Supply Chains by Lyonsdown

YOUR AWARD-WINNING SUPPLEMENT

The René Carayol column

How F1 can help put the va-va-voom back into British industry | Page 2

Professor Jan Godsell’s view

Supply chains have an omnipresence that people do not realise | Page 5

July 2014 | business-reporter.co.uk

$60bn ...that’s what the management of supply chains is costing companies around the world DISTRIBUTED WITHIN THE DAILY TELEGRAPH, PRODUCED AND PUBLISHED BY LYONSDOWN WHICH TAKES SOLE RESPONSIBILITY FOR THE CONTENTS

SUPPLY CHAINS

Business Reporter · July 2014

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Supply chains

Opening shots René Carayol

ANY of us cheered wildly as Lewis Hamilton won his “ home” Grand Pr i x at Silverstone earlier this month, driving for the dominant Mercedes team. Most of Formula 1’s constructors, including Mercedes, are headquarted in the UK, despite many of them being foreign-owned. They are based in and around Northamptonshire and Oxfordshire, now referred to as Motorsport Valley, a network or ecosystem of nearly 3,000 small engineering companies. This top-quality, hugely responsive and localised supply chain will continue to attract those who desire to compete at the rarefied and elite level of F1, as evidenced by the most recent teams to join – Marussia and Caterham, both based in Motorsport Valley. According to the Motorsport Industry Association, F1 supports around 5,000 jobs, with the sport’s unforgiving deadlines benefiting from this localisation. This generates £2bn of products and services, and the wider network employs some 40,000 people generating £9bn for the UK economy. This cluster or ecosystem approach to supply chains is nothing new, but is perhaps back in vogue, especially when both specialisation and collaboration are paramount to success. The clustering of manufacturing alone was not able to defend Detroit, centre of the US car industry,

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How Lewis Hamilton can help put the va-va-voom back into British industry against the ravages of the global recession but the Motor City might just be bouncing back, aided by transforming and diversifying its local ecosystem. Detroit was sinking and fast – so much so, it filed for Chapter 11 bankruptcy this year. From this very low base, Detroit is being given the chance to reinvent itself. With the need for more focused expertise to meet demand for better softwarebased solutions, a different type of company and talent is being attracted to the area. Modern economies rarely build cities around concentrated manufacturing, but will galvanise modern industries that attract workers. In 2008, in the heat of the recession, excitement was generated by a cluster of internet startups in the Shoreditch area of London, soon dubbed Silicon Roundabout as it was close to that decrepit eyesore, the Old Street roundabout. Despite rapid growth, it has still nowhere near the size, strength or pull of California’s original Silicon Valley, but it now ranks as the third

Follow us on twitter: @biznessreporter technology cluster after California and New York. Measured by the concentration of technology firms and the availability of well informed (and generous) investors, it is ahead of the burgeoning second division of hubs or clusters, including Cambridge, Boston and Tel Aviv. The relative success of Silicon Roundabout helps to redefine this resurgent approach to clustering and congregating together; a common language (English), attracting investors and investment, and a strong appeal to global talent. These clusters eventually catch the eye of government, but only after they begin to look successful. Prime Minister David Cameron spotted this bandwagon early on and the government has done much to participate in raising its profile. It created entrepreneurs’ visas to get around the ill-judged immigration restrictions, pushed BT to bring its superfast broadband to the area and persuaded the likes of Google and Cisco to invest. The future for these ecosystems is to learn from Silicon Valley in spreading their tentacles beyond the immediacy and comfort of the sector they currently serve. Everyone seeking disruptive technology now heads to California, no matter what industry or geography they are from. Motorsport Valley is on a similar route, many of its experts spreading out into greener technology, aerodynamics and electric cars. Lewis Hamilton cannot win the F1 championship on his own and neither can Mercedes, but they might with the specialised, responsive local expertise on tap. By the way, Cass Business School has recently launched an outstanding MSc in Global Supply Chain Management. Check it out at cass.city.ac.uk/ courses/masters/courses/supplychain

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Supply chains

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Pressure from consumers at all-time high

