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.

Practical advice on managing supplier risk

Posted on 10-10-2011

Supply chain risk can come from any source. From the financial failure of a critical supplier to disruptions caused by natural disasters, poor supplier product quality to infrastructure failures. Now is not the time to relax a company’s vigilance over its suppliers. There’s no telling where the next issue can spring from, and adding to the complexity is the difficulty in measuring and monitoring those risks.
Forrester’s Stephanie Moore worries that “a single outage or bankruptcy or fraud or bad acquisition could spell disaster for a client”, she writes in her blog how companies can monitor the viability of privately held IT services suppliers and recommends alternative options are available in case of failure.
Her tips for monitoring the viability of privately held IT services suppliers include:
• Make sure you’re taking the risk for a reason. If the service supplied is that critical, you may want to rethink who your supplier is.
• Have your accountants perform their own financial audits to ensure the veracity of vendor provided financials.
• Check out the ownership structure and debt-holders. Where is the company incorporated? Is it incorporated? Who owns the company and where is the company registered?
• Check out LexisNexis for evidence of legal problems or lawsuits. Corporate counsel can and should assist with this activity and information can be updated in your supplier management system on a regular basis.
• Watch for excessive account management attrition. If your onsite account managers, client partners, or sales folks are turning over too much, this suggests that the company is a risky place even from an employee perspective. And, red flags should be vigorously waving if account management and sales staff are actually being laid off. In this healthy market, stable vendors are adding to their client partner and account management ranks, not firing them.
• Monitor employment websites to find evidence of attrition outside of your account. Interview former employees or current employees who are on the job market.
• Use your social media connections. Facebook, LinkedIn, and many others contain information that is useful for evaluating specific vendor viability.
While there is no silver bullet, Stephanie recommends looking into tools to help executives optimise their monitoring and risk mitigation efforts.

How to see the value in supplier relationships

  • Author: Nick Allen
Posted on 21-09-2011

The trend to outsourcing and the forging of closer collaborative relationships with suppliers is significantly increasing the dependency organisations have on their supply base. In a growing number of instances a company’s success is now highly reliant on the performance of its suppliers and on the efficient workings of those relationships. However, the information on suppliers available to buyers is often, fragmented, erroneous, incomplete, insufficient and frequently duplicated across the enterprise. In the vast majority of instances there is no single source of supplier information.

Findings from Aberdeen Group’s recently published ‘Year of the supplier’ report highlight the wide gap that exists between organisations that are best-in-class for their ability to leverage supplier relationships – by improving supplier visibility, tracking supplier performance and enhancing the ability to avert supplier risks – and those that are lagging. According to the report, which draws on survey results from over 150 organisations globally, best-in-class companies have one per cent of suppliers duplicated across the enterprise as compared to 27 per cent among laggards.

Best-in-class were also found to have 88 per cent of their suppliers demonstrating on time delivery/project completion versus only 48 per cent with laggards. And two per cent of suppliers to best-in-class companies reported catastrophic failure as compared to five per cent for laggards.

Interestingly, the Aberdeen report showed that companies enjoying best-in-class performance were 38 per cent more likely to use tools for supplier risk analysis and mitigation than all other organisations – industry average and laggards combined. Also, 24 per cent of best-in-class companies were more likely to use supplier analytics and visibility tools for modelling and predicting supplier costs than all other organisations.

However, one of the greatest challenges facing buying organisations appears to be the use of disparate systems for tracking supplier information, where a combination of solutions have been used from contract management, procurement solutions and ERP systems. Hardly surprising, but still shocking, is the finding that 77 per cent still use spreadsheets.

If buying organisations are going to properly manage the relationships they have with their suppliers – in order to drive up the performance and success of their companies – then clearer visibility of accurate, accessible and up-to-date data on suppliers is absolutely necessary. A good starting point would be to create a single source of supplier information. But then, as Aberdeen’s report points out, a series of actions need to be followed, starting with standardisation of supplier management practices, improving the overall quality of supplier data, developing and enhancing metrics with supplier risk management tools and establishing a single supplier selection process and workflow.

Clearer visibility of supplier data will enable buyers to see the value in their supplier relationships.

Driving decisions on supplier numbers

  • Author: Carl Millington
Posted on 07-06-2011

Carl Millington on supplier data managementLarge cuts to the supplier base make headline news. In November last year, support services and construction company Carillion, announced that it was cutting its supplier base from 25,000 companies to just 5,000. In February this year, Balfour Beatty’s construction services UK division set out its plans to reduce the number of suppliers it uses from 27,000 to 10,000.

