FUTURE TRENDS
John Blascovich, Inigo Aranzabal and Robert Monczka
Ten years ago CAPS Research, AT Kearney and the Institute for Supply Management in the US conducted their first “Futures Study”, examining the key trends over the next decade. Now they have repeated the exercise.
Procurement will continue to grow in importance, they predict, leading to greater expectations internally, in addition to having to cope with external forces such as globalisation, shifting sources of supply and environmental/ethical sourcing issues. Supply chain complexity will increase as customers and regulation become more demanding.
Drawing on in-depth discussions with senior supply executives, the authors identify seven critical success factors. One major source of value creation will be collaboration, both internally and externally. Technology will play a vital role in helping to achieve this.
Suppliers will have defined roles based on either price optimisation or adding value and will be expected to work with each other as well as the customer. As the role of procurement changes, so too will the people working in it. They will have to be far more rounded than before, with individual skills as essential as procurement experience, while talent retention will be vitally important.
FUTURE TRENDS
Richard Lamming
When trying to predict the future, it’s easy to talk vaguely about collaboration, outsourcing and emerging economies. But the real challenge, argues Professor Richard Lamming, is to think on a different level.
Using an allegorical framework, he develops a mental picture of a Purchasing Office, Black Box, Buyer and a ferocious looking dog to conjure up an incomplete vision of the future where the strategist must fill in the remaining gaps. There’s also a Purchasing Manager who sits at a desk and chair on a shelf, a Deal Shaper, a Discoverer and a mysterious character known as the Maestro.
In workshops, describing this scenario normally triggers heated discussions among purchasing executives, notes Professor Lamming, not least because many worry they may be too old to play a meaningful part in it. But the interpretation is shaped by models in today’s society, to which we can all relate, and suggests that every character depends on the others to some extent.
The real value of the exercise lies in how participants use it in the future. For some it is a disturbing vision, but the only really certain conclusion is that the future will be highly competitive and only those who are bold enough to be different will survive.
EXECUTIVE DEBATE
15 panellists, Stockholm
As part of a series of CPO Agenda Executive Debates, a group of procurement leaders from Scandinavia met to discuss how global sourcing can be executed quickly
and effectively.
The discussion initially focused on how companies measure effective sourcing, with participants judging it in a variety of ways, before moving on to the role of low-cost country sourcing and the difficulties that arise from attempting to move large volumes to these countries.
Some participants warned of the dangers of trying to impose emerging-market pricing structures on local suppliers, while others felt that a common mistake for Western and US buyers was to view such markets solely as opportunities to procure goods at rock-bottom prices at the expense of collaborating with Asian suppliers. Training local people who then quickly leave the company was another issue faced by many.
Most participants felt they had learned some harsh lessons about global sourcing, with experiencing the local culture, avoiding only quick wins and getting your own house in order before starting down this route among the advice to peers. Arriving with an open mind and not underestimating the ability of people from the “new world” was also vital.
SUPPLIER RELATIONSHIP MANAGEMENT
Nick Ward, Rob Handfield and Paul Cousins
As companies deploy new rounds of spend analysis and leveraging, category management and supplier scorecards, they have seen significant improvements in both cost and performance. But what do they do next?
Many point to “supplier relationship management” (SRM) as a big opportunity for elevating procurement’s role. But while executives vaguely refer to “Toyota-style supplier relationships”, the mechanisms and processes associated with this approach have not been well defined.
In this article, US consultant Nick Ward and academics Rob Handfield and Paul Cousins define some core attributes of SRM based on interviews with multiple executives, suppliers and stakeholders. They describe three core processes that organisations must put in place to provide a stable foundation for embarking on an SRM initiative, as well as the enabling interpersonal competencies that underpin effective SRM.
Building on these “breakthrough competencies”, the authors then outline a five-factor framework for successful SRM implementation. They include a number of key insights gleaned from their interviews, providing organisations with both the platform and a route map to reach the next level in SRM.
