COLLABORATION
Corey Billington et al
“Super collaboration” is the most advanced form of customer-supplier interaction possible. Unlike combative, co-operative and even partnership types of relationship, it aims to create competitive advantage for both parties over the long term, argue the authors – three professors at the IMD business school in Switzerland.
In the past decade the automotive industry has best illustrated the advantages of “super-supplier” relationships, with Honda and Toyota using them to outpace US rivals. In the 1990s, for example, Honda of America was able to increase its cost advantage by 26 per cent by adopting collaborative relationships based on shared trust, honesty, integrity and an objective focus on results.
Four conditions are required for super collaboration to take off: procurement has to be focused on enhancing competitive advantage; a genuine market opportunity must exist; all functions in both organisations must be committed to making the relationship work; and a strong communication and evaluation structure needs to be in place.
For most companies, super collaboration is outside both their comfort zone and procurement’s remit and competence, which explains why such relationships are still fairly rare in business today.
SUPPLY CHAIN LEADERSHIP
Geraint John
At a time when many firms are seeking to integrate their supply chain functions to meet growing customer demands, the “silo mentality” remains firmly entrenched. Tensions between procurement and logistics, for example, are being compounded as traditional boundaries blur and each seeks to claim the broader mantle of supply chain management (SCM) for itself.
Practitioners in both functions are united in believing that closer co-operation produces optimal results. But there are differing views about how they should be organised, which professionals are best placed to provide leadership and whether there is likely to be a contest for the new breed of “chief supply chain officer” jobs that some are creating.
Tim Carroll of IBM – a leading exponent of the integrated supply chain model – believes these positions will grow in number during the next 18 months. Ambitious CPOs have a chance to fill them (indeed, some already have), but the consensus is that they need a much broader set of skills and experience than just procurement.
Given the shortage of candidates in the market, notes one commentator, it is likely to be the next generation of leaders who benefit most from SCM’s higher status.
CHANGE MANAGEMENT
Michel Philippart et al
A collaborative approach to sourcing requires fundamental changes in company culture. Ensuring that there is a clear sense of urgency about the need to change, and that senior management understands this and is acting to limit the damage, is a responsibility of the CPO. In this article, the authors look at the main barriers to change and make some suggestions about how procurement leaders and their teams can overcome them.
The first barrier is culture: for most firms, collaboration is not natural, particularly in European and North American societies. The second barrier is risk: trusting a supplier is seen as “risky”. The first step in overcoming it is to identify potential risks – organisational, economic, information security and so on – and their negative consequences and devise possible responses. The third barrier is trust, the need for which is dramatically rising as organisations rely more and more on external partners to create value.
Communication is a critical component of successful change and the area where things often go wrong. Using communication well – for instance, by sharing success stories – gives a CPO the chance to elevate procurement and jump-start the next wave of collaborative projects.
BANKING
Christopher Jahns, Hans Arnum et al
In many banks, purchasing and supply management (PSM) suffers from a “Sleeping Beauty” complex: it is inert, waiting to be woken up, say the authors from Germany’s Supply Management Institute and McKinsey. Initial findings of their global research study indicates that banks have far less control over total spend and a higher proportion of staff in transactional roles than in other industries – and hence plenty of room to improve.
This benchmarking work, together with interviews with CPOs at five banks – Credit Suisse, Deutsche Postbank, Dresdner Bank, Nordea and Commerzbank – suggests that successful PSM functions in banks pay attention to seven fundamental rules.
1. Make PSM a strategic priority for top management.
2. Organise the PSM function around the best people.
3. Manage and develop the capabilities of individuals.
4. Play an active role in global sourcing, with a specific focus on outsourcing/offshoring.
5. Integrate supply risk management with enterprise risk management.
6. Use e-procurement and system software wisely.
7. Measure PSM efficiency and effectiveness to strengthen the position of the function.
With a strong focus on these dimensions, more banks could wake up from their slumbers.
