June 17, 2008

Strategic Sourcing - Overused and Little understood


The ‘S’ word is getting a real hammering these days, often wantonly, often inappropriately, and often - just plain too often. If people thought more clearly about its real definition, then we would all be better off – so here is a view.
Most people sprinkle ‘strategic’ around in the context of having some sort of plan – ie ‘We have done a strategic category review’. This is not really a good use of the word – it is simply using a fancy word when ‘plan’ would do just fine. Of course it should be well thought through, be linked to the business needs, and have a longer term perspective – that doesn’t really qualify for the strategic title.
Secondly it is used to as a plea to become more involved – ‘we need to do more strategic purchasing’. Most of the time this just means that buyers don’t really get involved early enough, and want to be more a part of the business. Fair call – and not strategic.
There is only one clear definition of a strategic action:
Deferred Pleasure.
A strategic decision is one that, on the face of it, only makes sense in the longer term. If in military terms a location is deemed to be strategic, that means you should put disproportionate effort into defending or gaining it. The same is true in purchasing. You could take a position on a category, or with a supplier, where you are taking the risk that in the longer term you will be better off. Committing to 100% supply ( or indeed deliberately taking a supplier off your supply list ), taking a long term price fix and investing in joint development are all examples of strategic purchasing.
The interesting challenge lies for the wider business – just how many business unit managers would thank you for saying ‘I know you are paying more for this than you have to right now – but its strategic!’
We may want purchasing to be more strategic, and if we really mean it – are we or others actually ready for it yet?

Success factors for Professional Purchasing


High performance purchasing with long-term strategic orientation is a key factor for successful international competition. Therefore, purchasing is one of the most important issues in a company – material costs are the largest cost block in an industrial company. Due to this situation, efficient cooperation with suppliers is becoming increasingly important.
An important success factor for professional purchasing is achieving transparency, especially regarding company-wide purchasing activities, purchasing volumes, frame contracts as well as detailed information about current and potential suppliers. A company can attain this comprehensive view through integrated supplier qualification, contract management and spend analysis.
An active and targeted supplier management is the prerequisite for strategic purchasing. Cross-functional supplier rating identifies supplier strengths and weaknesses. Suppliers are categorized according to their performance and strategic significance based on a substantiated and objective supplier classification. This is the basis for targeted and structured supplier development including measures controlling. During this process, supplier goals are set, deadlines and responsibilities defined, sustainable optimization measures implemented and development progress monitored.
Experience indicates that the individual components must interact with each other in order to provide consistent process support and that maximum benefit can only be achieved through the consolidation of the corresponding information obtained.

June 15, 2008

Internet Transformed in a blink of an eye

We here at Sourcing Diaries like to think we're not backwards in coming forward when it comes to embracing the power of the Internet.
It would take a brave man to deny that the World Wide Web has transformed modern-day business, so you can imagine the excitement around these parts when talk of ‘the grid’ replacing the Internet, surfaced earlier this week.
The ‘grid’ is nothing new – a cursory google search reveals that a press release trumpeting it’s future was circulated in 2002, but recent developments in Switzerland have caused understandable ripples from Geneva to the Galapagos Islands.
Scientists in Switzerland claim the new ‘grid’ is 10,000 (yes, that’s ten thousand) times quicker than your average broadband connection.
The pioneer of the system, hardly surprisingly, is Cern – the particle physics centre that created the Internet – and it claims that grid will soon offer lighting fast capability for tasks such as high-definition video telephony (all for the price of a local call), and the downloading and sending of sophisticated images. All performed in the blink of an eye, and certainly before you can say ‘Shaan’.
David Britton, professor of physics at Glasgow University and a leading figure in the grid project, believes grid technology will not just revolutionise the way businesses do business but could also change society.
“With this kind of computing power, future generations will have the ability to collaborate and communicate in ways older people like me cannot even imagine,” he said.
Now that, is progress.

CSR and Procurement

Corporate Social Responsibility (CSR) is a concept with growing currency across the globe. It involves looking at how companies take account of social and environmental factors and how these can impact on their reputation among consumers and in the business world.
The involvement of procurement and supply management professionals in CSR policies is increasingly crucial. Sourcing from low-cost countries, for example, is an area fraught with dangers for the procurement function and the business as a whole. Senior procurement managers are ideally placed to input expert knowledge and experience in discussions of low-cost country sourcing in a way that can help reduce the risk of extremely damaging publicity or dealing with costly legal challenges.
It is therefore imperative for procurement and supply chain departments to build constructive relationships with key stakeholders while increasing business transparency and good governance. In this way they can play a pivotal role in shaping the business in a sustainable and competitive way, making sure the highest ethical standards are followed.
The mentality of "out of sight, out of mind" outsourcing is a serious mistake.

Oil rising up agenda as price rise shows no sign of slowing

If oil wasn’t topping procurement’s agenda at the turn of the year, it certainly is now. With the cost of crude rise near to a potentially ruinous $140-a-barrel.
Hardly music to procurement’s ears given that a recent CIBC World Markets Report claimed that once oil hit $120 a barrel, “Every 10% increase in trip distances translates to a 4.5% increase in transportation costs.”
Busch uses the example of the cost of shipping a container from Shanghai to the eastern seaboard of the US having risen 250 per cent since 2000 (when oil prices were a relatively benign $20-a-barrel).
Clearly the latest price hikes are going to put more pressure on those organisations that lean heavily on global sourcing. Any further rises and they may start to ask, if they haven’t already, if the strategy is really delivering the results it once did.