Suppliers are from Mars, buyers are from Venus

[tweetmeme only_single=false http://www.URL.com%5D

A recent IDC survey regarding the state of IT (in Sweden) in 2010 really did it’s best to expose the difference between buying and selling organizations. When asked about how they expect the IT market to develop in 2010 diametric answers were provided making one wonder where the two parties can actually meet.

The only area with a near resemblance of likeminded views was cloud computing:

• 46 percent of the suppliers believed that cloud computing would grow in 2010…
• …as opposed to 30 percent of the buyers

But from that point on, the gap grew larger with each asked question.

• 57 percent of the suppliers expected that sales would grow in 2010…
• …where-as only 27 percent of the buyers indicated that their IT budgets were growing

And when it came to outsourcing, the gap between seller and buyer expectations had grown to 37 percent as:

• 53 percent of the suppliers expected the outsourcing market would grow…
• …as opposed to a meager 16 percent of the buyers

Now there are probably numerous reasons that explain these variations but I dare say that sales and marketing almost by default are opportunistic by nature and set goals that are hard to reach yet in return yield great rewards. Buyers on the other hand are perceived as nay-sayers, and do their best to live up to that reputation.

So what can one learn from a quick exercise in sales to purchasing comparison.

As in real life, understanding the other side will be of great benefit to all parties.

Why more women is needed in procurement – understanding the big picture, networking, communication and managing relationships are traits that define the future of procurement

[tweetmeme only_single=false http://www.URL.com%5D

Procurement Leaders big tweet chat debate on Friday focused on how procurement must change in order to attract talent got me thinking about the key traits that will define purchasing executives in the future. What we need to know, how will we conduct our work, what traits we need to pay attention to when hiring and promoting the profession. When looking at my list I admit that it is rather generic – the traits are essential for anyone in business these days and not just limited to procurement.

A broad business understanding, the ability to manage relationships, communication and using potential networks to affect and react to changes defines the modern business professional in my eyes. And it is as such that we need to look at purchasing; one of the modern business professionals.

Understanding the big picture
Purchasing is not an island unto itself. It never has been and it never will be. In our ever changing world purchasing managers must be able to understand what makes the business evolve. Business development skills should be on top of all lists.

In most cases, purchasing is the center of gravity in the full supply chain and as such it owns many of a company’s most crucial relationships. This should not be treated unlightly.

Managing relationships
As the center of gravity in the supply chain, understanding how to manage and affect all types of relationships is crucial; be it supplier-, end-user customer- or sales/marketing relationships. Purchasing managers must be able to – much like a chess player – be able to analyze the implications that may arise if and when relationships change.

Using networks
Some argue that as the internet evolves – and the power of Google increases – that using social networks will in some ways replace traditional web searching as a way to gather information. Nielsen released their findings on the subject a few months ago and found that 18 percent of all respondents used social networks as a starting point when searching for content.

Communication
As relationships evolve a multitude of grey scales replace the black and white rendering of the first impression. This stresses the importance of communication – especially across borders and when using emotion unfriendly tools such as e-mail (and in some cases social networks). Being able to speak to suppliers, c-level executives, stakeholders and end-customers alike to get their attention requires a deep understanding of the perceived value of purchasing.

When looking at the traits that define these four areas – the big picture, relationships, networks, communication – I’d argue that they are areas in which more women than men that would excel in. Yet the tradition of the profession is so male centric it is scary at times, I’ve been at purchasing events where less than five (5!!!) percent of the attendees have been female. Procurement is unfortunately – as is sales and marketing – a rather male arena.

So will the next wave of CPO:s be female?

I surely hope so.

If we manage to raise the status of procurement through whatever means – it is a fantastic opportunity for female professionals. Looking at the amount of talent that is out there (below the c-level) and the skill sets necessary for procurement excellence I’m hope that we will see a paradigm shift in the near future; off the top of my head I recall Sandra Petersen of Skanska and Christina Di Luca of BP spearheading the male confines of procurement and remember that Barbara Kux of Siemens recently made Fortunes 10 Global leaders list.

