March’s Procurement News Digest

  • Author: Carmen Molina
Posted on 12-04-2011

Procurement NewsLong awaited UK anti-bribery law guidance

The UK Ministry Of Justice has finally issued guidance for applying the new anti-bribery act, which comes into force on July 1st. Firms have welcomed the Ministry of Justice’s guidance, according to The Guardian, with many saying it has lifted the threat of corporate hospitality falling foul of the new regulations. Ken Clarke, the justice secretary, said the legislation would “reinforce Britain’s reputation as a leader in the global fight against corruption”. Clarke added: “Addressing bribery is good for business because it creates the conditions for free markets to flourish.”

In the guidance, there is no exemption for “facilitation payments”, deemed to amount to a bribe. Gifts or tickets to sporting events and dinners are permitted as reflecting “good relations” with clients. Anti-corruption groups and lawyers said the UK government appears to have softened its stance on some elements including the geographical scope of the law.

Car makers struggle after Japan disaster

Toyota is struggling to source 500 types of car parts following the earthquake and tsunami that hit the north-east of Japan earlier this month. General Motors has also announced suspension of production at one its plants in the US, blaming parts shortages. Nissan too has reported supply chain ‘bottlenecks that its procurement teams are trying to control.

It comes as businesses across various industries report procurement challenges in the wake of the disaster as processing plants and energy facilities remain closed. Japan is a big supplier of key parts used in industries ranging from car manufacturing to consumer electronics and data processing. The problem will come in the middle of April when companies run out of inventories and supplies” Rajiv Biswas IHS Global Insight.

BT seeks to cut supply chain CO2 emissions

In a bid to reduce the carbon footprint of its operations BT has introduced a climate change procurement standard that will apply to all its suppliers. The scheme has been implemented to encourage suppliers to reduce carbon during the production, delivery, use and disposal of products and services supplied to BT.

The initiative includes three “minimum expectations” to be undertaken by all contracted suppliers. Firstly the supplier must demonstrate it has a policy in place to address the challenge of climate change. Secondly the supplier should be actively measuring and reporting carbon, as well as other relevant green house gas emissions. Finally, the supplier must have in place “challenging targets” to reduce emissions and is reporting on progress.

Liz Cross, BT CSR strategy and policy for procurement, said: “This is not something that we’re legally obliged to do, but we see this as key to delivering on our commitments on carbon reduction.”

Jaguar Land Rover looks to local sourcing

Jaguar Land Rover has awarded £2bn worth of supply contracts to UK companies in a move that will create up to 5,000 jobs. The news came as a welcome boost to western suppliers struggling against mounting competition from far-eastern, low-cost country suppliers.

A further boost to UK automotive suppliers came from a report compiled by the UK’s Automotive Council which claimed that a third of supply contracts lost by UK companies had gone to Western Europe, rather than the Far East and, as a result, could be won back.

Porsche drive procurement function to meet corporate goals

Porsche’s procurement function previously sat within the finance and business department. From April 2011, Uwe-Karsten Städter will be the company’s new board member in charge of purchasing. Since 2007, Städter has been head of electrics/electronics group procurement at Volkswagen.

Matthias Müller, chairman of the board of management, said: “Our purchasing volume is growing not only because of the current development of the economy but above all because of ambitious corporate goals which Porsche has defined for the forthcoming years. “Procurement will clearly have a greater weight in future.”

McDonalds sets out vision to eventually source sustainably

McDonalds wants its suppliers, “over time”, to only provide agricultural raw materials for its food and packaging from land that has been certified as sustainable by an external third-party evaluation process. Their Sustainable Land Management Commitment (SLMC) will first focus on the five areas it believes will make most impact: beef, poultry, coffee, palm oil and packaging.

Part of the initiative includes sponsorship of a three-year beef study to investigate carbon emissions on 350 beef farms across the UK and Ireland. McDonald’s is also joining the Roundtable on Sustainable Palm Oil (RSPO) and has committed to source only RSPO-certified Palm Oil by 2015.

Oil price rises hit metal prices

Fears of an oil supply shortage sparked by civil unrest in North Africa made the price of crude oil jump in the last week of February to over $100 a barrel (£62.40). A report published by OPEC said that if sustained for a long period, the recent surge in oil prices could slow global growth resulting in higher prices for industrial goods and technical services.

The changing oil price and subsequent supply disruptions impacted the cost of a variety of metals including aluminium, copper and gold – which all went up. The cost of precious metals increased as a result of their role as safe haven for investment in the middle of political uncertainty.

Despite all this, OPEC concluded the world economy was still enjoying a solid recovery with JP Morgan’s global Purchasing Managers’ Index reflecting this. The PMI moved above 57 index points in February, indicating expansion in the current quarter. In addition, manufacturing across many economies posted stronger growth in February, especially in the US, Europe and Japan.

Adidas kicks off five-year sustainability programme

Adidas has outlined its new environmental strategy, a five-year plan to reengineer its approach to environmental management; a strategy based on extending existing programmes to deliver process efficiencies from areas including product design, development and sourcing to logistics, own sites and IT systems.

“Implementing environmental performance across our value chain is an important step to deliver sustainable operations over the long term,” said Herbert Hainer, Adidas Group CEO.