CPOs at the centre of supply chain revolution By Joanne Frearson

COMPANIES are looking more towards chief purchasing officers to help them understand supply chain risks, while firms which are collaborating and sharing information about their suppliers are reducing the cost of due diligences for themselves and making their business more competitive. Adrian Chamberlain, CEO at Achilles, says: “Traditionally the role of the chief purchasing officer has been quite a junior one. Increasingly what we are seeing is the chief purchasing officer is being seen as much more valuable within a company. “The significance of these officers in a company and their seniority is going up all the time. We are at the start of a revolution. We are seeing very large multinationals rethink the way they can manage their supply chains, the way they can rationalise their supply chains, the way they can manage risk more centrally and strategically.” Companies are also using collaborations between each other to increase their understanding of risks in the supply chains and reduce the cost of gaining that knowledge. Chamberlain says: “Typically why people are driven towards collaboration is because if they try to do it on an individual

basis it costs them an enormous amount of money. What we estimate is that the actual global management of supply chains is costing companies about $60billion around the world.” Increasingly, Chamberlain is seeing companies look for risk below the top tier, moving towards possible threats which could be in the second, third and fourth tiers. He says: “What buyers want to see suppliers demonstrate is financial viability, technical competence, sustainability, good citizenship, corporate and social responsibility, across a whole variety of measures. “They want to know if companies in developing countries are compliant to corporate and social responsibility standards on child labour, slavery and decent conditions. Will their reputation be protected? The consequences can be quite devastating. “The world is getting smaller and there is greater opportunity to export and become competitive. But there is also growing reputational and compliance risk. There is a need to make sure you are protected.” Once companies have collaborated the financial benefits are enormous. Chamberlain has seen companies in large sectors reduce the costs of compliance by about half through taking this approach rather than trying to do it individually.

However, there are some companies which are still worried about the issue of trust and sharing information with potential competitors in collaborations. “It is about understanding where it is best to co-operate with your competitors, some of which you might have grown up to hate,” says Chamberlain. “We have to have a much more sophisticated understanding of risk and collaboration than a purely capitalist model. It takes companies mentally time to do that. “The best way to overcome it is clearly by working together in trade associations, understanding and making sure you are not appearing to collude in an anti-competitive way. Collectively buyers have more leverage to encourage suppliers to raise their standards than individual buyers. “It is a long-term process in our experience. It can often take years to get communities to do that. But interestingly when they have done it, they very rarely go back as the benefits become so obvious. We see it is a rapidly growing trend throughout the world. “It is seen as one where there is huge opportunity for financial and economic advantage as the technology comes on board to manage your supply chains better and the risk of not doing so becomes greater.”

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MORE THAN ever consumers are putting pressure on firms’ supply chains. They want the best products at the cheapest costs and if a company does not have a good supply chain their customers are likely to go somewhere else. Tim Waters, senior director and supply chain lead at Alvarez & Marsal, says: “Everyone wants high performance, whether it is availability of products in retail or choice and variety in automotive. Developing a good supply chain is about understanding where your complexity lies within it and knowing how you can control them.” He believes that what companies need to do in order to build a good supply chain is to break things down into pieces rather than tackling them all at once. Waters says: “A more fragmented approach might be useful, but it is important always to have an end to end view in mind. It is really getting to know what the drivers are in your supply chain. It is all about understanding what you are trying to do and to get to grips

with that, and simplify where possible, but also not oversimplify to the extent you do not have a competitive product anymore. “To reduce risk it is about knowing your supply chain intimately. It is no good blaming suppliers as your CEO will be the guy who ends up on television apologising to the public. It is about knowing not only your supplier, but also their suppliers in the chain, where they are located geographically and what the risks are there – from things such as natural disasters, child labour and shoddy work environments.”