A purchasing nightmare: The perfect storm that hit the pulp and paper industry

[tweetmeme only_single=false http://www.URL.com%5D

Dogged by the downturn, the pulp and paper industry has slowly recovered over the past months to the extent that it has been flagging for price increases to boost profitability. Now for the affected categories purchasers this was old news, but no-one was counting on the perfect storm that hit the industry in the last week.

1. The earthquate in Chile
   News reports indicate that 7 percent of global pulp capacity is shut down.
2. Severe weather conditions in Scandinavia
   Rail transport has been at a standstill and is still not at 100 percent capacity interrupting many supply chains. Hallsberg, the main rail hub in Sweden has been at a standstill for 12 days and Green Cargo estimates losses of 30-40 million SEK according to Dagens Nyheter.
3. Transport workers strike in Finland
   While road transport is back to normal, dock workers went on strike this thursday effectively shutting down all finnish ports. Both Stora Enso and UPM-Kymmene has flagged for mill closure due to the strike.

With pulp costs rising higher than expected, purchasers are in a tough spot. I wonder if any risk management initiative could have seen all of this coming in a once. It also makes one wonder which category will be the next in line.

Managing quarterly supply chain migration

[tweetmeme only_single=false http://www.URL.com%5D
A few days ago in a post about maveric spend was expanded by a great comment from Jon Hansen of Procurement Insights that explored the concept of agent-based Metaprise models that would allow companies to increase supply chain flexibility without losing control or focus.

To expand on the subject without going to deep I believe that the new normal/post-recession economy that we are experiencing today is simply too fast paced to be managed and governed by processes that worked in the past. I plan to dive deeper into these subjects in the near future – as well as looking at what really constitutes as usability – but  let me leave you with a quote from William Fung, head of the Hong Kong trading company Li & Fung Ltd, in a few sentences he neatly sums up some of the challanges that supply chain professionals are facing today:

“…the supply chain continues to become more mobile all the time. Today, a supply chain that produces an item in November may look completely different from one that produces it four months later. Price and speed and raw materials all have an impact. The cheapest way I know to produce a men’s shirt now [February 3, 2010 – my comment] is to get fabric from certain parts of China, ship it to Bangladesh, and make the shirt there; it may be ready for the fall season. But if that style really started to sell well and you wanted to reorder in January for February or March delivery, I would take the same fabric and make it in Shanghai, more expensively but more quickly and reliably.”

The full interview with Mr. Fung is available at strategy+business, it’s a highly recommended read that highlights really how fast-paced global business can be today (and in the future).

In the future, will sustainability and supply chain transparency be a necessity for consumer goods – Svensk Handels says yes

[tweetmeme only_single=false http://www.URL.com%5D
Swedish lobbyist organization Svensk Handel recently released their latest consumer goods trend report (konsuMera – in Swedish only) and highest ranked among the trends were consumer expectations in sustainability/CSR related issues.

In an analysis by Svenska Dagbladet they go as far as to say that “in the future, it will be impossible for companies to ignore CSR-related issues”. The question is how this will work out in the future.

When looking through the latest reports on CSR/sustainability one can quickly become overwhelmed by the gap between the ambitions of the producers and their supply chains. There are many aspects of CSR that needs to be accounted for but take this snapshot as an example of the state of CSR in many supply chains.

Carbon reduction ambition
Only 38% of Suppliers currently have carbon reduction targets in place compared to 82% of the Members. The success of long-term global carbon reduction among Suppliers will now depend on two main factors.

This quote is from the Carbon Disclosure Project Supply Chain Report 2010 (authored by AT Kearney) and although it only focuses on one area of sustainability (by some of the leaders in the field) it shows the abyss between the ambitions and actions of the producers and the focus/motivation of their suppliers.

