Consumers are like elephants – Risk management and mitigation is a long term project

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Reports on konsumerbehavior and beliefs are always a great source when trying to understanding, educate and open the minds of procurement professionals (or anyone involved in development and manufacturing). Most often they expose consumers as a sort of elephant – they rarely forget and once they start moving in a direction, getting them to change can be an overwhelming task.

Recently, Konsument Föreningen Stockholm – swedens largest non-profit consumer organization – opened a social media project called “Myths about Food” whereby they sought to expose and bust many of the myths that still float around consumer circles.

One of the questions in the survey was related to the use of apples in Lingoberry jam. Now anyone who’s ever been to the nordic region will have experienced the importance of Lingonberry in Scandinavian cuisine. The fact that it’s one of IKEA’s big sellers abroad is a testament to the fact if nothing else. In it’s purest form Lingonberry jam consists of lingonberrys and sugar so when your starting to mess with the recipe you’re getting into pretty deep waters.

Evenso, about 20 years ago many producers were exposed using apple sauce in lingonberry jam to make their product cheaper.

In this years survey (swedish only) – 72 percent of the respondents still believed this to be true. Even though producers stopped the malpractice years ago.

Now that’s something to keep in mind when you’re trying to balance cost with your products consumer product.

Commercial Print – How a font change can lower your printing costs

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The news about the University of Wisconsin-Green Bay changing the default font in their e-mails has become the viral news of choice this past week – at least in the marketing world. And reactions range from the amused to the amazed. But font substitution and development is nothing new to old media; they’ve all been doing it since the days of Johannes Gutenberg, because in the print business – print efficiency is big business. Many news publications use specially designed versions of classic fonts that enable the companies to fit more print onto a single page.

The Guardian quotes the institution saying that it has “reported that the new font requires about 30% less ink, which costs up to $10,000 per gallon”.

Now that’s something to think about for all marketing and commercial print buyers out there. It also makes one muse over the balance of power between stakeholder and procurement when it comes to really saving money.

Easter weekend and belgian cobbled climbs

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Stateside, belgian cobblestones are something that goes in and out of vogue for home owners who want to add some classisism to their gardens and driveways. For me belgian cobbles carry another type of grandeur.

Because this weekend – apart from being easter – is also the center piece of the northern classics seasons: the Ronde Van Vlaanderen. In it’s 93rd edition, this classic cycling race features 15 brutal climbs with up to 23% grades laid with belgian cobbles to make matters worse. In rainy conditions it’s like trying to ride up a tilted and bumpy ice hockey rink.

Many of the climbs; such as the Koppenberg and the Muur-Kapelmuur are so deeply lodged in the mythology of belgian cycling that there have been great protests when municipalities have proposed to pave the roads with asphalt. In recent years, a few of the climbs have been restored as they had become in all aspects unridable. Talk about a one-time sourcing project; restoring a 100 year old cobbled farm road. In one case – the Paterberg – the climb was built specifically for the race by a itself by a jealous farmer who wanted to have the race go through his front yard.

Sourcing belgian cobbles for cycling racing purposes might be a very regional category in terms of procurement but take a look at any indirect materials and services supply chain and you’ll discover a uniqueness and seasonality that often hinders standardization and volume aggregation initiatives. The devil may lie in the details; but the details is also what makes the world of procurement such an exciting arena.

Can one engage the supplier base to lower supply chain risks

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With many car manufacturers struggling with recalls and pointing the blame at their ailing supply chains this recent piece by Peter Hunter of HumanResourcesIQ (Root Cause of Toyota’s Failure: Employee Engagement) opened up the matter from a completely different perspective.  Hunter argues that engagement is the real differentiator between East and West Toyota production lines.

Is it possible that the faults that caused the recalls did not occur in vehicles produced in the East because they were spotted and rectified by an “engaged” workforce, while in the West the “disengaged” workforce knew of the problems but never reported them to Toyota because Western managers do not know how to engage their workforces.