INSURANCE
An interview with Axa’s CPO, Alain Page-Lécuyer
Like the big banks, insurance companies have generally been slow to grasp the potential of professional procurement. In 2002, Axa, the world’s biggest insurance company, gave the function a higher priority by hiring Alain Page-Lécuyer as its first global CPO. He leads a 30-strong group procurement organisation, based in Paris, and works closely with 15 regional CPOs who do not have any reporting line into him, reflecting Axa’s decentralised structure.
As well as the usual initiatives to reduce expenses, Page-Lécuyer’s team are heavily involved in the area of customer claims. Axa, like many of its rivals, has only recently begun to see this as a buying issue rather than a paying issue. Changing the minds of internal staff, customers and agents has been hard work, he says, and resistance remains. Procurement’s proposition has been not only to save money, but also to improve service levels. It now manages around €2 billion in claims costs and this year plans to make inroads into health insurance.
Centralising procurement into one global organisation would, Page-Lécuyer believes, take the function to the next level, but he acknowledges that this isn’t in keeping with the Axa philosophy.
PROCESS IMPROVEMENT
Mark Simmons, Stuart Dodds and David Fallon
Sourcing professionals have increasingly recognised the benefits of developing supplier relationship management (SRM) capabilities within their organisations. The challenge is not whether to do it, but how to do it. Many are finding Lean Six Sigma (LSS) to be the answer, suggest the authors.
LSS, which has its origins in manufacturing, combines the analytical techniques of Six Sigma, which reduce process variability, with the structured approaches of “lean”, which eliminate non-value-added activities. Companies such as Motorola, GE and Honeywell are now using it to optimise relationships with suppliers.
Three case studies are used to illustrate the power of LSS. The first describes a global speciality chemical company that suffered from poor purchase price data integrity and blocked invoices. The second looks at a process-intensive manufacturer whose turnaround times were being hit by poor cleaning practices. And the third concerns a big telecoms firm seeking to improve order fulfilment and grow revenues.
The CPO’s role includes championing the LSS-SRM process internally and with suppliers; getting the right people from sourcing involved; and working with key stakeholders to prioritise LSS business initiatives.
INNOVATION
Christian Schuh and Boris Piwinger
Today’s CPOs are faced with big and smart, but also patent-protected, suppliers. Traditional sourcing methods fail to tackle these suppliers, since ignoring the patent, insourcing the product or having another supplier make it are not viable options.
The authors, consultants at AT Kearney in Vienna, are seeing more firms using a technique known as “invention on demand”. This seeks to create a completely new product that bypasses the incumbent supplier and its patent. Invention-on-demand thinking differs substantially from the traditional approach an engineer would take – a hydraulic problem, say, is not automatically solved with a hydraulic solution.
In the case of a yoghurt drinks producer faced with a patent-protected supplier of flavoured syrup, an invention-on-demand approach led to a solution where the straw provides flavour when the drink is consumed.
Such projects typically take three to four months from kick-off to commercial concepts. Some firms have used the results to insource critical components, while others have transferred them to competing suppliers. More often, alternative concepts (which can often be patented) are used as negotiation levers with the incumbent supplier.
E-INVOICING
Malcolm Wheatley
Are procurement functions missing a trick when it comes to electronic invoicing and payment solutions? The evidence suggests they are, says business and technology journalist Malcolm Wheatley.
Despite paper-based processes being inefficient, costly, slow and error-prone, relatively few organisations appear to have automated their account payable functions. For their part, purchasing professionals tend not to be measured on or incentivised to improve administrative efficiency, and this part of the P2P process is often not seen as particularly strategic.
However, the prize on offer may be worth having. The first benefit of e-invoicing is raw data for spend analysis; the second is better monitoring and contract compliance by mandating an electronic payment process – an approach taken at Barclays Bank in the UK; and a third is taking advantage of the discounts available by paying suppliers on time or even early.
E-invoicing need not require an expensive technological “big bang” either. Scanning and OCR-based data entry can be useful intermediate steps on the road to a fully automated process. Recent legislative changes, notes one vendor, now make it possible to keep scanned invoices, rather than the originals, as records.