If the report from Svensk Handel speaks the truth about the future – consumer goods producers need not only get their suppliers on track, they will also need to educate the retailers about what they themselves are doing as well as how their suppliers are perform.

Successfully dealing with maveric spend

[tweetmeme only_single=false http://www.URL.com%5D

Jason Busch’s Analyzing comparative claims piece on Coupa‘s Ariba-bashing marketing campaign has caused quite a stir. And not without due reason. Jason has correctly pointed out a number of shady points in the Coupa campaign as well as clearly juxtapositioning the two competitors.

But there are a few areas where the correct analysis unfortunately gets in the way of pragmatically successful purchasing; namely how we define maveric spend and which path one needs to take when tackling this dilemma.

One of Coupa’s big differentiators is the iRequest and iBuy features. In brief it enables end users to browse online-stores to requisition items. The items are then submitted for approval and the actual purchase is carried out by a purchasing professional.

Commenting on this functionality Jason Busch writes:

“…however, in larger organizations, iRequest and iBuy defeat the purpose of rationalizing spend with specific suppliers to hit volume-discount thresholds. Going to non-contracted supplier sites through iRequest and iBuy may not constitute a maverick purchase in the purest sense, but it’s certainly close to one, given the lack of a contract, price sheet, and potential discount/rebate schedule.”

And whilst he is correct in his analysis, I’ve experienced first hand on numerous occasions how exactly this type of functionality and behavior has paved the way for successful e-procurement implementation as well as development.

When I started out with e-procurement back in the dark ages before the dot-com era our free-text requisitioning was the one killer app that successfully won over a reluctant user base.

• First, it made it possible for end-users to still use their preferred suppliers
• Second, the purchasing department could when possible steer the purchase towards contracts
• Third, the purchasing department could analyze buying behavior and end-user preference to optimize the supplier network
• Fourth, skillfully navigating the above criterion, the purchasing function was able to minimize maveric spend while transferring spend towards contract suppliers

To this day – the very company that I started my procurement path within is still applying these fundaments in successfully rolling out e-procurement to a global organization (~100 countries). It eases the change management process as well as enables e-procurement roll-out to locations that are off the map in many cases.

There is a big difference between uncontrolled maveric spend and allowing end-users to show their preferences while still retaining control. And lest not forget that in the latter case, there will be a pre-approved purchase order sent out to whatever supplier, a PO that can be matched against an invoice, minimizing administration.

Call it what you will – iBuy, iRequest, free-text requisitioning – to successfully roll-out procurement you need a procurement solution that goes well beyond traditional catalog e-procurement. Jason also points this out and gives a heads up to Vinimaya which I can only applaud; from what I’ve seen, they have some great stuff up their sleeves.

The future of purchasing technology lies beyond the war of words between Coupa and Ariba

[tweetmeme only_single=false http://www.URL.com%5D

Over at Spend Matters (here and here), there’s a heated debate over Coupa’s recent marketing campaign and it’s claims to better Ariba in many areas. Now I’m not going to jump into that fray – I’ve spent too many years as a copy writer and music critic to bother with marketing claims and hyping the flavor of the month.

In my mind, the one thing that stands out in differentiating purchasing software is ease of use. End-users don’t care if they work for a multi-national, multi-billion dollar company or if they work for a local firm with single-digit FTEs. They are users of a system and by default they expect things to work easily, smoothly and efficiently. It’s as simple as that. Just because you work for a multi-national doesn’t mean you should expect that the tools you use should be complicated.

Bizconnect’s recent poll shows just this (albeit that their research might be a bit shifty):

43 percent of the respondents said the most important feature they look for when evaluating new purchasing software is ease of use.

So what exactly is ease of use.

Well, today many purchasing software developers look at what Google is doing in the domain, or the major internet webshops. I would say that strategy is rather reactive. In an increasingly mobile (in all senses of the word) world – anything developed with a laptop or stationary computer in mind is going to be second-tier by the time they’re closing in on their release date. If your not convinced, check out this blog-post at Google Mobile; Smarter Shopping with Google Moblie to see where internet commerce is heading.

