The CFO’s Number 1 Concern in 2013: Rising Costs (Part 2)

Authored by Mike Roberts

Rising costs will always worry CFOs, but what other risks are on their minds? 

• Supplier compliance. This encompasses elements of supplier relationship management – from delivering what the company needs when it’s needed, at the agreed upon price, to complying with ethical standards. Supplier compliance has dominated recent headlines, especially regarding Wal-Mart’s stronger regulations on unauthorised subcontracting. 
• Economic risks. While there are signs that the economy is improving, companies are closely watching for any wavering indicators of regression that could affect customer spending, currency values and global growth. 
• Effectiveness of internal IT spending. Departments will have a more difficult time justifying major investments in technology. And post approval, there will be more pressure to demonstrate that the actual results were equivalent to the proposed ROI. 

Something to consider: Taking blind risk is dangerous, but taking risk backed up with the right data and insight is what separates truly innovative companies and the laggards. Tweet

The CFO’s Number 1 Concern in 2013: Rising Costs (Part 1)

Authored by Mike Roberts

Although it’s rather obvious that CFOs always have money on the mind, the CFO Survey 2013, published by 4C Associates, highlights that rising prices are a growing worry for procurement’s finance colleagues: 65 per cent of participants listed ‘price risk’ as their top concern – up more than 15 per cent since last year.

Most companies are still struggling to combat volatile commodity prices and rising inflation. Indirect costs are climbing on the operational side, too. Yet, customers have little-to-no sympathy about the plight of corporations because they face a similar battle: the skyrocketing cost of living with stagnant wages. The result: Companies that pass on cost increases to maintain profit margins risk alienating customers and losing critical sales.

The responsibility to improve margins and deliver more value to the business – and when done well, the glory that comes with it – has been somewhat of a tug of war between procurement and finance. By shifting the dynamics so both departments can become allies, rather than competitors, cost savings will improve, and the process will easier for both parties.

How is your organisation bridging the gap between the procurement team and the finance department?

Check back for the next post on this topic to read about the other risks that worry CFOs as we head into March. Tweet

The Benefits of Appointing a Super User in the Successful Adoption of an eSourcing Solution

Authored by Emily Chandler

eSourcing has become essential in best-in-class procurement organisations. Strategic sourcing improves efficiency, communication, and consistency – all of which are highly regarded in any organisation. As companies implement an eSourcing solution to take them to the next level, often all of the emphasis is placed on negotiating the best price or having all of the bells and whistles of functionality. 

A tool however is standalone unless the organisation sufficiently allocates dedicated resource to drive adoption and best practice. 

What I have found in my experience is that those organisations which have developed high levels of eSourcing adoption often have a dedicated specialist or team of specialists (depending on the size of the organisation) supporting the change process and implementation. Not only are they platform super-users, but they act as a focal point for the intersection of e-Sourcing process and category knowledge, ensuring smooth running of events, minimising stakeholder resistance and ensuring best practices are shared and adhered too. Typically they build and develop all of the necessary process documentation and communication materials including case studies - all of which helps to build confidence. They track eSourcing programme performance metrics against contractual KPIs, adoption, and the original business case to identify risk. Central eSourcing teams can also support configuration work, coach and encourage both communities of buyers and suppliers to adopt the new process. 

Price vs Quality

Authored by Pete Hodgkinson

It’s Thursday night, I’m sitting with my father-in-law in a specialist unit for heart and lung patients in Liverpool. 4 hours ago he had a heart attack. Within just 90 minutes of the alarm being raised he was receiving what I would term as a major operation, but what medical staff referred to as a ‘fairly standard’ procedure in which they inserted a stent into a coronary artery to free a blockage.

Having previously worked for the NHS in purchasing I have experience of procuring items which varied from IT systems to medical products including stents. For those who do not know, stents are ultimately a mesh tube that is used to allow fluid to flow freely through what is an infected or blocked tube.

I have memories of meeting medical teams to discuss the merits of what constitutes acceptable products for all sorts of procedures. I do have one vivid memory though, when meeting a consultant to discuss a surgical implant, he said ‘well if price is the focus then you are putting the patient at risk’. His perception of procurement was a function focusing just on price regardless of merit.

UK Government Gets Serious About Taxes: Proposal Could Ban Tax-Avoiding Suppliers from Public Contracts

Authored by Richard Hogg 

Tax season has arrived and the government isn't playing around this year. Fed up with corporate tax avoidance schemes, the Treasury and Cabinet offices have proposed new regulations that could ban companies from winning lucrative government contracts.

The new proposal, if passed, will allow buying organisations to require suppliers and contractors to disclose information about tax payments for contracts worth more than £2 million. Suppliers found to have been involved in failed tax avoidance schemes could be barred from the tendering process, and have existing contracts terminated. Adam Leach provides a detailed breakdown of the proposed regulation on SupplyManagement.com.

