The art of competitive collaboration

  • Author: Colin Maund
Posted on 18-01-2012

Everyone is facing the same problems of recession, supplier instability, and greater regulation of business – which is driving more concerns about suppliers. So how do you afford it all? I believe companies are going to have to start looking at business models that are a radical shift from the present ones.

Traditionally, companies have been loath to collaborate with competitors, apart from against common ‘enemies’, like government where they have been prepared to form trade associations to lobby for their interests. Also, they have been prepared to work together in areas like science or on standards to make sure their industries are looked after. But they haven’t been prepared to look at collaboration much beyond that. Companies are now starting to have to look at collaboration with competitors as a way of reducing costs and this is opening up the next stage of the business development model.

We have already seen companies outsource their activities to others in an effort to reduce costs, we have seen them move down the road of greater and greater efficiency methods – lean supply chains etc – but the next stage – where it’s economically sensible and non competitive – is to collaborate with competitors for mutual advantage.

Companies have to be innovative about defining the areas where they truly compete and the areas where collaboration is sensible and possible. The first thing is to undertake a value chain analysis and ask, ‘where do we add value as a company, and where is it absolutely against our interests, long term or short term, to work with others?’ But as a point of caution, it is important to understand these boundaries, as potentially, a company could undermine its own competitive advantage.

In areas where there is no competitive advantage it may be absolutely right to collaborate. By way of example, if you have two car companies both using different factories, producing broadly the same part, if they could agree the specification for that part then they could collectively still continue to use those two factories, but if one of their factories became disrupted by an event like an earthquake, both could draw on the other plant. And of course, if they were able to collaborate on specification the price of those components would drop.

People in the supply chain need to have a different way of thinking when it comes to collaborative opportunities. We have got to start rethinking fundamentals. Most companies, especially large companies, tend to think they are an island at sea – it’s them, their suppliers and their customers.

When we were putting together our schemes, many of the procurement people from the various companies in a sector had never spoken to each other. You would have thought this would have been quite a common occurrence between companies in the same area of activity, in the same geographic region – but not at all. The fact that we provided a forum where they could meet and discuss common problems without entering into anti-competitive behaviour has proved to be a very valuable element of our operation.

There is a natural level of suspicion that needs to be overcome in competitive collaboration. If a competitor phones up and asks you ‘would you like to work together?’ your immediate reaction may well be, what are they up to? To get past that barrier is an important first step.

Research shows sharp rise in Supplier Challenges

  • Author: Gail Wilson
Posted on 08-12-2011

Research by Nottingham University and Achilles indicates a sharp rise in the number of supplier challenges going to court – a significant concern for buying organisations in the Public Sector. The report which looks at supplier challenges brought under the EU procurement regime in the UK over a twenty year period, suggests that in 37 per cent of those cases at least one of the claims was supported by the court – inferring an even larger proportion settled out of court.

Challenges take months to resolve and in many cases cost hundreds of thousands of pounds in compensation or settlement out of court.

The Achilles/Nottingham University report highlights the fact that, historically, the challenge rate in the UK has been very low, averaging approximately two challenges per year in the period between 1993 and 2006. However, following 2006 the number of challenges has increased steadily. Findings from the study also indicate that the reforms to the remedies system introduced in December 2009 have had a dramatic effect, with a significant jump in the number of challenges in 2010 when 18 challenges were reported. This increase appears to be continuing in 2011, with 10 challenges occurring in the first six months of the year – up to the end of the period covered by the study.

It can be no coincidence that the number of challenges has risen dramatically since changes to the remedies directive were introduced in December 2009. The new rules have made it easier for suppliers to challenge as more information must be provided to suppliers losing a procurement competition and they can now halt the award of a contract through an ‘automatic suspension’ mechanism where court action has been commenced. In addition, the current tightening of public purse strings is making a challenge more likely as suppliers compete for a dwindling number of contracts. If procuring entities are to find themselves in an increasingly challenging environment, where suppliers are more likely to take their chances with the courts, then buyers are going to have to ensure that their procedures and contracts are ‘water tight’ and in line with current legislative requirements. Any shortfalls or oversights could prove expensive in time, resources and money. Gail Wilson is EU Service Manager at Achilles.

Procurement’s changing role as a more vital and strategic corporate player

Posted on 18-11-2011

The AT Kearney 2011 Assessment of Excellence in Procurement Study, published last week, found that 90 per cent of the 185 global companies surveyed believe the procurement function is performing a more strategic role, actively participating in developing business strategy. The report said there is a new wave of thinking on procurement, “It’s not just business as usual, it’s business as unbelievable.”

