APRIL 2016
CANADA’S SUPPLY MANAGEMENT MAGAZINE
MRP’S NEXT
EVOLUTION
Demand Driven Materials Requirements Planning roundtable
The rise of autonomous vehicles Courier services
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Table of Contents
Vol. 58, No. 2 • APRIL 2016
10 COURIER SERVICES Tips for saving money on courier services and small package delivery.
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12 BUYING SAFETY Advice for purchasing security systems.
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15 THE NEXT STEP IN MRP Roundtable participants weigh in on Demand Driven Materials Requirements Planning. 22 MRO BUYING Is there more procurement should know about maintenance, repair and operations?
Also inside 4 UP FRONT
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15
PUBLIC PROCUREMENT
5
BUSINESS FRONT
25 IN THE FIELD
7
FINANCE CORNER
26 THE LAW
24
Supplement inside:
Connect With Us Online We encourage you to visit us online to stay in touch with what’s happening in your industry and to view enhanced articles.
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Michael Power
Features WHAT IN SAM HILL? A look at free software asset management (SAM) engagement.
CPO SUMMIT 2016 Watch for PurchasingB2B’s coverage of the Chief Procurement Officer Summit 2016 in Fort Lauderdale, Florida.
MOBILE PROCUREMENT
©adam121–Fotolia
Accenture study finds that 86 percent of b2b organizations will focus on mobile in the coming years.
PurchasingB2B Weekly eNewsletter Sign up today for regular industry news and insights. www.PurchasingB2B.ca/e-newsletter-subscription PurchasingB2B.ca | April 2016 | 3
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Up Front 80 VALLEYBROOK DRIVE TORONTO, ONTARIO M3B 2S9
www.PurchasingB2B.ca
PUBLISHER/ADVERTISING SALES
Innovate Or else!
I
nnovation ranks high among business buzzwords these days. At least to me, the word brings up images of doing things better, faster, leaner, cheaper, et cetera. I also think of improved technology use. It’s a theme I hear often when talking to people across various industries. I recently talked to Barrie Kirk, from the Canadian Automated Vehicles Centre of Excellence (CAVCOE) about driverless cars. You can read a story highlighting our conversation on page 4 of our Canadian Automotive Review (CAR) supplement in this issue. In the not-too-distant future, Kirk sees the confluence of autonomous vehicles (AVs) with other innovative vehicle technologies, namely hydrogen power and vehicle connectivity (the so-called connected car). Also, at the Canadian Aboriginal & Minority Suppliers Council (CAMSC) Diversity Procurement Fair on April 12-13, Jahan Ali, CEO of mobileLIVE, spoke in an education session about innovations involving the Internet of Everything (IoE), Artificial Intelligence (AI), big data and omni-channel coming together to provide us with a consumer experience we only dreamed of just a few years ago These changes are, apparently, much closer than many of us realize. Kirk notes that by 2015, AVs could account for the bulk of our taxi trips. Meanwhile, Ali said that by 2018 there will be 22 billion IoT devices out there. Often, such changes are an answer to challenges that arise in our daily lives. Certainly, procurement professionals know that the supply chain has gotten faster and more complex in recent years. To look at solutions for this trend, we recently took a look at a relatively new methodology to handle inventory during a roundtable conversation we held on March 10 in partnership with SYSPRO Canada. Demand Driven Materials Requirements Planning (DDMRP), the topic of our roundtable discussion, provides a new way of dealing with the MRP process. You can read the report on the discussion beginning on p. 15. The methodology provides procurement professionals with an innovative way to forecast inventory that’s designed to remove some of the distractions from the daily lives of procurement professionals. Certainly, that strikes me as innovative. Change is all around us these days, and it’s more important than ever to innovate. According to the Conference Board of Canada (as of 2013), Canada ranked 13th among 16 countries in innovation. Countries that are more innovative are passing us on income per capita, productivity and the quality of social programs. It’s up to us to keep up with new methodologies, advancing technology and so on lest we’re left behind.
Dorothy Jakovina 416-510-6899, djakovina@PurchasingB2B.ca EDITOR
Michael Power 416-442-5600 ext 3259, mpower@PurchasingB2B.ca ART DIRECTOR
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Barbara Adelt 416-442-5600 x 3546, badelt@PurchasingB2B.ca ANNEX PRINTING & PUBLISHING INC.
VICE-PRESIDENT: T im Dimopoulos (416)510-5100, tdimopoulos@annexweb.com PRESIDENT & CEO: Mike Fredericks, mfredericks@annexweb.com For over 57 years, PurchasingB2B has been a trusted source of information for Canadian purchasing/supply chain management professionals in the private and public sectors. Special features and supplements include Fleet Management, Canadian Automotive Review (CAR), PurchasingB2G, and Travel Management Canada. PurchasingB2B is published six times a year, except for occasional combined, expanded or premium issues which count as two subscription issues, by Annex Business Media. © Contents of this publication are protected and may not be reproduced, in whole or in part, without the written consent of the publisher or editor. NOTICE: PurchasingB2B accepts no responsibility or liability for claims made for any product or service reported or advertised in this issue. PurchasingB2B receives unsolicited materials including letters to the editor, press releases, promotional items and images from time to time.PurchasingB2B, its affiliates and assignees may use, reproduce, publish, re-publish, distribute, store and archive such unsolicited submissions in whole or in part in any form or medium whatsoever, without compensation of any sort. SUBSCRIPTION SERVICES: To subscribe, renew your subscription, or to change your address or information, contact us at 416-510-5713 or 1-866-543-7888, ext 3258, apotal@annexnewcom.ca, or visit us at www.PurchasingB2B.ca. Subscription price per year: $99.95 CDN; Outside Canada per year: $172.95 US; Single issue Canada: $18 CDN. Annual Supply Chain Survey issue, Canada: $45; Outside Canada: $70 US. Taxes extra. From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods: Phone: 1-800-668-2374, Fax: 416-442-2200 Mail to: Privacy Officer, 80 Valleybrook Drive, Toronto, ON M3B 2S9 Printed in Canada. ISSN: 1497-1569 (print); 1929-6479 (digital) Publications Mail Agreement No. 40065710 We acknowledge the [financial] support of the Government of Canada
4 | April 2016 | PurchasingB2B.ca
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Business Front
Regulation in the sharing economy
Toronto-based Michael Hlinka provides business commentary to CBC Radio One and a column syndicated across the CBC network.
By Michael Hlinka
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consider myself a child of the 1960s. I was born in 1958 into a household that most would characterize as being extremely conservative. My father owned his own small business. He was a hard worker and diligent saver. My mother stayed at home until my older sister and I were both in high school. (Back in those days, at least in my neighbourhood, it was common practice for public school children to go home for lunch.) There wasn’t anything in my upbringing that could have been considered the least bit radical, or anti-authoritarian. That being said, everyone in North America was impacted by the hippie phenomenon. Its ethos was “do your own thing”, that is, as long as you weren’t
blog called The People Who Share to get the skivvy. According to them, the name sort of gives it away. The sharing economy is nothing more and not less than people co-operatively coming together and sharing resources, in order that they are used more efficiently. It’s an interesting development. Part of the ideology is Hippie-inspired. But there’s also a much more pragmatic, bottom-line realization that in an economy where growth is slowing, it makes hard-core business sense to use resources as productively as possible. One of the outputs of the sharing economy is the transportation service Uber. There is a clear divide about how it’s seen by politicians and the public. Politicians hate it. The city council in my hometown, Toronto, is doing everything it can to put it out of business. People, on the other hand, love it, voting with their wallets and cellphones to direct business to it and away from the traditional taxi and limousine services that are both heavily regulated and highly taxed (in the form of required licenses). And this is the reason the political classes despise Uber: they can’t expropriate value from it. “The sharing economy is nothing more and Another example of the sharing econnot less than people co-operatively coming omy is crowd funding. This is a means together and sharing resources, in order for ordinary people to invest in a variety of start-up companies. Its promise is that that they are used more efficiently.” it has never been more possible for small hurting anyone else while you were doing whatever it enterprises to get the money they need. At the same time, the options for was that was your thing. The movement was in part individuals are unprecedented. But standing in its way are establishment inspired by opposition to the Vietnam War. Kids forces—vested interests that in the guise of “protecting the public” are didn’t want to be told by elders to fight a war they shackling entrepreneurs and investors both. Is it possible that some frauddidn’t believe in. And it was also a protest against the sters might use crowd funding? Of course—but shouldn’t adults be responperceived materialism and shallowness of that era. sible for making adult decisions with their money? Hippies believed in living off the land and consumThe greatest impediment to the sharing economy and a flourishing of ing only as much as was necessary to live. Communes economic activity is government, which by its nature is a profoundly reacsprang up across this continent and sharing was contionary force, always backward looking. Business on the other hand, is sidered a virtue, because it meant that instead of (for profoundly progressive. Years ago, Joseph Schumpter talked about the example) each household having its own automobile, “creative destruction” of capitalism. Uber only became possible because of one could serve three. cellphone technology that allowed customers and providers to link seamAll of these memories flooded back to me several lessly. Crowd funding thrives with the Internet and social media, where days ago when I read a report generated by MaRS. community isn’t as much about geography as it is about shared values. It’s difficult to pigeonhole exactly what MaRS does, Yes, Uber’s development is at the expense of the traditional taxi indusbut it provides a forum for entrepreneurs to meet try. Yes, crowd funding means the traditional financiers become increaswith other key stakeholders and perhaps partners: ingly irrelevant. But it’s because these two traditional businesses don’t Politicians, investors and mentors are just a few parcreate the value that they expropriate. And for that reason, they turn to ties that come to mind. The MaRS building is in political forces to frustrate the market and what people would like to do downtown Toronto, located just off the University of freely. But the sharing economy is the future—and the sooner the mullahs Toronto campus and just steps away from Ontario’s and apparatchiks do the honourable thing, which is to recognize their perparliament building. And the MaRS report was dissonal irrelevance and do something useful (like maybe drive an Uber), the cussing regulation in the sharing economy. better it will be for everyone else. What exactly is the sharing economy? I went to a Folks should be allowed to do their own thing! B2B PurchasingB2B.ca | April 2016 | 5
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Professional Development Directory
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For more information on corporate training with SCMAO, please contact Carol Ship Spencer, Director, Education and Professional Programs at 416-977-7566 x2146 or csspencer@scmao.ca. SCMO_Corp Training Ad_7x4.875_FINAL.indd 1
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The 2016 Annual Procurement and Supply Chain Professional Survey • What are the trends, challenges and opportunities that are affecting the profession? • How are economic factors shaping the role of procurement within the supply chain? • What are the average salaries from a regional and industry perspective? Thank you for your participation. Your insights on these topics and more will help shape the results of this survey.
Coming to your Inbox on Tuesday, May 31st! And available on www.PurchasingB2B.ca Survey results will be published in a future issue of PurchasingB2B. 6 | April 2016 | PurchasingB2B.ca Purchasing_House_April.indd 1
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Finance Corner
Card program acceptance Eliminating the sticker shock that can accompany card payments
Steve Pedersen is vice-president and head of North American corporate card products at BMO Financial Group.