Initiatives along these lines are met with great enthusiasm in the City as expectations rise for significant cost savings. For Carillion the slimming of the supply base is part of a drive to save £140m a year by 2013.

Such radical rationalisation of the supply base sends shock waves down the supply chain, and perhaps, to some extent, that is the intention. Keener pricing on contracts are achieved through a combination of a desire on the part of the supplier to retain business and the opportunity to discount on larger scale contracts. A smaller supply base also allows for closer collaboration between supplier and buyer, with all the potential for efficiency gains this affords.

Consolidating the supply base may deliver cost savings, but what does it do to a buying organisation’s exposure to supplier risk? Does increasing your dependency on a smaller group of suppliers work for or against your long-term aims? And, if the strategy is sound, how do you go about reducing supplier numbers?

In many respects, it is easier to manage supply chain risk when you have a fewer number of suppliers. A clear focus can be applied to a more refined list, risk analysis is easier to conduct and closer checks can be carried out to verify data on higher risk suppliers. Costs for managing a smaller supplier base should also be lower as there are fewer reviews and audits to conduct.

However, a prerequisite for both managing supplier risk and rationalising a supplier base is to have access to accurate, clean data that reflects the current status of regular suppliers.

For many corporates the large number of suppliers they have on their database may be misleading. There can be significant numbers of duplicated records, with the same supplier being entered onto the database several times due to misspellings or inaccuracies in address details etc. Cleansing a list to remove duplication, errors and one-time purchases is essential to understanding your supply base. It is quite common to see lists of suppliers come down by 50 per cent through this process.

Equally important, records need to be regularly checked and updated to ensure accuracy is maintained. The problem is, most companies do not allocate the necessary resources to maintaining and updating their supplier information – the result being that purchase orders end up in the wrong place or that failings occur. Further issues arise when it comes to spend analysis. Often when people raise purchase orders they are in a rush and so assign a purchase to an inappropriate category. Then when it comes to conducting a spend analysis an incomplete picture results.

Consistency in the approach taken to record keeping is critical to managing and maintaining a supplier database. Companies that have grown through acquisition may struggle with having a single, well thought out process for gathering and storing supplier data. Legacy systems and disparate pools of information create a fragmented view of the supply chain and result in mismatches of supplier data which cause confusion, create errors and work against the benefits that come from a common view of the supply base. For instance, benchmarking suppliers only becomes possible through having consistent and accurate data.

If organisations are to make important decisions on their supply base they need to address these issues by centralising supplier information and introducing processes that create consistency of data across the entire enterprise. Time and effort must be spent on ensuring that the right questions are asked of the supplier, the correct depth of data gathered, appropriate to the risk presented by the supplier, and that the information is, where necessary, backed up by methods that verify that data.

Only by having complete visibility of your supply base can supplier numbers be rationalised and risks properly assessed and mitigated. Driving these efficiencies in the supply chain and making the savings that boost investor confidence starts with healthy supplier information.

What is the most efficient way of managing supplier data to make it relevant and cost-effective?

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  • Author: Carl Millington
Posted on 07-03-2011

Carl Millington on supplier data managementOrganisations maintain detail of thousands of suppliers, many of whom are never or rarely used: what is the most efficient way of managing supplier data to make it relevant and cost-effective?

The area of supplier information management is often neglected, however it represents a huge missed opportunity.

Efficient and effective supplier information management is central to understanding the supply chain risk, consolidating sources of supply, and thereby maximising the return on a supply base which can in turn create tangible business benefits.

Typically in larger companies, ERP systems can be clogged up with between 7,000 to 15,000 ‘apparent’ suppliers. When time has been spent cleansing, de-duplicating, categorising and consolidating the supply data, it often results in a ‘clean’ supplier base of around half of that figure.

Duplication of suppliers and incorrect contact details are often the biggest culprits and a just because the business has invested in new ERP systems, often supplier list cleansing is not tackled before the data is migrated into the supplier database.

Can I suggest some simple ideas to consolidate and manage supplier information within ERP systems.

  • One practical approach could be to create a ‘one time use’ category of supplier to identify suppliers who may no longer be relevant.
  • Group suppliers into categories such as strategic partners, preferable suppliers and general suppliers

 If you can think of any others, please let me know.