REMUNERATION
Andrew Cox, Paul ireland and Sarah Lim
The profile of procurement has never been higher and salaries are beginning to reflect this. But according to The International CPO and PSCM Remuneration Report, a CPO’s basic salary and bonus vary dramatically according to country, sector, size of organisation, level of procurement spend and number of employees in the procurement function.
This international survey found that basic salaries ranged from £303,000 a year in a private-sector US manufacturer to £34,000 in Egypt, with overall remuneration varying from £724,000 in a global IT company to just £51,000 in a UK-based public-sector body. The average remuneration is £202,049, of which £93,729 is derived from sources other than basic salary.
The highest average remuneration is found in the retail, transport and IT sectors. CPOs in the US and Canada tend to earn the highest sums, followed by their peers in Germany, Switzerland, the UK and France.
CPOs with the most experience in procurement tend not to command the top packages. Those coming from finance, operations, marketing and manufacturing earn more overall than those who have spent their entire careers in the procurement function.
INTERVIEW
Roy Anderson, MetLife
MetLife vice-president Roy Anderson may have the aura of a stand-up comedian, but he’s no joker when it comes to procurement improvement.
Since joining the life insurer in August 2001, he has increased the number of people in strategic roles from five to 77, while transactional positions have been cut from 70 to just 15 and relocated to India. Savings are seven and a half times greater from a department that is 10 per cent smaller. “We looked at every single desk, simplified the process that each associate was going through, eliminated the work that was valueless, and then automated as best we could,” he says.
Encouraging internal customers to take responsibility for their own orders in a self-service environment has enabled the sourcing team to work much more effectively. “Today, almost 90 per cent of our transactions are not touched by a buyer,” he says.
Managing change has caused resistance and sometimes puts procurement in a difficult position. But this isn’t going to deter Anderson from his goal of creating a “truly integrated, technology-driven procurement team” where actionable data is channelled quickly to the right staff on any device they choose and wherever they happen to be located.
SUPPLY RISK MANAGEMENT
Vinod Singhal and Kevin Hendricks
Most senior executives claim to be aware of the importance of managing supply chain risk, but too many organisations fail to invest in adequate defences, suggests research by Vinod Singhal and Kevin Hendricks.
The consequences of supply chain disruption can be devastating, with affected companies seeing share prices underperform benchmarks by an average of almost 14 per cent, an average fall of 7 per cent in sales and an 11 per cent increase in total costs.
Executives need to develop a greater understanding of the primary sources of disruption and recognise that lean and efficient supply chains carry a higher risk. The authors identify seven common sources of supply chain disruption and suggest eight investments and initiatives that they believe companies should make, viewing them as insurance policies against the impact of disruptions.
This is followed by a five-step plan designed to help identify the risk management strategy best suited to your needs. These steps are:
• Assemble a cross-functional team of risk experts.
• Characterise the major sources of risk.
• Assess and prioritise risks.
• Monitor risk and take actions as needed.
• Improve the risk management process.
SUPPLY CHAIN FINANCE
Nick Martindale
Having squeezed costs out of the physical supply chain for years, CPOs are now coming under pressure to reduce the amount of working capital tied up in the financial supply chain by extending payment terms for suppliers. But this can harm relationships and even drive some suppliers out of business.
One solution could be supply chain finance schemes, where a bank or other institution funds suppliers on the strength of their invoices based on the buyer’s credit rating. This gives suppliers the majority of their money on more favourable terms while buyers can extend payment terms and safeguard the supply chain. In some cases, it can even be used as a means of further reducing prices.
Some commentators argue that the real benefits will only come when banks or logistics firms accept the risk of owning and managing inventory.
For supply chain financing to be used successfully, procurement needs to collaborate with finance. By rising to this challenge, CPOs could enhance their position within the organisation, but whether they are ready to do so is an open question.
And some remain sceptical.For one purchasing director, supply chain finance has a “difficult aura” around it. “If it was that critical it would have already happened,” he says.