With smart phone sales boosting the entire mobile phone market in 2009, up by 23.8 percent year over year according to Gartner it’s a no brainer to see where development budgets should be going in the future.

Smartphone sales to end users continued their strong growth in the fourth quarter of 2009, totalling 53.8 million units, up 41.1 per cent from the same period in 2008. In 2009, smartphone sales reached 172.4 million units, a 23.8 per cent increase from 2008. More at Gartner.

It’s a fair guess that many a smart phone ended up in the pockets of business managers looking for ways to better manage their daily work (whilst keeping a front of success and innovation). Smart phones are ease of use. Mobile, simple, efficient and always online.

No matter where the war of words between Coupa, Ariba and the numerous commentators end up – purchasing software providers that do not support smart phones in the near future will not be seen as front runners or purveyors of ease-of-use. They’ll just be more of the same old that we are struggling to leave behind.

Winter supply chain issues

[tweetmeme only_single=false http://www.URL.com%5D

At the moment Stockholm is draped in a gorgeous cover of pristine snow – it’s a glittering prize to quote The Simple Minds. Unfortunately, a snowy winter also has it’s downsides. The traffic situation is in a state of chaos, public commuting is crippled and many supply chains are struggling to keep up.

In a press release Green Cargo – Sweden’s leading rail logistics carrier – point the blame at the Swedish Rail Administration for poor handling of the situation.

“The rail logistics volume has been halved and companies are severely affected” says Mats Hollander of Green Cargo.

Stora Enso’s information officers echo’s the sentiments from the supply side in a Dagens Industri article:

“We have goods that are going nowhere”

Now it would be easy to just slap on a few ppt:s regarding risk mitigation and leave it at that, but the problem when it comes to logistics and the impact of infrastructure is that even though there is risk awareness there just might not be a simple answer to the question of who’s to blame.

Just to expose some of the complications of an issue such as this:

• The Swedish Rail Administration has the overall responsibility for the rail transport system in Sweden.
• Green Cargo – and other logistics providers – are dependent on a functioning rail transport system to be able to carry on business.
• Stora Enso – and other suppliers – are dependent on logistics providers to deliver the goods.
• The Swedish Rail Administration has sub-contractors (suppliers) that are responsible for rail maintenance.

These suppliers have been sourced just as any supplier should be – yet I doubt that much focus was placed upon the issue of snow and ice in the RFP/I (statistics buffs can gawk at the fact that statistically there was no winter in Sweden at all last year – counting days of sub-zero weather). And the suppliers are now in the business of investing 15+ MSEK into machinery that is vital today (and stands un-used the remaining part of the year).

So the trouble of getting supplies and goods through today, with ice and snow delaying services, is not an easy one to solve since it’s not only affecting the supply chains using the logistics services that have faulted. The supply chain for rail maintenance has been undercut by sourcing hard and low (clearing snow is not profitable). And with a market that demands low prices; there is no upside to keeping snow clearance equipment as back-up.

Everyone is seeking a scapegoat – the problem is that we all know you can blame the weather.

Applying the art of cross country skiing on supply management

[tweetmeme only_single=false http://www.URL.com%5D

With the Olympics in full swing – the Nordic countries are flooded with self-promoted experts who spend their days digressing who will take the most prestigious medals on snow (for those of you outside of our cross country crazed region it’s time to place your bets on Kalla, Björgen, Northug, Cologna, Hellner, Kowalczyk, Majdic or Saarinen). And with the speculation of glory comes (of course) the analysis of technique, material, weather and failure.

Host city Vancouver is at sea level and critique has been frequent regarding the decision to hold the Olympics in an area which cannot boast impressive numbers when it comes to (winter Olympic) necessities such as snow and icy temperatures (as this is being typed, 4000 tickets have just withdrawn from the snowboarding arena at Cypress Mountains due to rain and the unavailability of snow – which is being trucked in from Manning Park 250 km west of the city – now that’s a supply issue not dealt with often). I would have loved to be a fly on the wall when the risks were discussed as Vancouver was chosen to host the games.