By Steve Pedersen
T
he steady recovery of the North American economy since the 2008 financial crisis has allowed many organizations to invest internally and scale-back austerity policies. However, to stay competitive in a fast-paced business landscape, companies remain focused on attempting to increase efficiency, and—as a byproduct of more effective practices—cut costs. Many organizations are realizing significant cost savings in the payables department, as more suppliers are beginning to accept corporate cards as a form of payment from their customers in an effort to streamline the payables process. Despite the many benefits for companies, some suppliers are still hesitant to accept payment card programs because of the fees they incur with each card transaction, which can be more expensive than
at any time, which allows suppliers to have a better view of their expenses and pull data reports at the click of a button. Additional automation comes in the form of control and security. Corporate card programs enable centralized spend control, automatic fraud and card misuse protection, as well as providing visibility into spending. Paper invoices do not have these capabilities. When all of these processes are automated, companies can reallocate resources that were previously mired in these operations. When clients are late to pay their invoices, the entire supply chain suffers from the withholding of funds needed to keep operations running smoothly. With a corporate card program, suppliers are given revenue assurance and can collect accounts receivable faster, reducing the days sales outstanding (DSO) and providing more cash flow for reinvestment. In addition to increasing on-time payments, accepting payment cards could increase the frequency and size of orders, translating to an increase in the bottom-line. According to a 2012 study by MasterCard and Kaiser Associates, Acceptance Matters, and Now We Know by How Much, 49 percent of buy“End-users benefit from corporate card acceptance ers indicated an intent to spend more by dealing with fewer vendors, and suppliers benefit with their current supplier if they started from increased loyalty with their existing customers.” accepting cards, and 57 percent indicated that card acceptance would prompt traditional clearing and processing. Many assume them to order more often. Therefore, end-users benefit from corporate that cheques and automated clearing house (ACH) card acceptance by dealing with fewer vendors, and suppliers benefit from payments are the cheapest options to process without increased loyalty with their existing customers. exception, and therefore cannot justify an amendInstead of processing individual invoices, payments teams can easily proment to their accepted forms of payment to accomcess payments in large quantities electronically to reduce paper waste and modate payment cards. administrative costs. This removes the need for potentially inefficient While cheques and ACH may be appropriate for manual inputting, reduces human error and allows employers to reallosome accounts receivable programs, the sweeping cate the time and skills of their workforce. In fact, according to RPMG assumption that corporate card acceptance is univerResearch, companies see an average 77 percent cost reduction when movsally more expensive is unfounded, and causes suppliing from a manual invoicing system to a corporate card program. ers to overlook the opportunities to reduce costs and increase productivity. Specifically, accepting corpoWhen less is more rate card programs can be beneficial in the long run With many organizations increasingly leaning on corporate payment by increasing productivity, security and loyalty. card solutions, especially now that Apple Pay is beginning to accept corporate payments, suppliers can stay ahead of the competition by acceptStreamlining processes ing corporate cards. Although suppliers may assume that restructuring Accepting payment card programs virtually elimiaccounts receivable to accommodate payment cards is an effort that may nates the need to process cheques and payments with not pay off, when weighed against the potential benefits of card accepmanual input systems such as Excel spreadsheets, tance, a shortsighted approach to payment management can dig suppliers which simplifies the process for both the end-user into a financial hole. As demand for corporate card acceptance increases, and the payment processing team. Transactions via businesses can build a streamlined, efficient program that reduces adminpayment card are stored electronically and tend to be istrative burdens and strengthens the buyer-supplier relationship to the recorded in an online platform that can be accessed benefit of both parties. B2B PurchasingB2B.ca | April 2016 | 7
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PUBLIC PROCUREMENT
Healthcare procurement Recent trends in the world of buying for hospitals and other healthcare facilities
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promising recent trend within public procurement and supply chain management is the shift to a more flexible approach to contractual obligations, which allows procurement professionals to use their skills to control costs. At the time of the Supreme Court of Canada ruling in the seminal Ron Engineering case of 1981, the common practice within public procurement had been to tender RFX (a catch-all term that includes: Request for Information, [RFI], Request for Proposal [RFP], Request for Quote (RFQ ), and Request for Bid [RFB]) using a contract A/B format. The healthcare sector was no different than any other public procurement agency until a few years ago, when procurement lawyer Paul Emanuelli worked with the University of Toronto to produce what’s known as a “flexible format” or, more commonly, a “negotiated approach to RFX”. It wasn’t long before we saw organizations begin to publish and offer education sessions for healthcare supply chain professionals on value-based procurement—also known as “value analysis and negotiations”. These new trends in healthcare procurement led to new questions and concerns about RFX strategies. The traditional strategy was a single awarded contract for the supply of products and services. This would mean one contract and only one solution. The introduction of value-based procurement represented a shift away from awarding to lowest cost and highest scoring proponents, toward the development
of value analysis that incorporates quality first (patient care), and then reviews pricing to determine value. But with value-based procurement came a new challenge: what does “value” mean? Webster defines value as “the regard that something is held to deserve; the importance, worth, or usefulness of something”. This definition is subjective, placing notions of value in the eye of the beholder. If value is subjective, how do we incorporate this concept into supply chain strategies, especially when there are multiple stakeholders? Value in healthcare could be described as any of the following: » best clinical outcome; » best provider of support and education for the products tendered; » suppliers that invest in R&D and publications that aid in education of clinical resources within our hospitals; » lowest cost to conversion; » continuity of supply; and » logistics infrastructure. These differences in how value can be understood demonstrate a challenge to value-based analysis, which is that value is not always the same for everyone. So how do supply chain professionals provide value when there is more than one stakeholder, with different definitions of value and different expectations? Much of the benefit provided by organizations such as SSOs, GPOs and buying consortiums resides in their ability to collect and analyze spend data for the purpose of aggregating demand. Challenges arise when true value analy-
sis is required. How do you pursue common value, when the concept could be unique to all involved? An approach is required to meet all or individual stakeholder needs. The concept of overall value or return is not new; however, it has been increasingly questioned as a result of trending strategies heralding value as the ultimate outcome of an RFX. In these situations, could value be defined as sustainable solutions that meet the requirements of regulation, end users and the best patient care at the lowest total cost? If there is agreement that there are several definitions of value, one approach could be to create strategies that allow more than one solution. The idea of awarding more than one contract to meet individual stakeholder needs complicates the winner-take-all world of competitive bidding. One of the tradeoffs is a potential increase in landed cost. Traditionally, aggregation and single award strategies are designed to produce the best landed costs from the marketplace, creating economies of scale enjoyed by suppliers. The challenge for supply chain professionals, therefore, will be to determine when a value analysis strategy should be employed, and when standard RFX strategies are more suitable. Traditionally, where value analysis has been used within manufacturing or assembly operations, the focus has been on the entire process and has included elements of throughput and productivity. In the medical community there is so
©Sergii Moscaliuk—Fotolia
By Nicola Raycraft
8 | April 2016 | PurchasingB2B.ca | PUBLIC PROCUREMENT
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cost of switching and the dependency on service gives these suppliers power. The ability to mitigate this kind depends on several factors. Can education and training be supported internally? Can the unique product component be costed and dissected to arrive? If so, what is a reasonable profit model for the supplier? Buying power If items are considered highly complex and you cannot drive to a single award, there is risk to the best price and therefore less power to the buyer. This is where expertise in manufacturing and procurement expertise can lead to the devel-
“Political support and legislative changes are needed to place more power with buyers and supply chain professionals, allowing them to have a meaningful impact on costs and suppliers.” patients could undergo a more traditional procurement approach. By contrast, items associated with a high degree of clinical sensitivity; have sufficient competition and availability of substitutes; require education; and have different applications but produce similar clinical outcomes could require a value analysis approach to procurement. The use of business models such as Porter’s Five Forces can also help supply chain professionals frame the discussion. This model is commonly used to understand the balance of power within a marketplace or business situation, and can be used as a tool to determine the complexity of a market and link it to developed sourcing strategies. Supplier power How many suppliers are there within the market that can supply the breadth of product required? Some suppliers can use their proprietary attributes and designs to drive higher prices. These suppliers tend to provide superior service and education to surgeons within hospitals. The high
opment of more effective control on the cost of highly engineered medical components. Establishing target pricing as part of an RFX could provide incentive for ongoing cost reductions and value improvement. Competitive rivalry The development of new suppliers with support from hospitals is a potential to put pressure in the marketplace. If we create a virtual make or buy option for the hospital we could have an impact on the marketplace for specialty manufactured or engineered medical components. Threat of substitution The development of new suppliers, or research into manufacturing options can create a threat of substitutes. New entrant The opening of new markets and suppliers from low-cost countries off shore could also present challenges, especially within healthcare. What we see emerging today within the
healthcare sector as a result of this evolution are multiple contract awards that meet the requirements of patient care, clinical needs and best value for tax payers dollars, while adhering to procurement regulations. Another approach to identifying risk would be a spin-off of the “propensity-to-partner” model. The picture below provides a model for sourcing-risk identification, as well as potential solutions to mitigate risk with a single award involving high risk products, which support healthcare procedures of high clinical sensitivity. There are a number of options to reduce healthcare costs, and while the procurement of medical supplies is a small percentage of overall health system dollars, an incremental focus on these elements through VA/VE approaches could have a significant impact. Political support and legislative changes are needed to place more power with buyers and supply chain professionals, allowing them to have a meaningful impact on costs and suppliers. Also required is a paradigm shift from the belief that a free market is the best method for controlling costs. This is particularly important with healthcare products of high clinical sensitivity. The ideal of one awarded contract is only acceptable for commodity items and very low-risk products, like those that don’t touch patients. Finally, hospitals and buying groups— in collaboration with the private sector, and combined with government support and oversight—should invest in the supply chain profession. This would mean more dynamic and robust procurement strategies, offering significant gains for the healthcare industry.
PUBLIC PROCUREMENT
much variance in process, due to a range of skills and preferences associated with physicians and surgeons, that it becomes much more complex to assess. If we are relying on the marketplace to establish best price, our procurement strategy needs to focus on how the items we are buying are costed and if the tendering process is giving us the lowest market price. Organizations may need to develop a matrix or risk assessment to determine what strategy is best for the procurement process. Products or services that are commodities, have little risk through fewer competitors and post little risk to
Nicola Raycraft is manager, strategic sourcing for MedBuy Corporation.
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DELIVERING VALUE Ten ways your company can save money on its courier and small package budget
Absence of internal technical knowledge and focus Many years ago, the traffic manager was responsible for transportation spend—the internal technical expert, albeit with very few tools and, typically, with an unpolished approach. Since then, in an effort to get lean, many companies have rationalized that oversight and have become knowledge dependent on the companies that are providing them these services. The service providers, armed with better information and tools, develop a more intimate understanding of the Shipper’s business, putting most shippers in a disadvantaged position when it comes time for negotiation or program review. Ownership of shipment data and reporting Many shippers are not generating and monitoring courier spend and activity reporting at a detailed enough level to understand their shipment profile and trends, and to identify and react to changes. Some shippers rely on the service providers to provide reporting, but this often comes in the form of canned reports
that present aggregated data. The absence of clean and detailed shipment data hamstrings effective management. Complex pricing structures We sometimes hear from clients that “we have the best rates in town” or “we haven’t had a rate increase in 3 years”. This usually indicates the client has been overpaying and does not fully understand its shipping profile relative to its current pricing agreement. The courier and small package industry has complex pricing structure, including: ivision of countries, provinces, regions into zones; •D • Multitude of tariffs based on origin zone, destination zones determined by distance from origin, service requirement, and packaging type; • Dimensional weight rules—the calculation of a “theoretical weight” based not on the actual weight of the shipment but the dimensions of the shipment; •V ariable fuel surcharges; • Additional fees for ancillary services, such as off hours or weekend service, rural service, residential service, oversized packages, corrective administration, et cetera; and ethodology, tariff structure, rules and application that vary •M from carrier to carrier. Complicated application of increases When assessing pricing increases, we also hear clients say that “the new rates represent a three-percent increase” only to find that the pricing will result in a much greater spend. This indicates pricing has not been adjusted uniformly. The following explains the difference between “uniform” and “non-uniform” rate increases: • Uniformly: the same rate increase is applied to all rates within
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lthough Canadian procurement and supply chain professionals have made great strides in improved control of supply chain expenses over the years, one area of business that continues to not be fully understood, as well as to offer opportunities, is courier and small package spend management. The industry in Canada generates over $10 billion per year in revenue, and as e-commerce becomes a more significant channel in consumer experience the industry continues to grow and become more sophisticated. Below is a top-ten list of root causes of overspending in this area and scenarios where leading practices could bring significant benefits.