When the study began in 1992, procurement was primarily a back-office function and steadily over the years, there has been a shift towards procurement performing activities that add value with nearly three quarters of staff devoted to strategic activities.

The study found 13 companies, amongst the respondents, that consistently demonstrate high levels of procurement performance – from their findings they identified seven characteristics.

Leading businesses understand that procurement strategy must be aligned with business goals; the report found that leading procurement functions are 85 per cent aligned with the wider business in which they operate, while the rest are only 37 per cent aligned.

Those top companies outperform other study participants in their contributions to top and bottom-line strategies.

In terms of managing risk systematically, the report suggests that 80 per cent of companies are a natural disaster away from a major disruption. The top performers excel at managing risk.

Supplier relationship management is used more consistently and in a structured way to improve innovation, growth, better manage risk and improve supply chains. Leaders are 45 per cent more likely to develop their suppliers’ capabilities.

Leading procurement organizations tailor category strategies and are more likely to adopt technology. Most leaders are fully automated, with real-time access to data with technology in place to support contract management and compliance.

All thirteen firms take more aggressive steps to ‘win the war’ for talent building relationships with universities, recruiting and attracting experienced skilled individuals.

According to the report, the years ahead with be challenging with a continuance of economic uncertainty and ‘wild card’ disruptive event, but it recommends greater collaboration – to bring suppliers closer to company processes; getting creative – to attract, retain and engage the workforce; and getting connected – calling for a focus on technology for process improvements.

Is your weakest link further down the chain?

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  • Author: Steve New
Posted on 21-03-2011

Traditional methods of risk management have focussed on prioritising attention on ‘strategic suppliers’; those that supply high volumes, or those on which the firm is commercially or technologically dependent. But these traditional methods may fail to address other critical vulnerabilities to which firms are exposed, including the risks associated with ‘small’ suppliers.

This requires a focus on various aspects of supply chain related risk including: reputational risks arising from the social, environmental and ethical consequences of supplier activity; operational risks concerning questions of product safety, delivery reliability and cost shocks; strategic risks including the collapse of a supplier, or supplier acquisition by a competitor; and unforeseen changes in product and process technology. There are three major problems in addressing these risks.

First, firms may be complacent and choose to ignore risks until a crisis comes along. This arises because a firm’s vulnerability to supply chain risk is often difficult to calibrate or visualise, and because firms may have a limited understanding of the supply chain which lies behind what they buy.

Second, firms may adopt a fragmented approach to supplier relationships which means that relevant supplier information is not appropriately managed or coordinated, and different parts of a firm may deal with procurement, logistics, and supply chain audit. Despite a long history of rhetorical commitment to the idea of ‘strategic’ supplier management, many firms struggle to maintain a high-level focus on procurement issues.

Third, many firms have not developed mechanisms that provide them with sufficient data to effectively manage their supply base including small suppliers, and the result is an information gap. This may reinforce a view of procurement as a passive, tactical and bureaucratic activity.

Recent examples from a range of sectors have illustrated the particular significance of small suppliers as potential sources of risk. There are many aspects to this, here it is worth noting just two: the reputational consequences of illegitimate subcontracting, and the implications of the forthcoming UK Bribery Act. To mitigate these risks, firms may significantly benefit from increased visibility of their supply chain and enhanced traceability across the supply chain of the items that they procure.

We would welcome your views and comments on whether some small suppliers can represent a significant risk element in your business…

Dr Steve New, University Lecturer in Operations Management, Saïd Business School, University of Oxford

Procurement in 2011 – pro-active or reactive, holistic or targeted? And what about risk?

  • Author: Carmen Molina Cerezo
Posted on 17-01-2011

Procurement TrendsRecent Spend Matters research suggests that the period between 2008-2010 witnessed a dramatic increase in the number and types of supplier management solutions available to help companies monitor suppliers, mitigate risk, save time and money.

Given the confusing, fragmented, and ever changing landscape, is it any wonder that Spend Matters also identified that the majority of the Global 2000 at this time did not feel ready to tackle supplier management holistically. Rather, many of those organizations opted to pursue targeted initiatives.

But do those initiatives take full account of a company’s exposure to risk? Or recognise the importance of mitigating risk from the outset and not just at some point in a company’s journey to implementing a procurement solution?

In 2010, the research suggests that customers wanted to solve the challenges of: how to systematically reduce risk and exposure to the emerging financial and credit crisis; when to take proactive action; and with what group of suppliers? And how to bring suppliers on-board more quickly without increasing risk or the potential for non-compliance?