As part of the strategy, which was published together with the Group’s 2010 Sustainability Report, the Adidas Group is committed to using 100% better cotton by 2018. “Our goal is to use 100% Better Cotton in our products by 2018 and we are excited to work closely with the Better Cotton Initiative towards achieving this ambitious goal.” Another initiative is called “Green Company”, which looks at the own sites of the Adidas Group.

Global IT procurement budgets set to increase

Worldwide commercial IT spend is forecast to total $3.6tn in 2011, a 5.6% increase from $3.4tn in 2010, according to market watchers. Gartner’s latest outlook has been raised slightly for 2011 from its previous forecast of 5.1% growth.

Gartner analysts said this stable forecast comes despite political unrest in the Middle East, while the impact on IT markets of the recent natural disasters in Japan is yet to be fully understood.

Gartner has added media tablets, such as the iPad, to its computing hardware spending estimates beginning this quarter. “The addition of media tablets, reinforced by an expected additional decline in the value of the dollar, accounts for the increase in top-line growth,” said Gordon.

Sources of information: procurementleaders.com, purcon.com, bbc.co.uk, spendmatters.com, Google News

Common Sense advice on implementation of the Bribery Act

  • Author: Colin Maund
Posted on 05-04-2011

UK Bribery ActOn 30th March 2011, The Ministry of Justice published its long-awaited guidance on the Bribery Act 2010 and confirmed that the Act will come into force on 1 July 2011. Businesses now have three months to review their policies and procedures and to ensure that they meet the standard being set by this new legislation.

Although the MoJ has emphasised that compliance is “largely about common sense, not burdensome procedures”, corporates still need to look carefully at the particular risks posed by their business operations and business partners and ensure that they implement appropriate procedures. There are several steps that we’d consider represent good common sense to improve supplier information management and help guide companies toward appropriate procedures.

Most organisations don’t have adequate procedures for monitoring their suppliers; they often don’t ask them for statements of intent or statements of practice. They don’t say to them for example ‘what measures are you taking to ensure that there are procedures in place to govern corruption, abuse of hospitality, or facilitation payments?’ Nor do they ensure that suppliers are carrying through these measures in their own supply chain.

Where that really matters is in the case of companies that are part of consortia bids where one of the companies pays bribes in order to get the work for the consortia. One can easily imagine a situation in which a company is bidding for a one billion dollar contract and there are three or four members of the consortia and one of them decides it’s in their interest to pay bribes. Do they drag the other consortia members into that case?

Or where for instance an oil and gas contracting company bidding for a licence puts forward a structured bid with a number of other contractors to provide construction services, engineering services, etc and one of those companies decides to pay a bribe over the head of the main contractor. The oil and gas company has the benefit of the contract but the subcontractor also benefits from the work arising. It’s actually the subcontractor that’s paid the bribe but under the UK act it would appear that because the oil companies is the main beneficiary, they must have ensured adequate procedures to prevent bribes being paid.

What steps can a company take to avoid getting caught out?

The simplest procedure would be to ask two things:

a)      What is your own internal procedure for ensuring that bribes or any form of corruption or facilitation payment etc are not made?

b)      What checks do you make on your own supply chain?

Looking first to put your own house in order:  more elaborate checks involve asking do your internal procedures have the support of the board; is there a disciplinary process attached to it; what is the procedure for ensuring that accounts are properly checked to make sure that certain items in accounts are not disguised bribes or facilitation payments?

And then in your supply chain what are you doing to go down your supplier lists to make sure that the people in your supply chain are adopting the same procedures as you are? If you want to go beyond that, it would be a case of asking suppliers to show your company their procedures, training manuals, attendance records, disciplinary process etc so that it is possible to see that the area of bribery is being taken seriously and it’s got teeth. It’s not just a case of saying we’ve got a nice procedure written by a consultants that we’re going to stick on a shelf and leave it there.

Do you think this is likely to be driven by board members?

Board members would be very wise to drive a company’s procedures because they are always the ones named in the litigation and could be taken to court, especially as the new legislation creates personal liability for Directors.  It should be at the heart of any well run company but the truth is that board members have in the past absented themselves from taking part in any bribery or corruption but may nevertheless have allowed it to go on and turn a blind eye to it. Now they won’t be able to do that.

What checks should a company be making on its own supply chain?

The first thing to do is to really define where the risk is. Firstly, identify those countries where bribery is more likely to occur than others and secondly, some activities are more likely to lead to bribery than others.  By putting the two together you end up with a risk matrix that identifies the most critical areas where an organisation really needs to focus. From that you can have a varied response ranging from questionnaires, self-certification to asking for statements to actually carrying out your own on site audit of your suppliers.

That’s quite a massive undertaking, is it realistic?

It depends how much you can narrow down the risk matrix. If you can get it down to 50 businesses that are regarded as high risk then you could say it’s not that massive an undertaking. If you take a scattergun approach it can become too unwieldy. The right approach is a stepped one starting with every company being asked if they have a policy on bribery and corruption, through to those who are in the medium risk category perhaps filling in a questionnaire and a self declaration, through to the very top risk areas where it might be appropriate to put an audit team in to check the right procedures are in place and they are being adopted. And of course there is nothing to prevent companies collaborating with organisations in the same industry to reduce costs and increase coverage and therefore compliance.