By Darryl Nelson
10 | April 2016 | PurchasingB2B.ca
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the rate table (i.e.: rates across each weight band and to each destination all increased three percent year over year)—this would generate a three percent increase for the shipper; • Non-uniformly: rates for different weight bands and different destination zones at increased to varying degrees (i.e.: rates to zones one and three were increased one percent while rates to zone two were increased five percent, or rates for shipments weighing one-to-10lbs were increased 15 percent while all other weight bands were increased one percent). This may still present an overall average increase of three percent in the table, but in application means a much higher increase for a shipper whose profile is one-to-10lb shipments into zone two. Misunderstood shipment profiles When procuring any freight service, the shipper must understand the shipment profile to evaluate and select the most competitive and appropriate pricing model. • Shipment profile would consider the volume, geographic distribution, size of shipments, density of shipments, handling requirement. • Volume: discounts off the carrier’s base tariff are available and one factor in determining the degree of the discount is the potential revenue of the account. • Geographic distribution: primary shipping lanes, urban versus rural delivery. • Size of shipments: the mix of letters, packages, multi-package and pallet-sized shipments. • Density: shippers of relatively light product are often caught off guard by the impact of dimensional weight rules. It’s important for shippers to understand the density of their shipments and the dimensional weight rules of their carrier. A side-byside rate comparison of two competing carriers will not reveal the “lower” price without understanding and applying each carrier’s dimensional weight rules. In fact, one carrier may appear less expensive than another based on the rate table, but prove more expensive once the dimensional weight is applied. Dimensional weight rules are negotiable. Utilization of strategic solutions In addition to pursuing competitive pricing and highest value proposition, shippers must also consider alternative strategies to mitigate freight spend where economies of scale exist: • Consolidation; • Parcels shipped to the same destination on the same day, and utilizing the same service, should be consolidated and rated as a single shipment; and • W here deliveries can only be made Monday to Friday, there can be accumulation of shipments in destination terminals over weekends that some carriers will consolidate into single deliveries at a reduced rate. Zone Skipping: this is used by shippers with a significant number of shipments into a zone of moderate to significant distance from the origin. The practice is to consolidate parcel shipments into either an LTL or TL shipment for a reduced line haul cost, then break bulk and distribute those shipments from within the destination zone. The volume and distance is
required for economies of scale to get the lower costs through consolidation. Packaging sub-optimization Have you ever received an e-commerce shipment and found a small item in a large box? Or, multiple packages that have been crushed because of unutilized empty space within the boxes? Because of dimensional weight rules, this wastes spend on unutilized cube through a lack of controls and packaging standards. A review of standard packaging, and the implementation of controls and audits can help minimize overspending.
“The best option isn’t necessarily the lowest cost option.” Poor audit control between operations and payables for payment Without an efficient process, clear accountabilities, and the required information, overpayments take place. Industry reports, both in the US and in Canada, claim that invoice errors could represent two-to-five percent of total spend. There are professional freight audit services available to shippers wanting to outsource this function. Market due diligence Every shipper should be conducting its market due diligence through an (RFP) process every two-to-three years. Even when the shipper opts to remain with its incumbent service providers, the process is a validation that the relationship is solid, the solution or program remains viable, and the pricing is competitive. With market conditions and business requirements changing rapidly, through any combination of mergers/acquisitions, new lanes, new services and fuel volatility, it makes sense to ensure alignment and strategic fit on regular basis. Not utilizing courier and small package providers strategically The best option isn’t necessarily the lowest cost option. Through the due diligence of a periodic RFP process, shippers can assess the value proposition of various service providers, including technology and tools, reporting and data, performance and customer service, coverage area, strategic solutions, value added services, and, of course, pricing. Acquired smartly, your service providers need not simply represent the other side of a series of tactical transactions, but rather, they should be looked upon as a strategic partner providing access to sophisticated tools, visibility and critical business data; access to regional, and, even global markets through their network; and, as a means to improve speed to market and/ or a lower “total delivered cost” via alternative shipping options and service solutions. B2B Darryl Nelson (dnelson@supplychainalliance.ca) is a Principal with Supply Chain Alliance. PurchasingB2B.ca | April 2016 | 11
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T
ime was, a security system meant getting a video camera and rigging it up at the office front door. But these days, purchasing such equipment requires research and knowing enough about options to make a decision that’s right for a specific organization. New technology—think digital recording and Internet connectivity—has influenced the choices purchasers have when looking to keep their organizations secure. The term “surveillance system” usually refers to cameras positioned in strategic locations, says David Hyde, a security expert and owner and principal consultant with David Hyde & Associates. Also included in the term is electronic access control—card readers and other credentials allowing personnel into buildings or other areas—as well as intrusion systems or burglar alarms. Access control tends to be more specialized, Hyde says. Such equipment is used for offices with multiple
employees, like multitenant offices or banks. “It’s a way of restricting access but also logging who came and went,” he says. Now more than ever, Hyde says, these systems can be integrated for synergy and to leverage each other, thus amplifying their benefits. Video surveillance gear is ubiquitous and mainstream, Hyde notes, and its purchase transcends all industries and businesses in both the private and public sectors. “It has really become very omnipresent, very universal, especially with the advent of the internet where it’s a lot easier now to put up a camera and have it streaming and watch it,” he says. “I’d say the video surveillance piece has become very pervasive, whether it’s a doctor’s office waiting room, a store, an industrial location, or pharmaceutical use. No matter what it is—retail, commercial, industrial, agricultural, farmland—virtually all businesses that have any size or have assets to protect very often have cameras in place to provide a layer of protection.” That ubiquity has increased along with technology advances, Hyde notes. Systems have shifted from analog equip-
ment like tape-based recording towards Internet protocol (IP) systems. That means better quality, an increased ability to compress and to construct networks to view cameras at multiple locations, including offsite. But procurement professionals are rarely security experts, Hyde notes. That can leave purchasers at the mercy of the installer and their knowledge, preferences and which systems they can make the most money from rather than what best meets a client’s needs. Purchasers may not know what level of surveillance their organizations require. For sizeable installations, Hyde recommends hiring a consultant to help determine what equipment is needed. If the installation will cost over $10,000, Hyde suggests using about 10 percent of that on consultancy. For higher priced installations, hiring consultants to handle the RFP and go through the procurement process on behalf of an organization is an option. “An independent party can help to establish what’s required, provide some basic operational and technical requirements and give the installer something to align with so that when somebody gets a few bids they’re not comparing an apple to an orange to a pear,” he says. “Be open to retaining the advice of an independent party who understands the security and the systems and the needs, and who can translate the client’s needs into operational or technical criteria so that we at least have something to aim for.” Organizations sometimes fail to define
©alice-photo/Getty Images/iStockphoto
Purchasing a security system that meets the needs of your organization
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Q:
Have there been any major developments in technology in the past few years that buyers should be aware of?
what they’re trying to achieve and go right from problem to solution without considering the broader impact, he says. Cameras are one option, but so are security patrols, alarm systems, better locks, lighting and other equipment. Technology isn’t always the answer. But when it is, define what you want from the system. While there are electrical standards associated with installation, Hyde says no legal standards exist to regulate security and surveillance equipment. The Canadian Security Association has a few “quasi-standards” and most reputable installers are members of that organization. What to look for Look to non-proprietary equipment when purchasing electronic security systems, says Greg Brazas, account manager at Electricity Security Canada. There’s little available from a proprietary system made by an integrator (installer) that would take the place of the features of an off-theshelf manufactured product. As well, try to find an integrator that’s factory-trained on the systems and has a track record for implementing them. Brazas also recommends partnering with an integrator that has good references and responds quickly when questions or problems arise. From there, sit down with them to find out what technology exists and to discuss individual needs and build a comprehensive solution. “Service is the key factor here,” he says. “Product is product and can be obtained through numerous avenues, but the post installation follow up and service needs are what will cause a buyer the most amount of pain.” Regarding video surveillance CCTV systems, Glen Haley, regional sales manager with Mississauga-based IndigoVision recommends that purchasers research the products they plan to buy and the organization they’ll buy from. Like Brazas, he suggests buying equipment from an experienced system integrator and installer, and that
products are from a reputable manufacturer. “There are a lot of options in the marketplace when it comes to video, and like in most industries, price shouldn’t always be the only factor in your decision,” he says. “I would suggest that you work with an experienced installer-integrator who has experience installing the same or similar system that you are looking to purchase.” Look for an installer that is certified by the manufacturer to install and commission the system you plan to buy, Haley notes. As well, reach out to the system manufacturer to get some insight on the latest products on the market, as well as to ask about certified or reputable installers and dealers of their products, Haley says. “You may also want to look for manufacturers that don’t sell proprietary systems, but have open platforms which allow you to add bits and pieces from various manufacturers,” he says. “Another option is to work with manufacturers who manufacture end-to-end solutions but at the same time offer an open platform system.” This allows a purchaser to get a system from a single manufacturer, which can keep costs down and allow for improved functionality, Haley says. It also allows for the addition or removal of parts from a system based on what’s needed. When searching for a video solution, look for a product that conforms with ONVIF (Open Network Video Interface Forum), which is a global standard allowing inter-operability between products regardless of the manufacturer. Finally, buyers who are researching security and surveillance systems can check out several Internet resources, Haley says. Manufacturers, system integrators, installers and consultants all provide online information, while several security-based tradeshows across North America can be valuable resources. There is no shortage of bases to cover when purchasing security systems. But with some guidance and research it’s possible to find a solution that suits the needs of any organization. B2B
A:
“The technology is consistently changing, especially in the world of IP cameras. The technology available today is amazing and is always making advancements. We are seeing cameras that are capable of definitions up to 30MP, allowing for single cameras to take in large fields of view and then offer incredible detail on playback when zooming in to specific areas. Access card systems have remained fairly standard as the equipment technology has needed to change much, you still need a card reader; some sort of electric locking device that will release; a door contact; and some sort of an exit motion detector (as a standard door setup); and then the software which is gathering live the data from the reader boards. Where we are seeing changes is the reader technology and the advancements on the handshake that takes place between the reader and the credential. The information encryption and the level of detail between the two have come a long way. The other advancement with card access systems is the use of Bluetooth technology where you are able to use your smart phone to gain access through a door instead of a traditional credential. Lastly, the advancement of wireless locksets which are battery powered and Wi-Fi connected which lower the cost of installation by requiring no wiring from the door back to reader board like conventional card access systems.” —Greg Brazas, Electricity Security Canada
Q:
Has the popularity of various systems increased along with advances in technology? What other changes has advancing technology brought?
A:
“Regarding video surveillance systems (CCTV), the popularity of an IP-based system has definitely been one of the biggest changes over the past few years. I have seen a steady decline in the interest of analog systems and organizations moving towards an IP based video system. The IP system can allow for the latest technology such as high-definition or mega-pixel cameras, along with increased software features and capabilities that allow the system user to locate video clips within seconds or minutes, versus watching hours of video footage. High-definition or mega-pixel cameras provide a much clearer video image as compared to an image from an analog resolution camera. It’s similar to when you upgrade your TV at home from a tubebased television to an HD flat screen—quite a difference in video resolution between them.” —Glen Haley, IndigoVision
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SYSPRO software is an award-winning, best-of-breed Enterprise Resource Planning (ERP) software solution for cost-effective on-premise and cloud-based utilization.