Business Reporter · July 2014

Supply chains

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ADVERTISING FEATURE

The ‘new normal’ – adding value in the supply chain Businesses can take advantage of early payment discounts offered by suppliers INDUSTRY VIEW

he economic tide is turning. This year successive barometers and polls tell us that the UK is in recovery; that confidence is up, that businesses are investing and that productivity is increasing. This good news doesn’t stop when you reach the edge of British shores either – around the world a new business dawn is being heralded. But what happens next? What is the “new normal” if you are managing a supply chain, working in procurement or finance? How do you continue to add value to your employer, the shareholders and beyond? Brendan Walsh (below), executive vice president of American Express® Global Corporate Payments, believes we are now operating in a value based economy. He says: “We are undoubtedly seeing a new way of working across the supply chain. Companies still retain a keen eye on what they are buying and spending, but increasingly they are now focusing on new ways to free up cash flow to fund growth. To really drive competitive advantage, companies are now more focused on optimising their working capital and this has seen companies look beyond the old traditional forms of finance and towards a wider range of finance and funding options to support their working capital objectives.” For those running complex supply chains around the world, this marks a fresh period of change and challenge, and one where companies that optimise their expense management and capital programme will doubtless be best placed to grow. American Express Global Corporate Payments is an e-payments and solutions provider to businesses around the world. Through its payment products and solutions, American Express works with its clients to help improve cash flow, strengthen supply chain relationships and free up funds for growth to help generate profits for the long term.

Driving growth and helping to improve profit margins through efficient payments processes In a recent American Express poll, 93 per cent of UK CFOs said they anticipate modest to

substantial expansion this year, up from just 50 per cent in 20131. While this serves as further confirmation that the economy is on the up, finance and procurement teams still need to make sure they have the right processes to make payments on time and keep track of expenditure around the world. This has benefits far beyond all-important cashflow management. The right system can help you identify key suppliers to your organisation and thus negotiate better terms – driving efficiencies through the business and improving profit margins. But when it comes to gearing up for growth, the right payment system can also give you a holistic view of your organisation’s finances at any one time and help you identify where cash can be freed up to invest. If your payments aren’t all fully automated, this too can be a straightforward step to help drive visibility, save valuable time and enable you to forecast quickly and effectively.

Getting cash flow right to drive investment While cashflow is a major priority in slower economic times, it seems to be just as important in the economic upturn. Research for American Express found that 95 per cent of businesses surveyed say it will be a priority in 2014 and more than nine in 10 are still experiencing delays in being paid by their customers2. To meet this demand, American Express Global Corporate Payments has recently launched a new working capital solution for UK customers called Buyer Initiated Payments (BIP). By using BIP to settle payments with their strategic suppliers, companies can accelerate payments while increasing their Days Payable Outstanding through extended payment periods.

The changing role of buyer and supplier in the supply chain In today’s increasingly global marketplace, it has become even more important to effectively manage working capital and

look at ways to be adaptable in the supply chain. Flexible finance solutions, that aren’t detrimental to either the supplier or the buyer, can provide a win-win situation, allowing both sides to improve their payment terms. With a third party such as American Express financing the gap in those terms, businesses could take advantage of early payment discounts offered by their suppliers and help strengthen their relationships with suppliers through timely or accelerated payment. This all makes a significant difference to the bottom line. As the economy shifts, so too do supply chain dynamics. As companies invest for growth they buy more, but also require more from suppliers, meaning an ever closer eye is put on the operational side of the business. Having

systems and processes in place that enable you to pay early and have a clear view on where money is moving can make all the difference in those relationships, meaning better terms, discounts and greater visibility. Using one of the American Express payment solutions means your supplier is paid within five days once the invoice is approved for payment, rather than the usual net month plus 45 or 60 days, and enables you to maintain payment terms of up to 58 days, thus freeing up working capital for your business to invest for growth. Whether it’s providing increased automation and control in the payments process or extended payment terms to help increase cash flow and optimise working capital, American Express Global Corporate Payments can help your business. Terms apply. 0800 652 1279 americanexpress.co.uk/corporate 1 American Express commissioned CFO Research Services, who surveyed 507 senior finance executives at large global companies across industries in the US, Canada, Latin America, Europe, Asia, and Australia. Revenues ranged from $500million to more than $20billion. The research – online survey included – was completed in April 2014. 2 Survey commissioned by American Express and undertaken by research company Toluna from April 11 to May 19 2014. More than 100 financial decision makers in UK companies with 50 employees or more were asked cashflow related questions online.