I shared similar sentiments in a post relating to Bianchi bicycles a while back (One Supplier Audit Question You Probably Never Asked); “…In a world where cost and volume seem to be the rule of the day; passionate businesses can surely find a niche market and exploit it to the fullest, but it also means that the business must share the same passion as the consumers…”. Passion and engagement are related emotions. And both have been out of focus in sourcing recently.

Understanding why an end-customer buys the product should be essential for procurement.

If you’re solely focused on up-stream cost reduction, chances are that you are missing the real reasons why your product is unique and why customers are attracted. In many cases it’s more than just marketing gimmicks that have driven them to the stores. It’s the pride of owning something that they can identify themselves with.

I had the chance of meeting one of the marketing and sales executives of Scania last year, and during our discussion we touched upon the subject of events where she mentioned that Scania once had put a tattoo artist in their exhibition booth. And people were queuing to have the Scania logo permanently fixated on their skin.

With that amount of customer dedication to your brand, can procurement afford to chose suppliers who are not as – or more – engaged/passionate about their job.   I would say no.

Is procurement to blame for corruption business practices in low cost countries?

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The Rio Tinto bribes-for-secrets case has become a landmark for corruption and risk management; exposing business practices many of us consider highly unethical.

Commenting the story for CNN (Wake-up call for foreign firms in China);  risk management consultant Peter Humphrey points out several lessons that can be learned from the case:

• First, corrupt practices must be strictly monitored and curbed in order to avoid trouble both with Chinese law and home-country anti-bribery law.
• Second, companies clearly need to gather business intelligence and competitor intelligence but they must do so through legal and ethical means and not through bribes.
• A closely-related lesson for multinationals is what we have learned about the interests that China considers “strategic”.

Now, we’re all aware that corruption is wide-spread in China (as it unfortunately is in many parts of the developing world) the question is how we should deal with the fact. SIDA – the Swedish International Development Cooperation Agency recently announced that they are funding a center for CSR-issues in Beijing (in Swedish) but although training and cooperation centers such as this are one way of instigating change one wonders if it is enough. My belief is that CSR-practices must become the focal point for low cost country sourcing because unless procurement as buyers do not stand up for ethical procedures one cannot expect developing country suppliers to live up to western European cultural  ideals in a cut throat business environment.

Public procurement: What can happen when there’s no call-off, no control and no invoice matching

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For the past few months, the press in Sweden has reported about how Busslink – a public transportation contractor – has over invoiced SL for 733 extra busses. Busses that somehow have been lost on the road. A recent audit shows that “at least 733 busses lack traceable documentation”. No-one seems to know if they ever made it out on the roads, yet they have been invoiced all the less.

Now, one can suspect that no-one ever called off these busses from the contract and given the circumstances that usually call for extra busses to be on the roads in the first place: break downs, weather, traffic situations etc there might not be a simple solution to be able to manage this type of ad hoc situations.

Still, in theory, even the simplest call-off to create a PO solution would have done the trick. 20 years of e-procurement seems to have little impression on SLs view of public procurement.

Procurement Leaders Forum in Chicago

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Just a quick heads-up for those – like me – who can’t attend the now ongoing Procurement Leaders Forum in Chicago. It’s got a quite stunning line-up of procurement executives who are sharing best practice but the best of all is that Procurement Leaders David Rae and Mark Perera are live-tweeting about the action on Twitter as well as posting great write-ups of the presentations on the Procurement Leaders blog.

Procurement function focus: Go broad or go deep

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The past few weeks I’ve been going through the ever-growing pile of reports that amass on my digital desktop and one thing that strikes me when comparing different best practices is that one re-occurring theme is focus; be it for supplier base consolidation or central co-ordination.

As an avid runner and cyclist I’m rather surprised that this still seems to be an issue for many companies. To succeed one has to specialize – your either a sprinter or a long distance runner. It’s quite simple and universal actually, yet when it comes to IM&S procurement many companies are still viewing their task as a pure support function that needs to be able to deal with any and all issues that may arise. To put things bluntly:

How many category managers for office supplies do we really need?