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April 2016 Vol. 18, No. 1
Look Ma,
NO HANDS! Driverless vehicles could arrive sooner than you think
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Autonomous Vehicles Small, efficient cars Spring Road Tips Ram Promaster 2500 2016-04-13 2:33 PM
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Masaharu Kondo named Mazda Canada president
Mazda Canada Inc. has appointed Masaharu Kondo as president of MCI, effective April 1. Kondo, formerly deputy general manager of global sales and marketing division at Mazda Motor Corporation (MC), will succeed Shusuke “Kory” Koreeda, who is being transferred to Mazda North American operations. With 28 years’ experience at Mazda, Kondo has served in several executive positions at Mazda’s headquarters in Hiroshima, Japan and with Mazda Motor Europe, including overseeing Mazda Motor Poland as Managing Director. “I would like to express my gratitude to Kory for his leadership and the contributions he has made to Mazda in Canada,” said Akira Marumoto, executive VP; assistant to president; oversight of operations in the Americas and corporate planning domain for Mazda Motor Corporation. “I am confident that Kondo’s wealth of international experience will ensure continued success in Canada and help take the company into the next phase of our global strategy.” Kondo has spent most of his career in international markets in various sales and marketing roles, including GM of the market support for overseas sales divisions at MC, responsible for product marketing, new model launches and customer satisfaction initiatives for Asia, the Middle East, Africa, and Latin America.
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ANNEX PUBLISHING & PRINTING INC. VICE-PRESIDENT: Tim Dimopoulos (416) 510-5100, tdimopoulos@annexweb.com PRESIDENT & CEO: Mike Fredericks mfredericks@annexweb.com CAR, established 1991, is published twice annually (April and October), by Annex Publishing & Printing Inc. © Contents of this publication are protected and may not be reproduced, in whole or in part, without the written consent of the publisher or editor. From time to time we make our subscription list available to select companies and organizations whose product or service may interest you. If you do not wish your contact information to be made available, please contact us via one of the following methods. Phone: 1-800-668-2374, Fax: 416-442-2200, Mail: Privacy Officer, 80 Valleybrook Drive, Toronto, ON M3B 2S9. NOTICE: CAR accepts no responsibility or liability for claims made for any product or service reported or advertised in this issue. CAR receives unsolicited materials including letters to the editor, press releases, promotional items and images from time to time. CAR, its affiliates and assignees may use, reproduce, publish, re-publish, distribute, store and archive such unsolicited submissions in whole or in part in any form or medium whatsoever, without compensation of any sort. Printed in Canada Publications Mail Agreement No. 40065710
Toyota forms company to make technology simpler
Toyota is forming a new data science company in partnership with Microsoft that’s designed to free customers “from the tyranny of technology.” The company—called Toyota Connected—has a goal of simplifying technology so it’s easier to use, perhaps even getting rid of distracting and complicated touch screens that now are in most cars and replacing them with heads-up or voice-activated technology, said Zack Hicks, the company’s CEO who also is Toyota Motor America’s chief information officer. Like other automakers, Toyota Connected will research connecting cars to each other and to homes, as well as telematics features that learn and anticipate a driver’s habits. The company will explore transmitting a driver’s health data to a doctor or driving patterns to an insurance company so people are insured based on where they travel, Toyota said. Also, it will look at linking with other vehicles so they can report weather and traffic conditions to people driving the same route. Toyota says the new company will support research into artificial intelligence and robots, as well as analyze data from vehicle sensors and cameras so algorithms can be developed for self-driving cars. Drivers would have to opt in to all of the data reporting, and Toyota would disclose what data is being shared, the company said. Microsoft engineers will work with the company at its headquarters in Plano, Texas, where Toyota is moving its U.S. operations. Microsoft bought a 5 per cent equity stake in the startup company, Toyota said, but the full price wasn’t disclosed. Toyota Connect will use Microsoft’s Azure cloud computing platform to collect and analyze data.
Windsor assembly plant begins 2017 Chrysler Pacifica production The all-new 2017 Chrysler Pacifica has begun production at its Windsor, ON assembly plant, said FCA US LLC. Constructed on an all-new platform, Chrysler Pacifica will deliver ride and handling capabilities on par with high-end premium sedans, the company said. The 2017 Chrysler Pacifica is coming to dealer showrooms in spring 2016. The Windsor assembly plant, built in 1928, runs three shifts and, in 2013, celebrated 30 years of building minivans. More than 14 million minivans have been sold since the plant began production in 1983, with over six million on the road today. The 4.4-millionsqft Windsor facility holds the silver designation in World Class Manufacturing (WCM), a methodology that focuses on eliminating waste, increasing productivity, and improving quality and safety in a systematic and organized way.
Cover: ©martialred-Fotolia
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By Michael Power
DRIVERLESS CAR countdown A
n executive needs to make a trip across town for a meeting, so he enlists one of his company’s selfdriving cars to get him there. The car arrives and, during the 20-minute trip, the executive catches up on checking emails and reviews a few online documents. After dropping off the executive, the car heads back to pick up other passengers for another driverless trip—one of several it will make that day. While autonomous vehicles have made the news recently, the notion of taking daily trips in vehicles without anyone at the steering wheel—indeed, perhaps without a steering wheel at all—may sound if not like science fiction, then perhaps like technology geared for the distant future. But according to Barrie Kirk, executive director of the Ottawabased Canadian Automated Vehicles Centre of Excellence (CAVCOE), the future isn’t as distant as it may seem.
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Fully autonomous vehicles could be a common sight on the roads within a decade. While they might offer advantages like increased road safety, their proliferation may also prove disruptive for businesses and passengers alike.
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roads. The project, which can change as new technology Partially autonomous road vehicles and specialty vehicles are develops, launched at the beginning of this year. Ontario has already on the market, he notes. Low speed, fully autonomous also recently announced an additional $500,000 in funding to the vehicles for specialized applications are now available in Europe, Ontario Centres of Excellence Connected Vehicle/Automated including 10- to 12-seat electric shuttle buses that travel at about Vehicle Program, in addition to the $2.45 million previously 20 or 25km per hour along a fixed route. Swiss Post, which provided. The program brings academic institutions and carries not only mail but also people, has bought two such businesses together to promote and encourage innovative vehicles. Another version of the low-speed, specialized fully transportation technology. autonomous vehicle is heavy haulers used in the oil sands, like “In the world of transportation, Ontario has the opportunity to monster dump trucks. Suncor, as an example, has ordered 175 such vehicles from Komatsu, he says. “We’re not all the way there to a car that you can get into and say ‘home James,’ but we’re certainly making progress,” he says. The year 2020 is roughly when autonomous vehicles will hit showrooms, Kirk predicts. Passengers will be able to program a destination and the vehicle will take them wherever they want. He sees 2025 as the tipping point, by which time a significant number of car trips will be in self-driving taxis. Steven Del Duca Beyond the next decade, the area of driverless show leadership on automated technology,” vehicles will take off in a big way. Currently, companies says Steven Del Duca, the province’s Minister of such as Ford, Google, Mercedes, Toyota and others Transportation. “Today, Ontario is making its have self-driving car programs. claim in the global marketplace by taking the The effects on the average Canadian family will be next steps in automated vehicle innovation. The significant, Kirk says, with households saving about automated vehicle pilot will ensure that the $3,000 per year by opting for autonomous taxi rides province’s roads remain safe without creating over car ownership. And the introduction of fully burdens that stifle investment and innovation in driverless technology will be revolutionary and disrupOntario’s dynamic business environment.” tive for many other aspects of life, including urban Fully autonomous vehicles aren’t the only planning, the military, healthcare and parking, to name a Ontario’s Minister of Trans- technology change looming on the automotive few. CAVCOE and the Conference Board of Canada portation Steven Del Duca horizon. In the 2020s, Kirk says, three different recently produced a report that says a driverless future has announced funding for a technologies will converge: autonomous could save Canadians $65 billion through fewer colli10-year pilot project allowing vehicles, connected vehicles and electric sions, less traffic congestion, lower fuel costs and less driverless cars on the prov- vehicles. Most of the driving that people do is time behind the wheel. ince’s roads. around town, he notes. Electric vehicles are well As well, from a business perspective, corporate cars suited to that sort of travel, and electric vehicle can end up sitting idle much of the time in a company’s technology is improving by about eight percent each year. Kirk driveways, garages and parking lots, Kirk says. Autonomous calls them “ACE” vehicles: automated, connected and electric. “A cars used for corporate purposes would stand to see more road lot of these driverless taxis, both smaller vehicles and larger time than driver-reliant counterparts. Organizations will perhaps ones, will be electric,” he says. “This improves the efficiency and have the option of owning a fleet of autonomous vehicles or rent really helps the environment.” them out from a company, Kirk notes. Not surprisingly, the automotive industry has taken note of “But these same companies also have the choice—they can these trends. Industry executives site connectivity and digitizause self-driving taxis,” Kirk says. “I can envisage that some entrepreneurs will in fact have fleets of self-driving limos. So you tion as the top trends affecting the industry over the next don’t need to have your own vehicles. If you want a limo for your decade, according to KPMG’s 17th-annual Global Automotive CEO, you just order one on demand from one of these new Executive Survey, released earlier this year. Self-driving capabilicompanies providing that.” ties have also become increasingly relevant to the industry, the report notes. Overall, 62 percent of executives surveyed expect Ontario pilot project self-driving technology to become a more important purchasing criterion to consumers in the next 15 years. Those at CAVCOE aren’t the only ones with their sights set on a The new technology could prove as disruptive as cars were to driverless future. Ontario has launched a new 10-year pilot the horse and buggy industry in the 20th Century. As customers project to allow for the testing of automated vehicles on Ontario
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“The automated vehicle pilot will ensure that the province’s roads remain safe without creating burdens that stifle investment and innovation in Ontario’s dynamic business environment.”
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wind up sharing more information then they had meant to. At a conference Gogolek chaired in Vancouver last November, one attendee told the audience that he had rented a car and plugged his smartphone into the vehicle in order to use Bluetooth. He was surprised to discover that the device was copying the contacts on his phone. He also discovered that the previous five Bluetooth users had had their contacts copied over as well. “This person was not really thrilled that this was happening,” Gogolek says. “And it’s not entirely clear whether it was the car, the electronic system or if it was the rental company. They had to go through all kinds of hoops to find out what was going on and to remove their contacts.” For businesses using a connected car, Gogolek recommends knowing what the vehicle does and making sure that staff knows what its capabilities are, what defaults it has and how to change them if necessary. “There could be difficulties with people saying, ‘well, I didn’t know it was going to empty out my phone, I have no idea where that went,” he says. “It’s also informing your customers and informing your employees. Businesses will have obligations to customers and to employees, as well as others, under privacy laws.” In terms of those laws, FIPA would like to see a roundtable held in which industry, government, independent service providers and other stakeholders sit down to discuss how to comply with Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA). That act sets Mercedes-Benz is one of several companies working on driverless cars, with its F 015 Luxury in Motion out the ground rules for how private sector organiconcept shown above. zations can collect, use or disclose personal According to one-fifth of all respondents, tech companies—esinformation while doing business. pecially from Silicon Valley—could gradually take over the “It’s going to be a bit of a process; Canada isn’t an island but customer interface. we do have the requirements that are in our privacy laws right now,” Gogolek says. “It hasn’t been tested in the connected car Still, driverless cars will offer several benefits, the consulting context. We don’t have rulings from commissioners or from the firm says. courts yet. But that will be coming, and the more information “Autonomous vehicles will not only allow drivers to use their that’s collected and the different ways that this is going to be travel time as efficiently as possible, but it will bring an element used…it opens up a whole array of serious issues.” of safety to the roads that we have never seen before,” says Kirk also admits that the rise of the autonomous and conPeter Hatges, national automotive sector leader at KPMG. “Over the next 15 years as we begin to see partially self-driving cars on nected vehicles will cause disruption. Jobs can be lost when the roads, we will also likely see a reduced and eventually occupations formerly needing a driver are taken over by eliminated risk of accidents on the roads.” autonomous vehicles. As well, the rise represents a lot of change in a short period of time. But that can be as exciting as Connected security it can be disruptive. And what he finds especially exciting is how developments in the field spill over into so many aspects of But the notion of connectivity in vehicles can also provide a our daily life. cautionary tale with regards to data security, says Vincent “About 30 percent of land use in Toronto is for parking,” he Gogolek, executive director of BC’s Freedom of Information and says. “And if you’ve got a self driving car that doesn’t need to Privacy Association (FIPA). Some technologies, by their nature, park itself as often, you have a lot of land being freed up. It will demand information about the user, he notes. When using a GPS be up to the Toronto city council to decide how they use that system, for example, a driver must let the system know where he land. Does it become developed? Does it become green space? or she is in order for the device to work. Or what?” C.A.R. But in other situations, users should be careful or they can demand increasingly digital products and services within vehicles, the industry must transform their traditional business models, the report suggests. Product development cycles, sales and aftersales processes, along with the associated products, technologies and services must also change in order to keep up. Also not surprisingly, the heightened interest in the technology is driven by consumer expectations of being able to use their driving time better. But the auto industry executives who commented on the survey were not especially optimistic that traditional automotive companies will be able to dominate the customer relationship in the connected car, the report suggests.
