GLOBAL SOURCING
George Yip, Yacine Chibane, Melanie Knight, Leyton Lark
Evaluating global sourcing can be even more challenging for services than it is for products, but taking a systematic approach can enable executives to make more rational decisions on the three dimensions of ownership (in-house or outsourced), location (onshore or offshore) and degree of control (light or tight management).
By using a global sourcing cube model and answering 30 key questions around five characteristics – service, customer demand, organisation, competitors and supply markets – organisations can take a qualitative approach to individual business processes. The authors – current and former consultants at Capgemini in London – show how this theory can be applied in practice using the case examples of a European insurance company and a global software business.
In addition, they use the 30 questions to build a quantitative decision-support model based on the business case for global sourcing. This uses an algorithm to calculate the expected costs and value of each of the eight sourcing modes in their model.
These two techniques cannot make the decision for you, the authors warn, but they can guide you towards the sourcing options that may warrant further investigation.
EXECUTIVE DEBATE
12 panellists, Frankfurt
Driving growth and innovation is becoming more critical for procurement functions. CPO Agenda invited a group of central European procurement leaders to Frankfurt to find out how they are going about this.
There was agreement that procurement has a role to play in driving innovation through supplier relationships and introducing contacts to the organisation. But respondents noted that most procurement departments were still judged primarily on cost savings, which are easier to measure.
The CPOs discussed the differences between continuous improvement and innovation, and the importance of managing relationships with strategic suppliers in a different way. Being prepared to help finance suppliers’ costs when problems arise or asking them how processes could be improved are two ways firms can create the right environment for supplier-driven innovation.
Ulrich Piepel, CPO of RWE, described how the utility firm has introduced a questionnaire in addition to traditional scorecards to let strategic suppliers tell the company how it is doing.
Central to moving the agenda towards innovation is attracting people with broader business skills and integrating business functions.
LEADERSHIP
Gerard Chick and Michael Lewis
The modern CPO understands that he or she is part of the top management team and needs to contribute to the organisation’s overall goals, as well as delivering cost savings.
But a recent event run in the UK by the Chartered Institute of Purchasing and Supply and attended by CPOs and chief executives suggests that most organisations are unsure about the strategic contribution they seek from procurement. There is also doubt among senior procurement professionals as to whether they really aspire to play such a role.
Authors Gerard Chick and Michael Lewis ask whether an alternative procurement mindset that swaps responsibility for influence is starting to emerge and, if so, how individuals can nurture this new attitude to make the transition themselves.
They argue that, despite the personal risks involved, CPOs have to be prepared to seek a balance between cost control and attempting to deliver innovation and strategic value.
Using a football analogy, they suggest that if CPOs are to be seen as “corporate goalkeepers” – as one of the CEOs at the event described them – they ought to model themselves on the former Manchester United keeper Peter Schmeichel, who ended a highly successful career with 13 goals to his name.
SUPPLIER RELATIONSHIP MANAGEMENT
Marc Day, Mark Webb and Jon Hughes
Strategic supplier relationship management can deliver an additional 23 per cent of value – more than four times traditional cost-out – and is becoming as significant as strategic sourcing and category management, according to global research by authors Marc Day, Mark Webb and Jon Hughes.
Yet there remains considerable confusion about how to implement such an approach in practice. Companies need to identify three tiers of suppliers, they argue: a core group of fewer than 10 that are absolutely crucial to success, a second category of between 10 and 40 “development suppliers” and a third group of around 200 “performance suppliers”.
At this point organisations have two options: targeting a small number of pilot projects or launching a business-wide initiative for all of its “super-suppliers”. The first is more common, but regardless of the option a five-step process can be identified that includes programme planning, the formation of strategic supplier management teams and devising relationship strategies.
Evidence of how an effective programme can be put in place is demonstrated in two sector case studies of pharmaceuticals and financial services, and the authors conclude with a 10-point agenda for action.
SRM CASE STUDY
Lynette Ryals and Andrew Humphries
Buyers often don’t get the most out of collaborative relationships with suppliers because they still rely on traditional management and measurement approaches, argue Lynette Ryals and Andrew Humphries.
Companies need to share their skills and experience and move beyond traditional supplier performance measures. This was the message that came through to UK electronics manufacturer Sonatest NDE Group when it decided to review its long-term relationship with components supplier Paragon.
Using confidential online questionnaires and telephone interviews with key personnel, the assessment revealed that the relationship was falling short of the integration needed to deliver maximum benefits.
As a result of the review, both companies agreed to formalise processes and hold regular planning and review meetings, while a joint team from both companies transformed the development process of new versions of Sonatest’s leading products.
Both businesses learned how to manage their relationship better to achieve the long-term benefits and Sonatest saw substantial improvements to its bottom line, increasing
first-time manufacturing yield from around 50 per cent to over 95 per cent.
PROCESS IMPROVEMENT
Chris Ellegaard
The continuing quest to optimise an organisation’s internal systems and processes often undermines supplier effectiveness, argues academic Chris Ellegaard. It falls to procurement to restore compatibility between the two firms, so that the business relationship can continue.
Research by Copenhagen Business School suggests that poor communication and co-ordination between management and buyers internally is often to blame for incompatibility. Purchasers have to communicate upwards information about the effects of optimisation projects on specific supplier relationships and for making such systems work in practice.
Mapping out suppliers’ processes and gauging their willingness to adapt are vital. In some cases, they need to be motivated to change by:
- demonstrating commitment to the change;
- communicating the necessity of making the change;
- demonstrating care for the supplier’s business;
- designing the system and procedure to provide supplier benefits too;
- offering compensation.
Companies must also foster a culture of openness so that suppliers can air their views. In future, ensuring compatibility will be seen as an essential part of purchasing strategy.
E-PROCUREMENT
Nick Martindale
Take-up of e-procurement systems among internal users remains disappointingly low nearly a decade after such applications first arrived.
But a newer breed of provider claims that traditional offerings are let down by a lack of user-friendliness, having being designed and sold on the value they can bring procurement departments rather than end-users. Companies such as Ketera, Proactis, Coupa and Rearden Commerce argue that their products offer customers an experience equivalent to using the likes of Amazon or eBay.
That is scant consolation for those in procurement, such as Paul Bennett, head of purchase-to-pay at the BBC, which has struggled with a lack of user-friendliness since implementing an SAP purchasing tool in 2005. “If we could get improved user experience we would have fewer people trying to work around the system or complaining about it,” he says.
SAP admits its applications have a reputation for being difficult to use, but replies that ERP vendors have to cope with more complexity than e-procurement-only packages. Andrew Douglas of arch rival Oracle, meanwhile, suggests that the user-friendliness debate is really about smaller vendors searching for a way to differentiate themselves.