According to The Guardian, Francis Maude, who oversees government procurement deals, said: "It is only right we ensure that only companies which are meeting their tax obligations can win government contracts. These new rules provide a framework that allows departments to promote tax compliance through the bidding process."

A Tougher Stand Translates to Accountability

Authored by Mickey North Rizza 

Joann Lublin wrote a great article in The Wall Street Journal on the growing number of U.S. companies that are limiting the upside for top leaders in down years for stock prices, restricting certain compensation when total shareholder return is negative. In the article, A Tougher Stand on CEOs with Bad Returns, Lublin points out “fifteen big and midsize businesses have capped incentive-plan payments since 2006 and seven of these have been since 2011.” Irving S. Becker, of Hay’s U.S. Executive Compensation Practice estimates that 10% of all public U.S. companies pinch executive pay due to a negative return and he predicts nearly 40% may do so by 2015. The point is accountability is critical in business. 

Putting this in perspective with respect to a CPO or VP of Procurement, Sourcing or Supply Management, “accountability to business outcomes” might mean, as an example, these leaders would be paid a base salary, but a bonus might be based on their ability to deliver cost reductions and containment of cost increases, or their ability to impact working and fixed capital positively and work closely with suppliers to mitigate revenue risk of required supply. This type of “pay for performance” structure is not new to the business world, but rarely utilized for Procurement, Sourcing or Supply Management.

Procurement: Put Yourself in the Suppliers’ Shoes

Authored by Claire Sexton 

The procurement industry talks a lot about supplier risk and supplier management, but what about ‘buyer risk?’ More and more stories are popping up in the news and industry publications about big companies – with large cash flows – that aren't paying suppliers on time, or at all. 

Bottom line: Failure to meet contract terms (by the supplier or buyer) is a sign of a poor partnership.

Yet, buyers are also now building longer payment terms into contracts, up to 180 days. While that keeps cash in a company’s pockets for the short term, it has a tremendous impact on a supplier’s financial health. And in turn, the supplier’s value and perception of the buying organisation is negatively affected.

What we can learn from Business Travelers?

Authored by Pete Hodgkinson

In a recent survey by Business Travel News, business travel policy was once again at odds with travelers and procurement. Only 54% of business travelers were aware of their company’s written travel policy compared to 95% of the buyers who are responsible for buying the travel services; 31% of travelers believed there was an unwritten policy compared to 5% of buyers; 12% of business travelers said there was no written corporate policy and. 0% of buyers thought there was no written policy; and 4% of business travelers did not know their policy vs. 0% of buyers. The point is, policy might be set and enforced by procurement, but adherence to the policies is often the point of contention.

At the end of the day, traveler preference, flexibility, work/life balance, business requirements, title and yes, even age of the traveler will make a difference in policy compliance. Younger travelers may use more do-it-yourself (DIY) approaches with their mobile devices and internet travel sites; older individuals prefer to use travel agents and booking assistance. Some individuals work long days and then travel, while others incorporate their travel into long days. Most travelers adjust their schedule for weather, family emergency, customer delays and the unforeseen surprise. Many business travelers tie their business travel to end at their family vacation destination; restarting work travel from the family destination. The point is demographics, flexibility, complexity and business agility all play a role in business travel.

2013 - The Year of the Snake!

Authored by Mickey North Rizza 

Happy Chinese New Year! How are you doing on your personal and business resolutions? Sunday 10th February was the start of the Year of the Snake and according to the Chinese Zodiac, the Year of the Snake is meant for steady progress and attention to detail. 

The snake is the sixth sign of the Chinese zodiac, which consists of 12 animal signs. It is the most enigmatic, intuitive, introspective, refined and collected of the animal signs. 2013 is the year of the water snake, and according to the Chinese, all things are possible. 

Saving money and being thrifty will be top priorities – hmm, sounds like a typical procurement department. And like great procurement negotiators, the year of the water snake also tells us to stay alert because delusion and deception are common. Gaining the greatest benefits requires us to control our spending and use our talents wisely – another great feature of best-in-class procurement organisations. 


So, practice the art of the Chinese zodiac ­stay alert, save money, be thrifty and use your procurement talents wisely. All will bring great value contribution on the road to procurement excellence. 
Tweet

The Impact of Procurement- The good, the bad and the ugly (part two)

Authored by Chloe Hanley

Yesterday we concentrated on the darker side of procurement & supply chains, so today I would like to lift the Strategic Sourcing blog team and reader’s moods prior to the weekend and share with you some positive news stories from our industry. 

Marks and Spencer- Supply Chain Champions
Good old M&S! Not only are they one of the UK’s much loved stores, they are also on track to become “The world’s most sustainable retailer”. In early 2007 they launched the “Plan A Sustainabilty Programme”. This is made up of comprehensive and far-reaching goals to create changes in its global supply chain, to be completed by 2015. The company are working with charities such as Oxfam, Woodland Trust and WWF to name but a few, to help make sure each step of its supply chain is sustainable as possible. With suppliers in 70 countries and 2 million people working for them this is no mean feat and has lead to them winning the GSB Supply Chain Award (Guardian Sustainable Business) in 2012. 