Case study: Westcoast Westcoast is a privately-owned UK company which distributes computer and electrical equipment to retailers and resellers. The company wanted to ensure that it was optimising its cash flow to avoid cash leaving the business quicker than it was going in. The electronics and computer sector is typically risk-averse, so suppliers offer short credit terms which are payable by Direct Debit. For example, one large supplier offers Westcoast payment terms of 14 days. However, customers invariably want to pay on 30, 60 or 90 day terms. With longer payment terms for its customers than those offered by its suppliers, Westcoast was keen to ensure it could steer clear of incurring hefty rates of interest, while still meeting customer demand for stock. Westcoast turned to American Express to help increase available working capital and improve supply chain relationships through its simple electronic payment solutions. The American Express payments solution means Westcoast can pay its suppliers promptly, but it doesn’t have to part with the cash for a further 58 days. This significant improvement has had a direct impact on future growth prospects. Sunil Madhani, finance director, says, “We have the flexibility at any time to access funds through American Express, so it has had a very positive impact. Improved working capital gives us the opportunity to buy more and then sell more.”

American Express Services Europe Limited. Registered Office: Belgrave House, 76 Buckingham Palace Road, London SW1W 9AX, United Kingdom. Registered in England and Wales with Company Number 1833139. American Express Services Europe Limited is authorised in the United Kingdom by the Financial Conduct Authority under the Payment Services Regulations 2009 (reference number 415532) for the provision of payment services. For insurance mediation activities only, American Express Services Europe Limited is an Appointed Representative of American Express Insurance Services Europe Limited (reference number 311684) who is authorised and regulated by the Financial Conduct Authority. Details can be found on the Financial Services Register.

Business Reporter · July 2014

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By Joanne Frearson

E ARE all more involved in the supply chain industry than we might think. The products we buy and the places we work can all have some sort of impact on supply chains. We all contribute in some way, and in order to develop good practices in supply chains it has to start with leadership at the top. Dr Jan Godsell (right), p rofessor of operations and supply chain strategy at WMG, University of Warwick, is an expert in this field and has developed supply chain strategies in a number of FTSE 100 companies. She recently spoke at Business Reporter’s Supply Fest 2014 event on how to strategically align your business to get the best results in your supply chain. “In the UK we talk about the economy being service orientated,” she tells us when we catch up with her post-summit. “People do not realise 80 per cent of our population work in the supply chain. Whether you are a farmer producing food or you work in a factory, have a lorry that moves the food or you’re working in a store to distribute it, that is all helping to feed the nation. Supply chains have an omnipresence that people do not realise. “The more we can do to help raise the visibility of supply chains and help people understand how they contribute to that positively – not just to the UK economy, but also the European and global economies. That will really help to inspire people to work within it.” Godsell believes raising people’s awareness of supply chains has to start from the top down. “The biggest supply chain risk is lack of visionar y leadership,” says Godsell. “Funda menta l ly, t he problem is t hat organisations are not being strategic enough. They are not seeing the supply chain as an integral part of their business strategy. “There need to be people who truly understand business, people who know how to balance supply and demand and know how to make that happen throughout their business. If companies do this they will make more money and their business will grow. It is all about business strategy.” What tends to happen in organisations, Godsell explains, is that the supply chain side is normally separated from the product, sales and marketing side. Firms see the supply chain side as focusing on costs, separate from the product side which focuses on growth. “The only benefit that people think you get from the supply chain is reducing costs, and it is rubbish,” says Godsell. “The most successful businesses are built on a symbiosis between their product marketing and supply chain strategy. “It starts from the top once you know what their strategy is – what you need to do is work out what your global supply network looks like. The smart companies will be looking at that as a strategic decision.” However, Godsell warns this is not a one-sizefits-all approach. What companies need to do is identify where the business is going to grow and recognise where demand is going to be more variable and focus management on that. Godsell believes it is all about creating structural flexibility. Companies should build