Entering 2011, after a year of seeing businesses cautiously prepare for recovery, we ask the question is the time right now to look at supplier information management as part of an holistic approach to supply risk avoidance? And will this be the year that supplier information management and its role in risk reduction is recognized as essential from the outset – in the first wave of any procurement initiative? We hope that 2011 will be the year that mitigating the potential for supply disruption due to supplier financial, quality, performance and non-compliance will be seen as vital from start of the source to pay cycle, irrespective of an organisation’s stage in the journey.

We’d be pleased to hear from you if you have a comment or observation.

5 questions you should ask yourself about your procurement process

  • Author: Paula Granillo Ocampo
Posted on 08-10-2010

In recent years, the role of procurement in every company has gained importance. Nowadays it is much more than buying goods and services, it has become a strategic function and integral to a company’s development and growth. With the rapid economic changes, ever growing competition and increased risk of failure to comply with environmental, health and safety issues, it has become increasingly important to ensure your procurement function works flawlessly.

In order to gain competitive advantage, every procurement professional should be well aware of all the factors that influence the procurement process. The questions below will allow you to understand whether you have everything in place to maximize the effectiveness of your supply chain.

1. Is your database of suppliers up-to-date?

Very often companies add new suppliers to their database once and never update these details, which in a few years may lead to having thousands of contacts with incorrect or out-of-date data. Maintaining an up-to-date database of your suppliers is very important to save time and money in your procurement process.

2. Do you have the tools and processes to evaluate your suppliers for health, safety, environment, and quality compliance?

How often do you evaluate your suppliers? Do you have the right tools and resources to do this? Health, safety, environment and quality issues apply to all areas of industry, and non-compliance might lead to anything from damaged reputation of the company to harm of employees and legal problems.

3. How confident are you that you are working with the best suppliers in the market?

Can you be sure that you are working with reliable and credible suppliers? Working with the most suitable suppliers delivers a competitive advantage and helps minimize supply chain risks.

4. Do you have access to new and potential suppliers?

How often do you search the market for suppliers? How open is your company to work with new contractors? It is vital to review your lists of suppliers to make sure you are not missing opportunities. New technologies develop fast, supplier quality and prices change; therefore monitoring the market and searching for new opportunities could be a key to successful operation.

5. How much time do you dedicate to benchmarking your suppliers?

Frequent supplier benchmarking allows better planning of purchasing, supply and inventory. It also shows which suppliers have better quality, pricing, ability to deliver against deadlines, and are more suitable when a particular area of expertise is required.

Answering all these questions will help you reduce risks in supply chain and plan your procurement operations based on better understanding of the market and knowledge of your suppliers’ strengths and weaknesses. As purchasing often adds up to 60-80 per cent of overall costs, this is an area where companies are concentrating their efforts to bring quick returns in efficiencies.

Procurement’s opportunity to shine must not be lost

  • Author: Peter Lomax
Posted on 26-04-2010

In many respects, the global recession has helped raise the profile of Procurement. Corporate bodies have spent the last twelve months focused on cost reduction and, over that period, have paid particular attention to the way a more structured and strategic approach to procurement practice can bring rewards to the organisation. And there is evidence to suggest this approach is paying off.

An interesting finding from a recent Ernst & Young study, ‘Opportunities in Adversity’, indicates that for a significant minority 2009 was a year when earnings improved. More than one third of companies surveyed reported that earnings before interest, depreciation and amortization (EBITDA) had grown by over five per cent in the last 12 months. Remarkably in the context of a global recession, seven per cent of all businesses had seen a more than twenty per cent increase in earnings.

As a general rule of thumb, a five per cent EBITDA business making a £1 million saving on costs – that drops through to the bottom line – is the equivalent of the business putting £20 million on the top line. When the opportunities to grow the business are less apparent, then company directors come under pressure to maintain shareholder value by making savings that deliver equivalent value. This places Procurement in a strong position to reach heightened levels of engagement within the organisation and pushes the possibilities for collaboration. Certainly, many more companies are demonstrating a desire to attain better control across their supply base, to gain greater depth of visibility within countries and markets, and to achieve a complete view of the supply base across the globe.

Whereas previously, in some of those businesses procurement would have been considered a tactical activity, many are now looking at procurement from a strategic perspective. This drive to taking a more sophisticated approach can be clearly seen in the utilities and construction sectors in particular, where better control, reputation management, reduced costs, and improved quality within the supply chain are evident in a number of leading organisations.

However, there is a very real and grave danger that once corporate attention returns to growth with an improving economy, the ground gained by Procurement in raising its game within the company will slip away. This simply must not happen. Why allow maverick tendencies, a lack of control and intransigence to return?