I doubt that they are viewed as strategically important in any industry sector. In a sense I can feel that any IM&S category that can easily be placed into a category tree should be viewed as un-strategic. In our era of focus, as such they should be viewed as a candidate for outsourcing so I believe it’s prime time to do some make/buy homework.

As companies downsize their supplier base – focusing on closer relationships with strategic suppliers (as leaders do for instance according to this Roland Berger report) – it’s due time that purchasing functions take a good look at IM&S outsourcing possibilities; go deep my friends and let others do the more un-strategic work.

Is purchasing secretly premiering risk takers instead of risk avoiders

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While commuting to work this week I took this year’s first real tumble. Navigating the icy conditions along Norrmälarstrand had more in common with riding the pavé of Paris – Roubaix than a regular commute but to me it came as no surprise. I knew the risks and I had taken precautions – slowing down just enough to maintain traction, helmet on, cyclo-cross style gloves, both eyes on the road. I was also very aware of the risks I factually was taking – commuting in icy conditions on a fixed gear set-up with no breaks.

Nevertheless, I still crashed. No major harm done, but still.

One of the classic cycling anecdotes is that you’re not a real cyclist unless you’ve broken your clavicle. When Lance Armstrong broke during the Castilla y León last year twitter was alive with commentators joking about how the seventeen year pro and seven time Tour de France champion was finally a cyclist.

Why am I telling you this; well crashes, accidents and risk-taking are significant attributes in our culture – and that includes purchasing. On many occasions I’ve had the pleasure of listening to procurement pro’s swapping war stories; bailing out suppliers in far off countries, manipulation, bribery, you name it. And although the stories are both compelling and at times quite exciting one wonders why we pay so much attention to (and show so much appreciation for) what could be seen as risk management failures.

I’ve got six words for it: scars impress in the male world.

It makes one wonder what would be premiered had there been more Barbara Kux’ out there.

Key success factors for public procurement

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Public service procurement has taken some intense flack in the past few years – and not without due reason – but I think it’s time to acknowledge some of the great stuff that actually is happening in the area at the moment. Because it’s there, it’s just that it’s hidden under an enormous pile of bad reputation, fraud cases, contracts being overturned, administration and god knows what.

This morning I ran into Mark Masterson – the head of IBX UK – who was in town on a public procurement mission. While chatting near the coffee machine (ristretto for me, white tea for him) he mentioned an article that he had written for Supply Chain Europe recently highlighting some of the breakthrough in public sector procurement as well as proving some pointers for those who want to get on the band wagon.

With Norway and Scotland leading the way in Europe Mark points out that Norwegian users have seen “a 20-40 percent reduction in the time it takes to handle orders, goods receipts and invoices”. The Norwegian government has also made it mandatory for all public bodies to use e-invoices by 2011. Apart from these process savings the Norwegian public sector has also achieved more far reaching effects:

“A prime example is the health sector in Norway, which is going to be running a pilot scheme, as part of the PEPPOL project, where it will buy blood plasma directly from Austria, to ensure that they always have the right stocks and an optimum cost. In this case, e-procurement is literally helping to save lives.”

In the UK, results are also picking up. Since 2005, ten collaborative IT hardware e-auctions, involving 144 public sector stakeholders have led to savings of £43,8 million.

So what does the laggards in the EU have to do in order to catch up. Mark points to five keys to success:

• There’s no time like the present – there’s no reason to wait until e-procurement becomes mandatory.
• Keep it simple – user friendliness is the key.
• Set clear goals – set realistic targets and timelines
• Central funding – Scotland’s procurement success is routed in its free availability to public bodies
• Ensure procurement and business managers work together – not only does e-procurement benefit the purchasing functions, it also helps keeping the organization financially stable

In any case, successful public procurement will be essential for the EU to regain some of its momentum especially in times when the rest of the world is betting on which country is going to be the next Greece.