Supply chains

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The only benefit people think you get from supply chains is cost reduction. That’s rubbish Companies need to realise the benefit of supply chains, and not just see them as a one-dimensional logistical exercise, says Professor Jan Godsell supply chains in a proactive rather than reactive way. “Everyone in the supply network should know what the rules are within it,” she says, adding that companies within the network should be about improving themselves and be able to dock and undock with all other partners in that network. IT plays an important role when it comes to supply chains. If companies collect data about their supply chains they can use it to their advantage in managing them. Godsell says: “The question now is it is not about big data, but how we use that data to make good management decisions. We need to use that data to help us understand where to focus, and equally in a sense of where to automate our business so it can run itself. It is the person that

can reconfigure the fastest and react when adverse things happens who wins.” One example of something companies can do to improve their supply chains, says Godsell, is to have a circular business model. In a circular business model, companies keeps resources in use for as long as possible by recovering and regenerating product materials at the end of their service life. “Businesses should get their head around what a circular business model is,” she says. “Some of the mobile phone manufacturers, such as O2, Vodafone or Apple, have got savvy to this. They have realised that a product like a mobile phone has a lot of value at the end of its life. “There are some horrendous stats about the amount of money we have tied up in our kitchen

drawers by not handing back [old] phones. If you look at [today’s] new mobile phone contracts, they are incentivising you to give your phone back. They can refurbish it and sell it on to the second-hand phone market in the UK, or to a developing economy. “If they can’t do that, they then can try to break it down into its highest-value components and do something with those. It could enable some businesses which are not commercially viable to be viable. It is enabling companies to retain value within their own business instead of letting it get destroyed.” In order to have good supply chain practices it has to start from the top. But we all play a part in the supply chain and it is important to be aware of how we can contribute to it.

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Supply chains

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Eurotunnel passes the environmental test with flying colours INDUSTRY VIEW Eurotunnel is investing a significant amount of money to make its service more efficient for hauliers and logistics companies by increasing the number of shuttles and departures, as well as expanding the size of its secure parking area. John Keefe, director of public affairs at Eurotunnel, says: “It is a big cost and efficiency saving as drivers will be able to park their trucks inside the secure zone, minimising the risk of encroachment by illegal immigrants on French roads.” The investment will take place over the next 18 months and construction of the new shuttles will be over the coming three years. Eurotunnel plays a big role in the supply chain. It is used by many logistics firms to deliver goods and services because, as it is extremely environmentally friendly, it helps reduce their carbon footprint. Keefe says: “In the supply chain we carry a lot of perishable goods and high-value, low-volume parts for manufacturing and businesses. Many firms are setting more stringent environmental criteria for their logistics chains – using the Channel Tunnel gives them a significant advantage over any other form of transport across the Channel. We also provide our customers with certificates that show them how much carbon emission savings they can make using the tunnel as opposed to the ferry. “They can use these in their negotiations with end customers to say, we are using the Channel Tunnel – not only will you have quicker and more reliable departures but we can get deliveries to you with a smaller carbon footprint.” eurotunnelfreight.com

IRMS risk being hit by all sorts of accusations if their supply chain falls foul of bad practices, such as being involved in child labour, slavery, bribery or even collusion. But having an ethical supply chain is not just good for business. Company profits can increase and contracts can be won by companies being able to ensure their suppliers undertake responsible practices. Supplier Ethical Data Exchange (Sedex) is one organisation that has been helping drive improvements in ethical business practices in global supply chains. The exchange includes many big companies in its number, such as Tesco, British Airways and Unilever. “There are huge issues that can negatively damage companies from a reputation perspective, but also damage them in other financial ways, whether it is fines for falling foul of legislation leading to prosecutions to disrupting the availability of supply,” says Carmel Giblin, Sedex CEO. “Often when firms are established, they are not aware of the supply chain issues they could face and will only look at traditional corporate social responsibility (CSR), which is all about community giving. But companies need a more robust approach to managing risk in their supply chain.”