Timberland aim to build a better life for workers families 
Timberland's mission statement is “Our mission is to equip people to make a difference in their world. We do this by creating outstanding products and by trying to make a difference in the communities where we live and work while doing it.” This is an essential part of Timberland's supply chain. Happy workers = sustainable and well made products. Companies can only thrive to massive proportions if the supply chain is strong. What if every multinational company had this outlook? Click here for more information. 

The Impact of Procurement- The good, the bad and the ugly (part one)

Authored by Chloe Hanley

From Horse meat “Beef burgers” to “Halal Pork” you can’t miss all of the supply chain issues in UK media recently. It is evidently clear that the supply chain effects many lives, perhaps a lot more than some would think. 

Here are some recent news stories that reflect on the bad and ugly of the supply chain:

The Horse Meat Scandal
This has been big and shocking news for many in January. Consumers were outraged to find that the meat in their Tesco Everyday Value burger contained horse DNA. The FSA (Food Standards Agency) have traced it back to a Northern Irish Burger Supplier that despite an agreement with the food giant that all sourcing would be done in the UK and Ireland, was using frozen blocks of meat off cuts, imported from Poland......Tasty! 

Pork DNA in Halal Products 
Just a few weeks after the horse meat scandal a new supply chain disaster story was revealed. Pork DNA had been found in Halal products served to prison inmates in the UK and Ireland. This prompted outcry from the Muslim community. Dr Ali Saleem of the Islamic Cultural Centre said that for a Muslim, eating pork was "equivalent to taking drugs". These products had also been sourced from a N.I. supplier. Dark times for the Northern Irish meat industry and the FSA. 

You Get What You Pay For

Guest author – Guy Allen

You Get What You Pay For ....

How I hate that phrase. It’s just an excuse for the lazy to pay more for something than they really need to, or perhaps in private life, to justify buying the latest sparkly phone with all the bells and whistles on.

I’d hope most of my industry colleagues wouldn't be seduced by such a statement. Prices are set by the rules of economics, with a little amendment for buyer/seller power, where either party may seek to bend those rules to their advantage for some short term gain.

And too often negotiators approach their objectives with a very singular approach. Yes of course you need to do a negotiation plan, but it needs to include flexibility to allow you alter your approach according to how the situation develops. Sure there are times to get emotional and bang the table, but you subsequently you might be best served by pursuing the logic of the cold analysis of a PPCA (Purchase Price Cost Analysis).

Walmart: Contract Management Powers Ethical Sourcing

Authored by Claire Sexton

The intersection of sourcing and corporate social responsibility is making headlines again.

Following last November’s devastating factory fire in Bangladesh that killed 112 workers, Walmart has announced a new zero-tolerance policy, which will permanently ban suppliers that subcontract without the company's permission.

According to Supply Management, “The factory was not an authorised supplier to Walmart, but had been subcontracted by another vendor without the retailer’s knowledge.” 

The official announcement from Walmart also outlines new health, safety and environmental standards that suppliers must follow. 

Speaking about last November's fire, Walmart's Vice President of Ethical Sourcing Rajan Kamalanathan said, “The fire and tragic loss of life at the Tazreen factory in Bangladesh has brought to the forefront a number of opportunities for improving the safety standards of our global supply chains. These new policies are designed to strengthen compliance of important safety standards around the world.”

What is Sustainable Procurement?

Authored by Claire Sexton 

Whilst I was sat with a client last week having a coffee, we got around to discussing Sustainable Procurement and what this actually means.

I see Sustainable Procurement as the process of improving the efficiency by which public money is spent whilst at the same time using influence to bring about major environmental and social benefits locally and globally. It is the process of purchasing goods, services and works that takes into account the social, economic and environmental impact that such purchasing has on people and communities whilst still achieving value.

Public procurement is central to delivering the social, economic and environmental benefits that sustainable economic growth demands.

I believe that it is important that organisations develop specific plans, policies, procedures and targets to promote the buying of more sustainable goods and services.  In the eyes of the tax payer we all want to see a commitment to ensuring that the money the public sector spends on behalf of the country achieves value for money and contributes to sustainable economic growth.  Sustainable Procurement is good procurement and has to have a recognised role within a balanced approach alongside improved quality and reduced costs in the continuous overall drive for better value for money.

Amazon tops Apple for Supply Chain Leadership

Authored by Pete Hodgkinson

When you think of the best supply chains in the world, Apple and Amazon almost always come to mind. But which company is the best?

According to a new survey by SCM World of more than 1,100 executives, 58% of respondents admire Amazon most for its supply chain management practices. Only 37% said Apple was the best (5% said neither). Amazon also won the battle in three out of four practice areas:

• Agility (62% to 33%) — the ability to quickly and cost-effectively shift amounts or type of production to improve operational performance 

• Collaboration (59% to 31%) – the ability to work across organisational boundaries to solve systematic operational problems and create new value for both customers and partners.