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By Emily Atkins
SMALL PACKAGES The best compact fuel sippers on the market in 2016
These cars have come of age, and they are legion. The biggest problem consumers have now is choosing which one best suits their needs. The following are our picks of the pack.
Credit: Honda Canada
Small really is beautiful these days and little, economical cars prove it. No longer does driving a compact car have to be cramped and slow, nor are they cheaply built.
HONDA CIVIC The 2016 Civic is the Automobile Journalists Association of Canada (AJAC) Canadian Car of the Year, and the deserved winner of many other best-of awards that are too numerous to mention. Not only has this little gem been vastly improved for this model year in looks, handling and interior, it is also smartly priced, starting at $15,990. It comes with a choice of two engines—a 1.5-L Turbo and a 2.0-L. With the continuously variable transmission, these powerplants offer up fuel economy of 6.7 litres/100km combined and 6.9 L/100km, respectively. This is the 10th generation of the best-selling car in Canada for 17 years in a row, and with this overhaul it is likely to remain on top.
The 2016 Toyota Yaris Hatchback comes in three models: a threedoor CE, a five door LE and the five-door SE—each available with a choice of five-speed manual or four-speed automatic transmission. The three-door hatch, starting at $14,775, has a passenger side entry assist to make it easier getting into the rear seats, a 6.1” display audio system with AM/FM, CD and MP3 with USB and Bluetooth capability and four-speakers, power door locks and power windows, all as standard equipment. The LE hatchback, which starts at $16,195, has five doors and adds air conditioning, a tachometer, cruise control, keyless entry, and power-adjustable exterior mirrors. The 106-horsepower 1.5L four-cylinder engine is mated to a 6-speed manual, and delivers 7.7 L/100km city and 6.3 on the highway in the three-door hatch.
Credit: Toyota Canada
TOYOTA YARIS
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CHEVROLET VOLT
Credit: GM Canada
The 2016 Volt comes with a special seal of approval: it won the AJAC Green Car of the Year award in March this year. The 2016 Volt is an electric vehicle that now has extended its electric range up to 85 kilometres. It also has a 1.5-L range-extender engine, that when used gives a total combined fuel economy rating of 5.6 L/100km. The car also has a new design this year, with sleek styling that seats five. The catch with the Volt is the price. It may be green car of the year, but it will also cost a lot of green with a base price of $40,090.
HYUNDAI ACCENT
Credit: Hyundai Canada
The Accent is a best-selling compact for Hyundai. It’s a fairly peppy, versatile and roomy hatch, with space for five passengers. For the base price of $15,494, you get a 137-HP 1.6-L engine and manual transmission, which beats out a lot of the competition from a power point of view. You also get a car that’s really fun to drive and is extremely well-adapted for small family life in the city. It boasts more cargo space behind the seats—487 litres—than the Micra. With manufacturer-estimated fuel economy of 6.3L/100 km (highway), and numerous available options that you can’t get on other sub-compacts, the Accent offers a desirable upgrade path.
FORD FIESTA
Credit: Ford Motor Company
The 2016 Ford Fiesta is available as either hatch or sedan for the same entry price of $16,049. It’s got a 1.6-L engine and manual transmission with fuel economy of 8.5/6.5 L/100Km (City/Hwy). Ford’s really amped up the technology with this car, offering voiceactivated SYNC along with AM-FM stereo with CD player and MP3 capability even in the base models. The real beauty of the Fiesta is how much fun it is to drive. It handles extremely well, is maneuverable and feels comfortable on the highway. It’s also a good-looking car with a muscular stance that sets it apart from the other sub-compact hatches.
Credit: Nissan Canada
NISSAN MICRA Nissan’s little hatch was the least expensive new car you could buy in Canada last year—now it’s been undercut by three dollars—but at $9,998, it can be argued the 2016 Micra is the better car—it’s more powerful than the Chevrolet Spark it’s positioned against. The base car comes with a 5-speed manual, and its 1.6-litre 4-cylinder engine is rated at 109 horsepower. As with any inexpensive car, opting for a plain base model means you’ll give up niceties like power windows and locks, AC, and cruise control. But if economy is your goal, it’s hard to argue with the price and the combined fuel economy rating of 7.8L/100km. And, as a plus, Nissan runs a racing series just for the Micra, which definitely increases the cool factor. APRIL 2016 CANADIAN AUTOMOTIVE REVIEW | 9
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By Kara Kuryllowicz
ROAD
WORK N
ationwide, Canadians anticipate spring and whether their region enjoyed a mild winter or slogged through heavy snow and extreme weather, vehicles require preventive maintenance and season-specific attention. The bare roads and warmer temperatures also signal the start of the road and infrastructure improvements that invariably lead to the lane blockages and reductions that produce traffic chaos. “At some point, we all get stuck in a construction zone—it’s unavoidable, frustrating, stressful and negatively affects productivity, so plan ahead to avoid it whenever possible,” says Bill Jones, director, product management, Element, which manages 1.6 million vehicles and of which 263,749 vehicles are in Canada. Fortunately, most smartphones and navigational devices now offer apps and features that can show you where traffic is heavy and reroute you, whether it’s due to construction, an accident or simply volume. For instance, most of Garmin’s portable navigators are embedded with lifetime traffic updates for the lifecycle of the unit and the models that have it feature a “T” at the end of the product description. Garmin collects traffic flow data from more than two billion observation points (e.g. cell and Garmin owners, incident reports, news feeds, fixed traffic sensors on major roads) every month and broadcasts traffic
information 24/7 in all markets. Whenever the device reports traffic, the estimated time of arrival will be updated accordingly. Canadian Automobile Association members benefit from CAA’s TripTik app’s trips and travel feature, offering GPS-style navigation powered by Google Maps for iPhone, iPad and Android users, and gives construction and detour information. If you’re old school, even non-members can take advantage of the CAA’s online construction and road report information, which lists the provincial highway departments’ websites and phone numbers at http://caaneo.ca/travel/roadtrip-planning/ construction-and-road-reports. You can also check city, municipal and regional government websites for construction, accidents, blockages and weather though it requires more effort. “Respect the speed limits and the workers in construction zones and if you’re slow or stopped, resist the temptation to catch up on calls and texts,” says Jones. “It’s just too risky unless you have hands-free and voice-activated features.” “Driving through a construction zone, drivers should slow down, be prepared to stop, watch for workers at the side of the road and if possible, move over,” adds Kristine d’Arbelles, manager, public affairs, CAA, Ottawa. Construction and roadwork often includes repairing the myriad potholes
resulting from the freeze/thaw cycles and aside from the uncomfortable jolt experienced by vehicle occupants, the impact can puncture a tire, bend a rim, misalign the steering and damage the shocks, struts, suspension and exhaust systems. It all depends on the size and depth of the pothole and the speed at which you hit it. Ideally, drivers could avoid the worst potholes, but since that’s a challenge, multiple OEMs, including Ford and Jaguar Land Rover are developing and implementing pothole mitigation technology. For example, Ford’s all-new Fusion V6 Sport, a new 2017 model year vehicle, features Ford’s smart new suspension system which detects potholes and catches the wheel before it drops all the way into the pothole. Onboard computers analyze multiple signals collected from 12 high-resolution sensors. When the edge of a pothole is detected, the car’s computer adjusts the dampers, faster than the blink of an eye, to their stiffest settings so the wheel doesn’t fall as far into the pothole. As a result, the tire and wheel won’t strike the opposite side of the pothole as harshly. The rear suspension can respond even faster, with a signal from the front wheel providing a pre-warning to the rear wheel well before it reaches the pothole. Spring is the ideal time to check for damage, particularly any issues that might be related to potholes. Give your vehicle
©Brand X Pictures/Getty Images
Driving tips for dealing with spring road repair and seasonal vehicle maintenance
10 | CANADIAN AUTOMOTIVE REVIEW APRIL 2016
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PB2B_Fe
BE ABLE TO RELY ON RELIABLE CARS. Much like a good employee, a good car should not let you down. To make sure your team is in good hands, go for quality cars whose reliability has been widely recognized. Go for award-winning security and residual value. Go for Subaru.
2016 CROSSTREK
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MODELS EQUIPPED WITH EYESIGHT® 2
fleet.subaru.ca or call 1-877-293-7272 1. Ratings are awarded by the Insurance Institute for Highway Safety (IIHS). Please visit iihs.org for testing methods. 2. EyeSight® is a driver assist system which may not operate optimally under all driving conditions. EyeSight® is not designed as a substitute for due care and attention to the road. The system may not react in every situation. The driver is always responsible for safe and attentive driving. System effectiveness depends on many factors such as vehicle maintenance, weather and road conditions. Finally, even with the advanced technology activated, a driver with good vision and who is paying attention will always be the best safety system. See Owner’s Manual for complete details on system operation and limitations.
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some quality attention as Element’s Jones recommends listening for unusual sounds, being aware of atypical vibrations and noting performance issues such as pulling to one side. A visual check for dents and scratches is also worth the time. Tires also take a winter beating so have the alignment checked. If you use winter tires, switch to all-seasons when temperatures consistently hit 7°C. If you rely on the same tires year-round, rotate them to prevent uneven wear since the front tires bear the brunt of the work. As temperatures fluctuate, so will the tires’ air pressure so adjust accordingly to ensure optimum fuel efficiency and minimize wear. Tire pressure will increase as the temperatures rise so you may need to release some air. Christine Hollander, communication manager, Ford of Canada, recommends rotating your tires every 8,000 to 10,000 km regardless and notes
Canadian Aboriginal and Minority Supplier Council
Conseil canadien des fournisseurs autochtones et de minorites visibles
if you maintain ideal pressure, you’ll save money at the pump and prolong tire life. Double check belts, hoses and fluids, including coolant, and test your air-conditioning well before the hot weather hits to avoid the repair shop stampede if it malfunctions. Top up fluids and change the oil as required. Ford’s Hollander suggests oil changes include new filters and that those who switched to thinner oil for winter to change to thicker oil, such as 10W30 for the warmer months. Make sure there is plenty of washer fluid for wet, muddy roads. If front or rear windshield wipers are leaving streaks or are noisy, if they show signs of wear or damage, be sure to replace them. Ask your shop to check the battery posts and connections for dirt, grime and corrosion because a hot summer and the subsequent demands due to air conditioning requirements can make the battery
work as hard as it does during the winter. Finally, cleaning is also vital post-winter, after the salt and sand season. Spring clean your vehicle, preferably with a visit to a car wash that offers bays with pressure guns for the underside. Washing the corrosive salt from all rubber and metal prevents and mitigates rot and rust, which could result in the premature failure of brake lines and other metal components. Ensure wheel wells and the underside get some attention. “Drive-through is better than nothing but the machines can’t reach the underside where the bulk of the salt accumulates and where it can do the most damage,” says Jones. “Spring cleaning is also the perfect time to get the junk of out the truck to help reduce the weight and improve fuel efficiency.” Once you’re spring and summer ready, hit the road and enjoy the season. C.A.R.