The warm temperatures have also increased the focus on the tracks for the cross country skiers as well as the technique necessary for mastering the adverse – and in many cases unusual – conditions. Years of preparation hasn’t prepared the experts for preparing skis for tracks laced with fertilizer – much like the “new normal” that legio in global purchasing of today,

And this is where purchasing professionals should listen up and take notice – because there are numerous similarities between making the most of a supply chain and skiing fast in the conditions faced around Vancouver at the moment.

Germany’s biathlon poster girl Kati Wilhelm neatly summed up the challenge she and many others are facing in a recent interview with SVT: “I’m a ‘heavy’ skier, and I need to change my technique to float on the snow in order to stay competitive”. Now what she means is that she’s a power skier who applies a lot of pressure downwards as she propels herself forward. In perfect conditions with an icy track this is a great way to create traction and maintain velocity but in the slush that surrounds Whistler its like “running a marathon in clogs” (to quote Swedish biathlon coach Staffan Eklund).

Unfortunately this type of practice is what many purchasers still see as their main activities. They apply heavy pressure on your supply base to ensure low cost.

What one needs to do in Whistler at the moment is to balance pressure with release – there are many skiers who are known for this – the ability to float on top of the snow – making the most grueling races look effortless. What they seem to do is apply pressure downwards to get traction and increase velocity and once they’ve achieved this they release much of the pressure and let the skis do their job to sustain the momentum.

Put into the world of spend management this is the equivalent of applying pressure by securing a competitive environment in sourcing activities and still enabling suppliers to feel freedom (as well as security) as the contract runs to ensure that innovation is captured, flexibility is maintained and quality is sustained (and even improved).

Treading the (not so) Fine Line Between Classic Consulting and Outsourcing

[tweetmeme only_single=false http://www.URL.com%5D

Over at Coupa Cabana, guest blogger of the week Dustin Mattison does a great job of outlining some of the challenges and opportunities that procurement functions are facing in 2010. Second on his list is outsourcing.

2. THE PROS AND CONS OF OUTSOURCING

Many of the themes that floated to the surface overlapped to one degree or another. The recession, for example, forced us to re-examine the practice of outsourcing. What made sound financial sense in the previous decade doesn’t necessarily make sense today. Now, more than ever, we need improved supply chain visibility, and while some see outsourcing as a practice that tends to block the view, many others see it as an opportunity to improve collaboration and communication with their partners. The purpose of outsourcing is to hire experts in areas outside our key competencies. The challenge, of course, lies in making those connections — something we are already seeing as a hot topic for discussion 2010.

Though I do agree that the pros and cons of outsourcing is one of the key trends in purchasing at the moment, I thing that many companies need to re-assess why they are looking into the issue. Dustin and many of others are clear with their view on why and when to outsource; “to hire experts in areas outside of our key competencies”. In some cases this may be true, but to me that sounds more like typical consulting/services needs. Outsourcing on the contrary should – in my mind – be used to increase focus on core issues.

For instance, many companies can still count quite a few resources that know IM&S procurement inside and out. Using the logic Dustin describes above, this would then be out of scope for outsourcing as there are in-house experts. If I was in charge of the purchasing function, I would do the opposite.

Outsource IM&S procurement and re-focus the IM&S experts to DM and vital services procurement. Expert staff in procurement are not only experts due to their deep category knowledge, they are also skilled in purchasing process, strategy, relationship management, implementation – skills that would generate far more value if applied on more core commodities.

Given the fact that procurement outsourcing will be a focal point of 2010 – I would argue that the functions response should be to focus on the core commodities and look into how one could benefit from outsourcing the commodities and processes that are non-core. Boost your core with outside experts and consultants, but don’t confuse this with outsourcing.