There is a challenge facing those that have worked hard to establish procurement as a strategic and central activity in their organisations. There is a tremendous opportunity to build on that base and to take further steps towards complete supplier management, consolidating supplier information and using that data intelligently to make sound decisions that reduce exposure to risk in the supply chain.

The recession has presented Procurement with an opportunity, one that should not be allowed to slip away. Those companies that have taken the opportunity to restructure their procurement processes during the recession should be well placed to profit from the future.

Small, but critical

  • Author: Colin Maund
Posted on 07-12-2009

In just about every organisation the focus is on the largest suppliers, the most critical. And with regards to gathering data on suppliers it may make perfect sense for a purchasing department to allocate resources to where the greatest proportion of activity occurs. But when it comes to risk, dangers are equally likely at any point in the supplier base, whether the supplier be large or small.

There are plenty of examples of where production lines have been brought to a standstill by the failure in supply of a seemingly insignificant component – take for example, the incident two years ago at Toyota, where problems at a supplier of piston rings created a stoppage that lasted several days at twelve of the automotive manufacturer’s plants.

This incident may have been costly for Toyota, even somewhat embarrassing, however, far greater damage can result from a brand’s failure to identify and address the risks to its reputation from its smaller suppliers. Risks that may come about through a purchasing organisation’s inability to identify a small supplier’s non-compliance with issues such as: Health & safety, legal & statutory, data security, CSR and quality targets.

In areas such as Health & Safety supplier failure can be enormously damaging, not only in terms of reputation, but also in terms of cost and exposure to possible litigation. An accident is a hugely expensive, disruptive event but companies can no longer exonerate themselves by relying on a contract that abdicates responsibility to the supplier. The changing attitude of those in authority is that buyers should be active in monitoring and checking that suppliers are compliant, regardless of the size of the contract or the supplier. Conducting regular checks – or when justified, audits – of all suppliers and having detailed and up-to-date information on them, is the only way of mitigating this risk and of demonstrating to the authorities, along with other key stakeholders, that a buyer is diligent and responsible.

However, most companies, even the largest and most professional, do not have data on their smaller suppliers; they tend to concentrate on their top quartile, leaving 75 per cent or more of their suppliers completely off the radar. This is a significant exposure to risk.

If buyers are going to manage the growing and complex matrix of potential risks effectively, visibility of appropriate, accurate and verified information is going to be essential, across the full spectrum of the supply base. But the problem facing most companies is one of time, resources and the complexity of the task. For large multi-national companies that means gathering, evaluating and monitoring information in a consistent way across a supply base of perhaps several thousand suppliers. For any one company that is a major challenge.

What makes more sense is to work collaboratively within industrial sectors to share the burden of gathering and maintaining this comprehensive data resource. By working in collaborative communities within industrial sectors, much of the work associated with updating information and monitoring suppliers can be undertaken by just one independent party, to the mutual benefit of the entire community – including buyers and suppliers. Furthermore, tools and processes for identifying and ranking supplier risk can then be adapted for individual companies, so that they are used effectively to understand and manage the risks in any particular supply chain in a controlled way.

By the very nature of the way the vast majority of companies tend to structure their analysis and appraisal of potential risk around the top tier of suppliers, the significant exposure to the risks from the large raft of smaller suppliers surely makes a collaborative approach to this complex challenge the most compelling solution.

A new perspective

  • Author: Colin Maund
Posted on 03-12-2009

Welcome to the first Achilles Blog – a new regular two-weekly updated commentary and forum for debate on issues challenging the procurement and supply chain space. With such a wealth of cross-industry knowledge and in-house expertise at Achilles we felt we should be more active in expressing our opinion and views on issues affecting procurement and risk management in the supply chain. From a central and neutral position in supply chain communities our ‘thought leaders’ are uniquely positioned to offer an unbiased perspective on important topics. Hopefully, with your involvement, this regular series of blogs will stimulate debate within the key industry sectors that we are involved.

This is an exciting new initiative for Achilles, one where over the coming months we will explore core issues of common interest, such as risk exposure in regards Health & Safety compliance of second or third-tier suppliers and the importance of corporate social responsibility. Our main aim for the blog is to facilitate discussion that is independent from commercial messages. We value your contribution to these debates and encourage you to participate.

We hope too, to invite contributions from our customers and from our partnership organisations at leading academic institutions where we have close collaborative working relationships, such as the Oxford-Achilles Working Group on Corporate Social Responsibility at the Said Business School and the Public Procurement Research Group at the University of Nottingham.

I very much hope that you will enjoy reading our views, insights and opinions, and that you will take the opportunity to engage in these discussions by submitting your comments. I look forward to welcoming you as a regular reader and contributor.