To help companies avoid the problems which can occur, Sedex tracks specific areas in supply chains such as labour standards, health and safety, environment and business ethics. “We have a huge collection of data that we are able to analyse and split in different ways,” says Gilbin. “It will look at indicators such as the makeup of a workforce, the gender split, and the difference between permanent, contractors and temporary workers. There are key measures we look for around working hours, payments of workers, dormitory conditions… all sorts of stuff. There is a lot of data there. “In terms of health and safety we will look at frequency of incidents, is it reducing or increasing. What is the environmental impact of the company? Business ethics is about whether or not they have policies such as anticorruption and bribery.” The good news is that companies are starting to shift to a more active approach in understanding what the risks are in their supply chain. Social media is increasing people’s awareness of disastrous events that can happen in supply chains. For example, pictures of the 2013 Rana Plaza disaster, in which an eight-storey commercial building in Bangladesh collapsed and killed more than 1,000

people, were posted all over social media before the story was on the main news channels. Industries are collaborating and working together to make sure standards are put in place so these types of disasters do not happen. Since the Rana Plaza tragedy, the Alliance for Bangladesh Worker Safety has been established to improve working conditions. Giblin says: “Companies are stepping up and being more transparent and you are seeing companies report who is in their supply chains publicly.”

OMPANIES are becoming more aware of the complexity of supply chains. The technology behind Sedex enables firms to look at the different tiers in the supply chain, which is where the greater frequency of issues is in the supply chain. Giblin says: “There is a greater understanding that your risk is not at your first-tier supplier, but that it is way beyond this. Companies have an obligation to ensure responsible practice in supply chains is beyond just that first tier. “If you look at the horse-meat scandal or Rana Plaza, people did not actually know that supplier was in their supply chain because they were below the first tier.

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Supply chains

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Risk investment: only 7 per cent of firms benefit By Joanne Frearson

Setting up an ethical supply chain is not only good for suppliers and employees, it’s good for business too. By Joanne Frearson “By understanding the firms within your supply chain, you can better understand the risk to the business and then mitigate them. Companies are being more proactive, to understand what is the root cause of potential problems and how they can forecast for future events. “What we are now hearing is that businesses want to understand the risks in their supply chains. This is not just from a reputational perspective, but also understanding where your product is being produced and overlaying on top of that environmental risk.” Some companies have more than 100,000 suppliers in their chain. Giblin explains that if companies want to make a difference, it is important to engage with the smallest suppliers and know where products come from. Increasingly, companies are facing external pressure to make sure they have good supply chain practices in place. She says: “We are getting financial institutions looking at how supply chain risk is being managed. We are also seeing business to business organisations looking at their supply chains. Stakeholder groups that put pressure on companies are

Below: Carmel Giblin of the Supplier Ethical Data Exchange

broadening – investors have been more interested in this area than they have been in the past.” Firms are also changing the way they view workers. Giblin says: “The movement we are seeing is that workers are becoming an asset rather than a commodity.” Brands are looking at keeping their workers engaged at production sites. When companies undertake these ethical practices, it can also increase their financial performance. Giblin cites the example of a handbag manufacturer in China which has seen its customer base grow by 300 per cent since joining Sedex. By demonstrating its compliance to ethical standards, the company has managed to win new international contracts and now supplies over 1.8 million bags annually to British retailers such as New Look and Next. Its turnover has also more than doubled, from $4million at the end of 2010 to $10.63million at the end of 2013. “Companies who do this will have a competitive advantage,” says Giblin. “Firms that see it as an opportunity to increase business and be more innovative will be those that succeed. There are sustainability mega-trends that will influence all this – resource scarcity, climate change and ageing populations.”

THE MAJORITY of companies see supply chain risk management as important to their business, but only 7 per cent are generating returns of more than 100 per cent on their supply chain risk management investments, according to a study by global management consultant Accenture. In the Accenture Global Operations Megatrends Study – Focus on Risk Management, there were 76 per cent of companies which described supply chain risk management as important or very important, while 25 per cent planned increased investment of at least 20 per cent in risk management in the next two years. The analysis revealed that while nearly all the companies represented in the study received a return on their investment (ROI) in risk management, the leaders of those that generated returns exceeding 100 per cent had three practices in common that distinguished them from others. The first was to make risk management a priority, the second was to centralise their responsibility for risk management and the third was to invest aggressively in risk management with a specific focus on end-to-end supply chain visibility and analytics. Mark H Pearson, senior managing director at Accenture Strategy, Operations, says: “As demonstrated by the leaders in our study, a centralised, top-down approach to supply