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2016-04-13 2:33 PM
By David Miller
STYLISH HAULER
The 2016 Dodge Ram Promaster
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n the past, the styling of a commercial van or its driving performance wouldn’t play a big role in the business purchase, as the focus lent itself towards cargo space, payload and comfort. Ram wants to change all that by adding more style and a new front-wheel drive setup to the cargo van segment with its Ram Promaster. Now in its third-generation and after a refresh in 2014, the Promaster gets away from the old-school clunk box that goes from point A to point B in order to get its duties done and into a van that encompasses not only payload and versatility, but everything else you would want in a regular vehicle. Ram offers a pair of roof heights, three wheelbases and two engine choices, but I went with the middle-range Promaster 2500 with the 159-inch wheelbase and high roof. For an automotive journalist that needs to travel into Toronto and prefers smaller cars, driving this massive boat was a task, but one that left a sense of intrigue. I didn’t haul anything large, so this won’t be a review on its cargo, but one that can offer you the other aspects that comes out of a real-world regular vehicle
tester: comfort, handling, performance and ease of use. First, let’s start out with its exterior. One thing that stands out besides it being massive is a surprisingly short hood that is APRIL 2016 CANADIAN AUTOMOTIVE REVIEW | 13
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made possible due to its front-wheel drive makeup. New for 2016 is an optional chrome grille, but it wasn’t added to this test vehicle, and nor did it need it. The Ram badge showed enough chrome as the centrepiece on its simple plastic-slat front grille. That simplicity seems to carry on throughout the van with clean and subtle lines through its body and only a simple horizontal plastic grey section running towards the bottom of the van gives it some character. Dual sliding doors make life easier to not only work with a team, but also unload products with ease. Inside, the look takes on a more bare bones approach. As you take that big step inside, you’ll notice that the inside dash
reflects the same styling as other Ram products. It’s just been toned-down. My test vehicle received the optional Uconnect five-inch touchscreen with satellite radio that totals $925, and seemed to be a worthwhile option considering this van will most likely be utilized on a daily basis and possible long drives. The touchscreen sits on top of three large circular climate control knobs and to the right of the gearshift. Simple, organized and exactly what you’re looking for when shipping large cargo and in no need of distraction. Two cloth bucket seats await your presence with a lot of cushion to provide ample comfort. On some bumpy roads, you will find yourself bouncing up and down, but never side to side, keeping you in control of the vehicle at all times. As for the all-important cargo space, the Promaster 2500 with the 159-inch wheelbase has 420 cubic feet of space. I did a little IKEA shopping and thought this would be perfect to fill-up some space in the back, but it was clear that a bookcase, two tables and a plant looked like I placed a couple packs of gum in the trunk of a mid-sized SUV. If you even needed two large sofas AS TESTED: Price: Engine: Power/Torque: Transmission: Observed fuel economy:
$49,070 ($38,995 starting price) 3.6L V-6; 3.5L V6 280 hp/ 260 lb.-ft. six-speed automatic 15.6L/100 km combined
moved, there would still be plenty of space back there. Powering my Promaster 2500 is a standard 3.6-litre V-6 engine producing 280 hp and 260 lb.-ft. of torque. It’s matched to a six-speed automatic transmission that has a hill-start assist. Another option to choose from would be its 3.0-litre four-cylinder turbo diesel with 174 hp and 295 lb.-ft. of torque for an additional $6,000. The diesel can handle a bit more weight and provides better fuel efficiency (I managed to average a combined 15.6L/100 km), but the regular V-6 engine manages to muster 4,420 pounds of payload. Even though I was driving this monster around, its quick V-6 engine made me forget on occasion how big it really was. As I pushed down on the gas pedal, acceleration was brisk, forcing me to check up on the throttle from time to time. I expected the drive to be loud with plenty of road noise; instead it provided more of a refined drive albeit with a few bumpy moments along the way.
I was surprised by its giddy up, but even more by its handling abilities. For an inexperienced cargo van driver, turns were made with ease and precision through light steering and a best-inclass turning radius. I was blown away by some of the manoeuvres I was able to achieve, even though reversing or parking might need some touching up. Visibility is always a factor when it comes to cargo vans, and especially to individuals that are new to this type of ride height without a rear-view mirror. Visibility in front can’t be topped, and as long as you constantly check your side mirrors to stay in-between the lines—you’ll be just fine. I found the optional rear back-up camera to be of big assistance for only $425, as well as its power-folding side mirrors for $250 when you need some extra space to get out or unload on the side. In the end, this 2500 model surely had everything you might want or need in a cargo van. At a starting price of $38,995, the Promaster 2500 is a modern and reliable hauler with more than enough space to manage a large move or heavy machinery. With all of the options, my test vehicle rang in at $49,070, but you can pick and choose out of the options what works best for you. For someone who’s not used to a cargo van, this Promaster navigated through city streets and was a joy to drive. C.A.R.
14 | CANADIAN AUTOMOTIVE REVIEW APRIL 2016
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It… is about being local and global. ARI is known and trusted by fleet decision-makers throughout Canada to streamline operations and control costs. We know that every customer has unique fleet challenges. Through our six regional offices, three 24-7 maintenance call centres and Canada’s largest vendor network—we dig deeper and go further to deliver customized solutions. Across Canada, North America, and the globe—our fleet management expertise is around the corner. Learn more about ARI’s professional fleet management services: 1-800-361-5882 | www.arifleet.ca
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B E U N ST O P PA B L E .
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THOUGHT LEADERSHIP
MRP’S NEXT
EVOLUTION A new methodology just might take away some of the “noise” in the procurement process By Michael Power
Roberta McPhail Owner McPhail Enterprises
Jeff van Geel Manager, Sourcing, Accounts Payable and Packaging Engineering 3M Canada
Wael Safwat Director Procviews Management Consulting
Michael Shelton Senior Advisor Value Infinity
All photos: ©Roger Yip Photography
A Thought Leadership Roundtable brought to you in partnership with:
Technology experts, consultants and procurement professionals came together in Toronto on March 10 to participate in a thought leadership roundtable focusing on Demand Driven Materials Requirements Planning (DDMRP). The roundtable was a thought leadership partnership between PurchasingB2B and SYSPRO Canada. SYSPRO Canada is a leading provider of Enterprise Resource Planning (ERP) software solutions for manufacturing and distribution. SYSPRO Canada is proud to help Canadian companies grow. For more information on SYSPRO Canada’s products and services visit: www.syspro.com/ca. The following is an editorial report based on the roundtable conversation.
Steve Bassaw Product Evangelist SYSPRO Canada
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THOUGHT LEADERSHIP
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[DDMRP] is trying to take the best practices of all these different things and offer a holistic, strategic and tactical methodology that could work. Roberta McPhail
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o doubt, the pace of business has sped up in recent years, and the economic landscape today is more complex, competitive and volatile than ever. Procurement organizations often find themselves scrambling to put out day-today fires rather than focusing on long-term strategic goals. This holds equally true in the procurement and supply chain worlds, and practitioners have sought to adopt methodologies to quell uncertainty and meet customer demands. Enter Demand Driven Materials Requirements Planning (DDMRP), a methodology focused on a demand-driven approach to supply rather than the traditional model of pushing inventory using MRP solutions. PurchasingB2B, in partnership with SYSPRO Canada, recently brought together a group of industry experts for a roundtable conversation focused on this new methodology and how it might address the challenges that procurement and supply chain face. Our panelists included: Jeff van Geel, Manager of Sourcing, Accounts Payable and Packaging Engineering, 3M sourcing operations at 3M Canada; Michael Shelton, Senior Advisor with Value Infinity; Wael Safwat, Director of Procviews Management Consulting; Steve Bassaw, Product Evangelist at
SYSPRO Canada; and Roberta McPhail, Owner of McPhail Enterprises. PurchasingB2B editor Michael Power moderated the discussion. Current methodologies To begin the conversation, panelists described the methodologies they currently use. For instance, van Geel noted that his organization uses SAP. Before employing that, the organization used a homegrown system. “We used a lot of spreadsheets and contracts—it worked relatively well,” van Geel said. Safwat also noted that he had a history of using SAP, having performed three global implementations with the system. He stressed the complexity of demand planning and the level of integration required between customer, supplier availability and capacity. For his part, Shelton said he had worked with various MRP systems during several decades in the industry and had also completed two SAP implementations. His current organization recently discarded its SAP system and is putting in place a demand pull replenishment system. “All my staff members either have to go through the SCMA program or get APICS-certified, and that’s in their employment contract,” Shelton also added. Bassaw said he knew of several companies either
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We’ll do a risk assessment and have contracts in place or have strategic inventory some place. But this is inventory that we can funnel to hundreds of different products as well.
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Michael Shelton
with no system, or using a system but not very well. Organizations often use MRP-driven forecasting, although such a system can be “nervous,” he noted. “The challenges of the methodologies I’m seeing are either weak use of a system or using a system but procurement is still at the mercy of the noise in the system—so life is a little better but it’s still chaotic, still reactive in some ways, still expediting,” he said. Once implemented, it can take some time for users to become confident with a system, noted van Geel. “SAP plans everything by purchase order, receipts and lead time,” he said. “Until people become comfortable with that, yes, the system knows what it’s doing and when it’s telling me to issue a PO it’s actually the right time—because we’ve got a lot of projects around inventory and non-working capital and things like that,” he said. Some systems require a lot of discipline to use properly, Shelton noted. Those systems can have many attributes, with most never used. “If you get those things tweaked and working right, the system will work and drive inception messages,” he added. “The issue is that the structure has got to be nailed tight.” While many organizations rely on MRP as a way to change how they conduct business, Safwat recommended a more holistic approach. “Get a stra-
tegic view on it,” he said. “Make sure it’s tactical, workable and you’ve got the right KPIs to make it achievable. I agree that different organizations have different capabilities. Hence, the capacity of the MRP needs to be different. Touching on collaboration with the supplier and the capability—having the supply around the corner, whether using a vendor management inventory or consignment, et cetera, again it’s extended capabilities. Understand the concept, define the capability of your business, choose the right vehicle, the right Excel sheet or the right MRP. Make sure people are well-trained and that your KPIs are practical and measurable.” A new way forward After discussing systems they currently use or have used in the past, the focus turned to DDMRP. In introducing the concept to the group, McPhail noted that Lean has been around for quite some time and is well known. But the challenge that Lean presents is getting the system to cross over into the planning world and its integration with MRP systems. “So they’ve been kind of two different worlds,” she said. “The Lean guys haven’t really talked to the MRP guys. The MRP guys haven’t really talked to the Lean guys.” PurchasingB2B.ca | April 2016 | 17
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THOUGHT LEADERSHIP
And while many small- to medium-sized organizations are using planning and MRP systems, McPhail wondered aloud what those systems actually were, since there are several diverse systems available. What DDMRP tries to do, she noted, is bridge the gap between divergent philosophies. “At the end of the day, there’s someone who’s got to cut a PO and someone’s got to do a work order,” she said. “When and how do they decide to do that? What information streams? While MRP isn’t perfect the concept is sound, noted McPhail. “But then the reality is the nervousness, the direct connecting points are too tight. So people needed this decoupling concept. [DDMRP] is trying to take the best practices of all these different things and offer a holistic, strategic and tactical methodology that could work.” Demand management forecasting has also been in vogue, with many organizations assuming that if they get the forecast right the MRP will work, McPhail said. And while forecasts may never be perfect, they can get better. Rather than de-emphasizing forecasts,
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I fully agree that different organizations have different capabilities. Hence, the capacity of the MRP needs to be absolutely very different. Wael Safwat
she said, DDMRP tries a different strategy where the approach to forecasting is less direct. McPhail described DDMRP as a multi-echelon planning process that approaches inventory as a buffer. “We buffer for a couple of reasons,” she said. “We want to dampen that variability. We don’t want to just blindly pass it through the whole organization. Why do we want to dampen it? We buffer the inventory from a concept of decoupling so the lead time between key point to key point is manageable.” All this needs to be manageable with market expectations, she noted. If the market demands a 30-day lead-time there needs to be a decoupled process within that 30 days. “So the concept says, let’s position the buffers in the right strategic points first—and for most companies that’s going to be finished goods,” McPhail notes. Those buffers are modified depending on the season and other factors, she added. “It’s not like we just set them and leave them alone—we’ll dynamically adjust them,” she said. “It’s all based on what’s called average daily usage, either forward or back. And that’s where we use forecasts to use a calculation of a buffer size.” The system works anywhere there’s inventory, and tries to answer when and how to plan while using a calculation that’s different from the MRP method, McPhail said. DDMRP uses a trigger for planning MRP replenishment orders based on a more condensed lead-time and actual demand. Rather than forecasting, DDMRP uses real information “It will naturally absorb into those buffer profiles and we shouldn’t have any weird expectations,” she said. “And then we watch those buffers in terms of where they’re performing both from a planning and an on-hand inventory side in a red, green, yellow zone—very visual, very easy to implement—you can see how the buffers are performing. If the buffers are working you should be just floating nicely in the middle of the zone of the yellow.” “DDMRP planning has a set of rules that use a calculation that, when the buffer is penetrated at a certain spot—especially from the top of the yellow— when the projection to the top of the yellow is triggered then that’s replenishment to bring it back to the top of the green. It’s transparent.” The process McPhail laid out is similar to what van Geel’s organization uses, he said. 3M orders rubber, which has a four-and-a-half month lead time, usually comes from Asia and is seasonal. “We’re buying that out in 2017 already,” he said. “While we’re not physically taking the stock or the inventory, we’ve financially committed to buying it…so, we have that buffer in the supply chain that the broker is doing for us.
