabilities across the supply chain function against best practices to quickly identify the overall maturity level of your NPD process and highlight improvement opportunities. For example:

  • Can procurement identify and incentivise suppliers to participate in enhanced open innovation capabilities?
  • Can the supply chain and finance organisations develop NPD COGS estimates quickly and accurately?
  • Has the company made the correct investment in piloting plants or scaling up facilities?
  • What is the ability of the planning function to mitigate risk by developing inventory build strategies, identifying NPD demand projections accurately, and aligning lead times to common launch date?

Additionally, when assessing improvement opportunities for supply chain’s role in NPD, consideration should be given to:

  • Marketplace trends
  • Establishing or standardising global metrics to track and assess the effectiveness and efficiency of the NPD process

From there, a transformation roadmap can be created to develop the needed structural and infrastructural elements to enhance and enable new product development though agility and flexibility. This enables your organization to:

  • Identify and develop product concepts with the greatest likelihood of success.
  • Reduce costs by relying on your network of suppliers, customers, and other partners to generate ideas and test products
  • Select and manage a portfolio of projects that are aligned with the company’s revenue and margin growth strategies

Download the full Hackett Group Supply Chain Insight Report here to learn more about trends, best practices, and metrics which help supply chain enable the new product development process.

Josh Nelson has over 18 years of both consulting and industry experience, managing and leading large-scale product development and supply chain improvement programs.