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.

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.

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.

Aberdeen Group surveyed 151 enterprises using supplier management in a diverse set of industries. The report goes on to warn that the adoption of tools and strategies to increase on-time delivery and project completion are necessary to reduce the risk of ‘catastrophic’ project failure. Effective supplier management must include a more strategic focus that also considers the impact suppliers make on an organisation through the adoption of tools that can measure areas such as supplier risk, compliance and performance. “Business demands today are requiring organisations to place more emphasis on improving supplier relationships, sparking increased interest for promoting areas such a supplier information management, compliance, risk and performance,” says Constantine Limberakis, senior research analyst. Aberdeen Group.

Limberakis further suggests that ‘The fact that the use of suppliers in an organisation typically follows the Pareto principle emphasises the need to have additional supplier insights, answers to supplier based challenges, the ability to seek alternative sources of supply, and the capability to predict failures.’

Interestingly, the research highlights one of the ongoing challenges still facing organisations today is the use of disparate systems for tracking supplier information and that supplier information is often prevented from providing a holistic picture of suppliers due to a lack of a unified supplier management process.

Aberdeen Group noted that ‘The essential process element advantages for the best in class appear to be the ability to monitor, track and collaborate with suppliers for the purposes of understanding suppliers outside of the typical buyer-supplier relationship. Making decisions on suppliers is based on the intrinsic ability to analyse historical supplier data, yet also have the ability to continue to leverage supplier information as the suppliers evolve.’

Here are Aberdeen Group’s required actions to achieve best-in-class performance

• Enhance the process of acquiring and leveraging supplier information
• Diminish and deter supply/value chain disruption through supplier visibility tools
• Improve supplier benchmarking and/or performance through monitoring tools
• Improve supplier onboarding and enablement
• Improve the process of acquiring and leveraging supplier information
• Improve the ability to analyse the supplier base
• Improve collaboration with suppliers
• Improve supplier risk capabilities
• Implement supplier benchmarking and performance monitoring tools

Every Responsible organisation working in increasingly Regulated environments (and everything seems to be getting more regulated these days) is justly concerned with its Reputation in competitive markets (because reputation is an important differentiator when specifications can otherwise appear so similar).

To secure ongoing competitive advantage, they are dependent on Reliable suppliers with whom they can establish, grow and maintain strong Relationships whilst reducing their cost base.

The traditional approach to understanding and managing supplier Risk is to establish a procurement team whose job is to assess and re-assess suppliers.

The Repetition involved for every Buyer and every Supplier is hugely costly and time-consuming; and for smaller suppliers, especially so, which threatens the breadth of the supplier base and stifles innovation.

Communities of buyers and suppliers sharing information can combine and leverage the experience of multiple Buyers from multiple market sectors into a single environment where all suppliers are assessed equally, thoroughly and appropriately. Such a community provides a benchmark for suppliers against which they can assess their own competitiveness and plan improvements.

However, in a recent speech at a recent event hosted by the Aldersgate Group, Mike Anderson emphasised that the decision on whether to implement mandatory carbon reporting would come down to an assessment of the benefits versus burdens for businesses. It is not enough for business to state that they support mandatory carbon reporting.  In order to introduce the regulation, data is needed to support the case. The necessity of businesses providing data was underscored by questions raised about the assumptions made by DEFRA in its Impact Assessment.  At present the upper end cost estimation of £6 billion for mandatory carbon reporting for all large companies, the preferred option by business in DEFRA’s consultation, far outweighs the benefits proposed.

In the process of consultation, business and industry bodies must not only provide input on the structure of the regulation (eg. size of company to be included, scope to be reported on, importance of independent assurance), but must also provide quantitative detail on the benefits their businesses have gained from reporting.

It is critical DEFRA makes this message loud and clear over the coming weeks ahead of the consultation deadline of 5^th July 2011, as this is likely to be one of the last opportunities for businesses to be heard. Even though over 90%* of FTSE 100 companies measure their carbon footprint, fewer than 10 per cent report their carbon emissions to DEFRA UK standards according to a 2010 Deloitte survey⁺.

Achilles will be responding to the consultation and providing detail on its own benefits and costs from carbon reporting as well as its customers. For example, CEMARS certified Scottish Parliament is committed to becoming a low carbon organisation and reducing its carbon emissions by 42% by 2020 compared to the 2005/06 figures. If the medium term target of reducing emissions by 20% by 2015 is met, the estimated cost savings will be in the region of £245,000 for Scottish Parliament.

This is an opportunity that the UK cannot afford to miss. It should not be seen as reducing the UK’s competitiveness but improving it as businesses become more efficient and adopt a more sustainable model.

*Referenced in the meeting by Colin Baines (Campaigns Advisor at The Co-operative Group)

⁺Deloitte (2010) Carbon reporting to date: Seeing the wood for the trees. London.

Lucy d’Arville is the director of the carbonReduction programme at Achilles Information Ltd.

‘Garbage in, garbage out’ is a phrase long associated with ERP systems. Put simply, if you don’t have good quality data, you won’t get good quality information.

Data on its own carries no meaning – it may be accurate or inaccurate. But information adds value and must be accurate, relevant and comprehensive if it is to be in any way useful. For example, one company recently sent  letters to its entire supplier base advising them of a change in terms and conditions – over 60 per cent of the letters were returned unopened, ‘not known at this address’. I wonder how many of the remaining 40 per cent also never reached their intended recipient, but failed to be returned.

The real value of an ERP system is derived from the application of good software to high quality information. If an ERP system is operating on poor quality data, value is diminished.

So how does poor data come to clog-up the works of so many ERP systems?  And how do you achieve high quality information?

In most instances, poor data is simply attributable to out of date material. The information may have been accurate at the time it was entered onto the system but unless someone updates it, it very quickly becomes obsolete – perhaps due to key contacts moving on, office relocations, or changes in product lines and services offered. An important consideration is that compliance information may also quickly become out of date, exposing the buying organisation to increased risk.

Commonly, data is maintained by in-house staff. This approach comes at a huge cost in terms of time and energy, and often it isn’t realised that data is inaccurate until it’s too late. But there is an elegant solution.

The best people to keep this information up-to-date are the suppliers themselves. The problem is a supplier cannot have access to a buying organisation’s ERP system.

However, there is a way that allows the supplier to access and update its information, and that is through a shared community environment.  A shared community database can be tailored to interface with a buyer’s ERP system as security controls can be put in place, allowing information to be updated daily. Key information may include: Suppliers’ contact details, name of the individual contact, email, phone numbers, even down to bank account information to facilitate easier payment. Importantly, compliance information can also be included.

Unfortunately, most organisations do not even realise that they have a problem. When I was a CPO of a large company, I thought my supplier information was fairly up to date and accurate. I only realised it wasn’t when we attempted some supplier analytics and spend analysis.  We brought in a consultant to review our procurement practices in order to identify improvement opportunities and we found out that our internal systems weren’t as good as we thought they were, and certainly did not approach anything like best practice.

Apart from the obvious inefficiencies of having a poorly maintained database one of the consequences of having inadequate supplier information is that you tend to deal with the same group of suppliers over and over again, whether they are competitive or not.

Getting your house in order is not a once in ‘x’ years’ activity. You need a process in place that keeps it in order all the time. A community model is the most effective means of achieving this and ensuring that the garbage stays out.

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.