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What is a Demand Driven Operating Model? A demand-driven operating model is a supply order generation, operational scheduling and execution model utilizing actual demand in combination with strategic decoupling and control points and stock, time and capacity buffers in order to create a predictable and agile system that promotes and protects the flow of relevant information and materials within the tactical relevant operational range (hourly, daily and weekly). Such a model’s key parameters are set through the demand driven sales and operations planning process to meet business and market objectives while minimizing working capital and expedite related expenses.
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And we just don’t physically take it until much closer to when we’re going to need it.” Shelton noted that he has used a similar strategy to van Geel. Commodity managers on his team look at the commodities, monitor the lead time and markets and see what geographic zone they’re in as well. “We’ll do a risk assessment and have contracts in place or have strategic inventory some place,” he said. “But this is inventory that we can funnel to hundreds of different products as well. And we’ll do the risk management.” The concepts of buffer and safety stock are important in oil and gas, Safwat said, noting he has previously worked in that industry. However, the element of aggregation wasn’t there. “Always, the focus is, get the safety stock, keep it moving and that’s it. You’re absolutely very safe,” Safwat said. “There has been significant reliance on vendor management inventory and consignment…you’re running an operation in different remote areas, you’ve got the vendors to deliver the consignments on these areas.” Bassaw stressed that DDMRP isn’t based on software and doesn’t rely on software to operate. Rather, it’s a new way of looking at processes, and decoupling supply from demand, he said. “Yes, software can enable that,” Bassaw added. “The software that people have right now probably has most of the data you need. You just need to pull it out in a different way.
The software that people have right now probably has most of the data you need [to support DDMRP]. You just need to pull it out in a different way.
Steve Bassaw
You may not need to use some of the classic MRP functions of your software, and some of them you’ll still use, but some you might not.” Procurement professionals can become accustomed to reacting to forecast changes or changes in falling below reorder points, Bassaw said. This can create “noise” that DDMRP can do away with since users are reacting to the buffer status. “It’s not a safety stock, it’s not a reorder point,” he said. “It’s reacting to actual demand and that will then penetrate the buffer and you watch the buffer. The buffer is the traffic light—red, green and yellow.” In employing DDMRP, Bassaw recommended first getting educated in the methodology and figuring out what numbers need to be pulled to feed into the new calculations. Then, it’s a matter of figuring out where to find those numbers. “But I do preach with people when adopting any new methodology, get educated first,” he stressed. With the roll out of any new methodology, Sawfat recommended running a maturity assessment and extending that assessment to suppliers. “Obviously, you approve the concept, you make people aware of it, but that’s all internally within the organization,” he said. “But clearly your supplier may not have the same capacity to digest this. So it’s very beneficial to include the supplier capability in the maturity assessment because, at the end of the day, you’ve got the
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THOUGHT LEADERSHIP
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We’re buying [certain commodities for] 2017 already. While we’re not physically taking the stock or the inventory, we’ve financially committed to buying it…so, we have that buffer in the supply chain.
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Jeff van Geel
concept, the vehicle to implement the concept and you’ve got the people who will run it.” Bassaw noted the importance of support from the C-suite, as well as finding enthusiastic champions, for any implementation project. But getting senior support can be tricky and can depend on an organization’s culture. “Some upper management are very entrepreneurial and quirky because it’s the guy who founded the company who’s still running it years later,” he said. “Other times it’s more of a large company and [the challenge is] getting to the board.” Along with senior management, it’s important to get those at the tactical level on board with an implementation, Safwat noted. Organizations he’s worked for have run workshops in which lower-level employees—who actually run the process—can share their views on a project or implementation. “This is not working, that is not going to fly, these are the challenges, et cetera,” Safwat said. “Having this feedback, you’ve already got a lot of solutions for so many problems by listening to people.” Holding such workshops and gathering feedback helps give a sense of ownership to those ultimately working with the new system. Safwat also recom-
mended procurement focus on the return on investment for any new initiative. “That, to me, would be the most challenging question from the C-suite.” Consultants can help with DDMRP implementation and there is a formal, two-day class to get qualified in the methodology, McPhail said. But the system isn’t overly complex or complicated. She also recommended piloting the system through a spreadsheet using SKUs with various activity levels to get a sense of the profile. “You can turn off the MRP plan orders, or you can leave them and use a parallel process and very easily pilot it for a couple weeks with a new model—it’s not that hard to do,” she said. “That’s what we suggest to do as an implementation first step.” The main challenge, McPhail said, was a philosophical one. Organizations using an MRP or Lean system that decide to use DDMRP as an adjunct system can experience challenges in bridging a perceived gap. “I think it’s just a matter of trying it and learning and getting experiential learning on it,” she said, noting that online groups and conferences on DDMRP can supply information on the subject. In wrapping up the conversation, the group agreed DDMRP was an interesting evolution in MRP. McPhail noted DDMRP has roots in a pull—rather than push—system and is therefore the opposite of how MRP has been viewed. And while that system was created in the 1960s and 70s, business has evolved. “We have to be faster, quicker, smarter,” she said. “The product mix is crazy and supply chains are more complex. We’re dealing with SKU proliferation. We’re inundated with data, big data, too much data—hopefully, this is a way to fit some solutions into that new normal.” Bassaw added no one should latch onto DDMRP as a “be all and end all” to solve every procurement problem. “Understand that this is a new way of thinking,” he said. “It’s a new tool—just like any other tool in your box—to help you run your business better.” Safwat agreed that as with any new methodology, DDMRP would come with its own challenges but would also present opportunities. Businesses should be open to evaluating those opportunities. “Definitely there’s a learning opportunity and this is how the business—in my view, leadership, management—we have to try to see how things move. So, the more that we take the risk, the more that we’ll be able to really explore different ways of doing things.” In summary, the group agreed that the DDMRP concept represented an interesting new methodology. Procurement professionals would do well to explore and benefit from this unique way of dealing with their supply chains. B2B
20 | April 2016 | PurchasingB2B.ca
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Industrial Buying
Savings in MRO Is there more that procurement should know about maintenance, repairs and operations?
Larry Berglund, SCMP, MBA is the author of Good Planets Are Hard To Buy: A Management Handbook for Creating Conscious Capitalism, Sustainability Principles and Supply Chain Excellence.
By Larry Berglund
M
One of the challenges in managing MRO costs is aintenance, repair and operating supplies (MRO) are a supply the change in prices and volumes of individual SKUs cost where more strategic attention should be given. MRO items over a period of time. These are affected by usage are not directly attached to finished goods—they are consumed and variable market fluctuations. It becomes too difin the production process. They have a lower profile in the organization ficult to develop trends based on line items—so we yet can be significant in terms of indirect costs. need a better model. The price index model is well An MRO inventory strategy ensures the supplies are managed effisuited to develop trends to manage and report out on ciently and in a cost-effective manner. With potentially thousands of MRO supply costs. SKUs in multiple locations with several suppliers, it can be difficult to A price index for MRO supplies within an orgaassess how well MRO items are being managed financially. One of the nization uses a simple method of collecting and anafundamental MRO-isms is the 80/20 rule—20 percent of the items will lyzing data to measure incremental changes to prices account for 80 percent of the annual spend, which are the “A” items. An and then uses this as a basis to create an index value A-B-C analysis quickly segregates the three classes. Organizations can for comparative periods. Index values can be run waste an inordinate amount of time trying to find lower cost “C” items at over any time period. the loss of attention to the “A” item investment. By way of example, looking at an MRO category There are many variations on the strategies and tactics used to address for safety supplies, Table one provides a company’s MRO costs. In addition to vendor managed inventory these can include: costs for ten SKUs over three years (see table on the • equipment standardization programs; next page). The actual volumes for the first year are • bundling like goods to get the lowest cost per item; • as part of a category management model; “With potentially thousands of SKUs in multiple • combined with preventive maintenance programs or planned maintenance locations with several suppliers, it can be difficult to programs; assess how well MRO items are managed financially.” • vending machines to dispense goods; and given. By looking at the table it is difficult to see how • common support services can be outsourced such as solvent parts washthese price changes affected costs over three years. ers, transmission repairs, or tire repair services. But by using this information, we can trend the Further savings associated with MRO can be shared between the parMRO costs for these SKUs by creating a price index. ties as part of a business process improvement strategy. Moving to paperThe first item in year one as a total cost was ($50,000 less systems between the buyer and seller; automated replenishment x $4) = $200,000; in year two it was $195,000; and in systems; smart labels or tags; RFID bar code scanning from shop floor to year three it was $212,500. If we extended the price seller; or consignment MRO goods with a procure-to-pay (P2P) process for each of the 10 items we would find the aggregate being triggered based on actual demand. Establishing a long-term relavalue for year one was $3,850,000; year two was tionship allows the parties to invest in technologies that are not financially $4,052,000; and year three was $4,153,250. We can viable with short-term agreements. In many instances the actual cost of now see the difference in aggregate values but the the MRO items is as low as possible for the forecast demand and state of data still requires further context to put it into pertechnology. The only option is to look into business process improvements spective for a senior manager. to find savings. The year-one aggregate value becomes our year No matter which hybrid variation an organization chooses to use in one index value, which we can set at one. Now we order to address MRO costs, reporting out to senior management is a can compare the subsequent years against year one necessity. Senior management is less concerned with the MRO line items and see that year two as an index value is 1.052; and as opposed to the aggregated costs. The aggregated costs can be broken year three is an index value of 1.079. down by type such as MRO for fleet services or safety supplies or fuels and The basic premise of a price index model is that we lubricants. 22 | April 2016 | PurchasingB2B.ca
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Industrial Buying
lock in the volume from year one to measure incremental price changes for the same goods over time. In our example, the same MRO items over a threeVOLUME BY UNIT Item
Year One
1
#12 glove
50,000
2
#3 safety kit
10,000
3
Tool belt
5,000
4
#12 boot
20,000
5
5 meter ladder
1,000
6
J8 respirator
500
7
J8 mask
1,500
8
OS hearing protector
10,000
9
Hi-Viz vest - L
45,000
10
Hard hat - L
100,000
year period increased by 7.9 percent. If we compared our in-house price index to that of the producer price index and found that the PPI rate of inflation was only 5 percent for the same period, we would surmise that we could be doing better on managing our MRO supplies by $110,235 COST per year! Year One Year Two Year Three I’ve used the price index model 4.00 3.90 4.25 with private and public sector organizations for procurement and for 25.00 25.50 27.00 sales analytics. In some cases we have 18.60 17.00 18.25 tracked over 100 SKUs for MRO 95.00 98.00 100.00 items to develop trends and measure performance for a seven-year period. 85.00 90.00 90.00 Having this information in the form 250.00 265.00 265.00 of an index value was helpful in pri45.00 48.00 48.00 oritizing where cost savings should be focused. So I say yes, there is more to 12.00 13.00 13.00 know about MRO and how we man8.00 8.50 9.00 age these costs should be reported 6.50 7.50 7.50 objectively. B2B
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Trends In Strategic Meetings Management A focus on visibility and control, adoption by SMEs among developments in meetings management
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here are two trends that I’m seeing more frequently when discussing strategic meetings management (SMM) with my clients and industry colleagues: » The impetus of SMM is shifting from cost savings and risk mitigation to visibility and control; and » More interest in developing SMM programs by small- to medium-sized companies. Let’s begin by examine the factors attributing to the first trend regarding the motivation for SMM programs shifting from cost savings and risk mitigation to visibility and control. Several of my clients have seen their competitors singled out for a meeting that seemed extravagant or inappropriate to the general public. This unwanted media attention had a negative effect on their brand. When the CEO begins to examine how meetings and events are planned, they quickly discover that no process exists to manage this category of spend. Therefore, meetings and events are planned by just about anyone in the company, at any location, with limited financial oversight. The meetings are only visible to leadership when they are invited to attend. Another scenario involves meetings conducted in regulated industries, like at pharmaceutical and financial. For example, in the pharmaceutical sector, meetings with healthcare professionals attending are to be held at “appropriate” locations with “reasonable” food and beverage. If these guidelines are not followed, companies can be disciplined for non-compliance. Clearly, there is a need to monitor the sourcing and planning of these meetings before they operate. As a result, there is a desire for control of and visibility into meetings and events
before there’s a contractual relationship in place. This manifests in a strategic meetings management program (SMMP). The foundation of such a program is a formal registration and approval process for all meetings and events. Once a meeting is registered it’s automatically forwarded into an electronic queue for approval. The person authorizing the meeting or event varies based on meeting type. The meetings or procurement department likely approves small, simple internal meetings. Meanwhile, a compliance department usually approves meetings in the regulated category, and customer events may need to be authorized by the chief marketing officer and
"Once on the radar, many chief procurement officers went to the travel manager to get support in harnessing meeting spend." perhaps even CEO. Once the meeting or event is initially approved, there may be secondary approval to get agreement on the specific hotel or venue to be booked. There are different factors driving the increased interest in strategic meetings management programs by small- to medium-sized companies. SMM got a foothold initially with large Fortune 500 corporations with a high volume of meetings. The financial, insurance and pharmaceutical sectors were the first to deploy strategies and technologies to centralize management of their meeting and event spend some 20 years ago. As procurement departments grew in importance, the meeting spend category came on their radar about 10 years ago. It has taken so long to become an area of
By Betsy Bondurant
interest for several reasons: » This spend is decentralized so it’s difficult to quantify total category opportunity; » Fragmented ownership—along with formal meetings department, many other occasional, power and informal planners that are hard to identify; and » Other categories of spend had more visibility and interest for the CPO. Once on the radar, many chief procurement officers went to the travel manager to enlist their support in harnessing meeting spend. The CPO sought out travel managers, as they had a track record of developing policy, outsourcing services, reducing costs and using data to make rational business decisions. At the time, few meeting managers were focused on strategically controlling the enterprise-wide meetings and events in the company, as they were concentrating on delivering successful outcomes for each meeting. Certainly, attention to meeting outcomes is critical to the organization, but the time has come for holistic oversight of meetings and events for all size of companies in a variety of sectors. Since this spend is decentralized, a couple of industry accepted calculations can help to estimate meeting and event spend, which can be one to three percent of a corporation’s annual revenue, or calculate 60 percent of corporate travel. This is by no means an exact science, but it gives us a starting point for comparison and a hypothesis of what the meeting and event spend could be for the company. B2B Betsy Bondurant, CMM, CTE has over 30 years of industry experience in SMM, hotel sales, meeting, travel & trade show management.
24 | April 2016 | PurchasingB2B.ca | TRAVEL MANAGEMENT CANADA
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In the Field
Procurement evolution Is moving from tactical to strategic sourcing right for you?
Monica Feregrino is senior director, purchasing and supplier development at Westport.
By Monica Feregrino
B
efore discussing tactical and strategic sourcing, let’s examine both so we can better understand how procurement justifies one over another. Strategic sourcing involves acquiring goods at the lowest cost of ownership and lowest risk to the supply chain. It creates a cross-functional approach to supplier selection and ensures continuous improvement in quality, delivery, cost and service, while providing the means to achieve optimal efficiencies in for the customer and supplier. There are three components of strategic sourcing: spend analysis, market research and supplier evaluation/selection and relationship management. Tactical sourcing is transactional. It takes a routine and sometimes reactive
skills to shift from tactical to strategic purchasing. Their priority is keeping the business running, and tactical sourcing is the best choice—it’s the appropriate approach to “do things right” at these companies. Compare this to another organization, where procurement has access to technology and commodity teams. Procurement would downsize the vendor base by selecting a few “preferred suppliers” after evaluating their capabilities and alignment of expectations. Procurement teams in this scenario have the IT support to run spend reports, perform spend analysis and conduct market research on various commodities; therefore they can understand supply and demand dynamics. With these tools and talents, procurement would have negotiated lowest total cost of ownership while considering quality, delivery, lead times and other critical terms. Buyers would use only approved suppliers based on an understanding of the organization’s needs and requirements. Strategic sourcing is “doing the right thing” for this purchasing organization. To ensure your company gets the prod“No one solution applies to all companies and to insist ucts and supplies it needs, you must have on only one strategy for all purchasing could limit a specific sourcing strategy. How you purthe ability to make decisions on the fly.” chase has a lot to do with the size of your organization, your technology and longapproach using quick quote and order processes to term strategy. You can leverage tactical or strategic sourcing—both offer support operations. The main goal is to ensure the benefits and challenges and specific situations may point to one as stronger. organization has the right material at the right price Should you move to strategic sourcing? To answer this, look at your situand right time. Unlike strategic sourcing, it doesn’t ation: are you ready to move from a transactional approach to focusing on focus on the requirements of the entire organization the operational base and alignment to business strategy? Strategic sourcor strive to understand vendors’ core capabilities to ing won’t react to day-to-day critical operational aspects; it will consider support a company’s broader needs. The purchaser the organization’s direction and provide balance between external and isn’t focused on continuous improvement or contribinternal activities, services and knowledge. uting to goals established by executive management. The move from tactical to strategic could be difficult. Step one is to We often ask which is applicable for our organizaunderstand where the organization is going and how your suppliers fit into tions. Many agree strategic sourcing is better known the success of the organization because it’s common that establishing strathan tactical, so why do some companies choose tegic sourcing comes with C-suite support, whereas a lack of understandto use this sub-optimal sourcing process instead of ing can lead to a tactical approach. embracing the best practice of strategic sourcing? No one solution applies to all companies and to insist on only one stratLet’s look at some examples to understand better. egy for all purchasing could limit the ability to make decisions on the fly. Consider a medium-sized manufacturing comYou must have tactical sourcing guidelines so you can react and strategic pany where purchasing has the flexibility to use any sourcing guidelines to direct spending overall. supplier in its supply base. Typically, buyers in these Our approach at Westport is a hybrid procurement system supported situations use their best judgment to place the order by a small team of commodity managers. By working to the transition with the supplier who offers the lowest price and best of duties and separation of responsibilities, we ensure operational supdelivery dates. This scenario plays out when buyers port and strategic focus on a small number of key commodities. By “doing don’t have the luxury of ample time. Managing daythings right” or “doing the right thing” depending on the situation, this to-day operations is different from managing longstructure can support the business strategy and produce wins that enhance term strategic responsibilities. Sometimes, these the value of tactical and strategic procurement. We need both to create a buyers don’t have the procurement technology or the strong team that can ensure day-to-day operations run flawlessly. B2B PurchasingB2B.ca | April 2016 | 25
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The Law
Electronic Reverse Auctions This game-changing technology represents an innovation in purchasing
Sarah Alexander is a Canadian lawyer.
By Sarah Alexander
I
n the world of auctions, the bidder with the highest bid is deemed winner. Prices are driven up to the seller’s benefit and the auction winner comes out often paying more than expected. What if this process were reversed, to drive down prices for the buyer’s benefit so that the lowest bidder is the winner? How could this be done, and what would be the benefits of introducing reverse auctions into the procurement process? As this article explains, advancements in technology have created a new space for supply chain management to revolutionize their sourcing strategies and practices through electronic reverse auctions (reverse auctions). In the future, this game-changing technology will revolutionize the way purchasing institutions conduct their procurement processes, offering the benefits of increased cost-savings and enhanced competition.
The University of California ran its first reverse auction to purchase 25,000 gallons of ethyl alcohol for their research centers. It had previously spent $400,000 per year on the commodity and through its reverse auctions it was reportedly able to reduce its costs to $125,000 per year. As these examples illustrate, leveraging technological innovation and implementing advanced procurement processes can result in significant savings for purchasing institutions. Enhanced competition Along with cost savings, reverse auctions increase transparent competition through a real-time virtual space for suppliers to view competing bids. When compared to the anachronism of traditional one-shot physical bids, this creates a more competitive environment that encourages suppliers to outbid their competition. This direct dynamic also provides the opportunity for the parties to reduce transaction
What are reverse auctions? Reverse auctions are real-time online bidding events between a purchasing institution and prequalified suppliers for a range of products and services—anything from rock salt to office furniture. Suppliers can see the bids of other suppliers and decrease their selling prices to secure the purchasing institution’s business, until an optimal market price has been reached. As the Institute for Supply Management “Advancements in technology have created a new explains, reverse auctions involve only space for supply chain management to revolutionize prequalified suppliers selected through a prequalification process, and suppliers their sourcing strategies and practices through “compete in presenting bids to the buyer electronic reverse auctions.” for the supply of goods or services whose time since many reverse auctions conclude within specifications for design, quantity, quality, delivery and related terms and three to eight hours. For example, American Airlines conditions have been clearly defined.” Leveraging technology, reverse reportedly used reverse auctions to reduce its price auctions are accessed online through web browsers via private software negotiation time from three weeks to 20 minutes. companies known as “market makers”. These market makers facilitate the Market and process efficiency are enhanced auction process for purchasing institutions, and provide support, training through reverse auctions by removing the barrier and software to suppliers participating in the bidding process. of geographic limitations and opening the procurement process to a global search for best price. While Cost savings traditional bidding often bottlenecks opportunities Embracing innovation has its benefits. From the reduction of purchasing to local suppliers who are best positioned to submit costs to increased efficiency, reverse auctions go beyond traditional methphysical bids within tight timeframes, reserve aucods of procurement by enhancing the procurement process and potentions allow suppliers around the globe to compete. tially accessing a global supplier base in dynamic real-time competition. This increases competitor volume and, as noted by Notably, reducing purchasing costs is a priority for institutions. The savthe Office of Federal Procurement Policy, reverse ings from reverse auctions are not to be understated, as they can have a auctions allow smaller companies room to compete. significant impact on reducing purchasing costs. Within the United States, As illustrated by US examples, reverse auctions which is seen as a leading jurisdiction for the use of reverse auctions, offer the opportunity to reduce costs, decrease negoresearch indicates that average cost savings range between 10 and 40 pertiation time and enhance competition. Given their cent. For example, the Department of General Services in the State of benefits, it is a matter of time before reverse auctions Pennsylvania was the first government entity in the US to use reverse aucspread to other jurisdictions. B2B tions. It reportedly saved $2.5 million on a $30 million rock salt purchase. 26 | April 2016 | PurchasingB2B.ca
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