chain risk management tends to generate the highest ROI on risk management. “Such a commitment to risk management can also help managers guard against business disruptions in the wake of natural disasters, geopolitical events, shifts in commodity or shipping prices, or any number of circumstances that can endanger a company’s operations.” Pearson also notes that such a strong commitment to risk management “can contribute to stakeholder confidence in the fundamentals underpinning a company’s business”. According to the study, the top three sources of risks identified by senior operations executives are information technology, which accounted for 39 per cent, cost and pricing factors, which also accounted for 39 per cent, and the global economy, at 37 per cent. Natural disasters or unforeseen events, such as the Thai floods or the tsunami in Japan, were only cited by 17 per cent of the respondents, making that the least frequently flagged risk. “Although unforeseen events or natural disasters lead some to give up on risk management, most risks can be managed to not only minimise the downside but also to gain a competitive advantage as a result of being prepared to respond to circumstances when they arise,” says Pearson. “Scenario planning and robust analytics can play a key role in developing effective risk mitigation strategies.”

Business Reporter · July 2014

Supply chains

Suppliers taking you for granted? INDUSTRY VIEW In order to reliably deliver innovative products at market-leading prices, suppliers should play a pivotal role in helping a business grow market share and win new customers. However, the reality can be very different if suppliers take your business for granted. Three tripwires should trigger alarms. Firstly, look for suppliers who have been in place a long time. Are they frequently “market tested” and have

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With supply chain scandals on the front pages more than ever, is it time for organisations to take a closer look at how they function and cut out the bad links before it’s too late?

they successfully satisfied the criteria? Who made the supplier selection decision – the procurement function, or the broader business? And who “owns” the relationship with the supplier: procurement, or again, the broader business? Secondly, check that suppliers are properly managed. Are they working to and meeting performance standards? If not, what happens? Do they understand your needs in terms of innovation and improvement? And how are they fulfilling that agenda? Finally, look for a history of rising prices. Years-old price-inflation clauses may be ripe for renegotiation. But price increases can also point to a supplier mindset of passing their own cost increases on to you – the customer – rather than finding ways to eliminate such increases, or looking for compensating performance improvements elsewhere. These three indicators are reliable warnings of a supplier taking your business for granted. So what do we do about these pitfalls? Scrutiny in these areas should be the beginning of a wider examination of supply. Additionally, ensuring that your supplier runs a well-oiled machine, successfully delivering on contracts and hitting targets is an ever more critical consideration in an increasingly competitive world. Emilio Reina is a principal at Efficio www.efficioconsulting.com

By Joanne Frearson

HERE are no guarantees the horsemeat scandal which rocked Britain last year will not happen again. The problem, says David Noble, CEO of the Chartered Institute of Purchasing & Supply (CIPS), is that it is impossible for CEOs to have an all-consuming knowledge of where things come from in their supply chains. It is a scary thought: that the world’s biggest and most powerful companies’ supply chains could be involved in such scandals. But changes are underway in the industry – CIPS is on a mission to bring these conglomerates together and is calling for self-regulation of the industry. Noble is clearly passionate about the issue. “The profession needs to be licensed and we are calling for self-regulation of professionals,” he says. “Not just the state of their enterprise, whether it is public or private and how well they do their job, but also their public good. Bad supply chain management is affecting all of us in some way. It is certainly becoming much more talked about, whether it is through the damage done by the horse-meat scandal or whether it is factory collapse or modern-day slavery.” When it comes to promoting standards in the supply chain industry, CIPS is a big player. It is the world’s largest professional organisation in procurement and supply, and big businesses listen to it when it has something to say. Its Markit/CIPS UK Manufacturing PMI index is seen as an industry bellwether, and is closely monitored by the Bank of England and key

French government verify the withdraw contaminated with

Above: A survivor of the Bhiwandi garment factory collapse in India last year; below: David Noble, CEO of industry watchdog CIPS; opposite: Apple CEO Tim Cook

economists in the UK. And in its push for selfregulation, CIPS already has some of the big industry players on board. “We have some very strong links to the heads of companies around the world,” says Noble. “They are saying we have to have this licensing requirement in our supply chains. We started our campaign early this year and have engaged in a number of big corporates. The CEO of Rio Tinto is one of our fellows. He is someone who has been in purchasing most of his career before he was promoted to CEO. I would like to think in the next five years it becomes the default, that everyone in this profession has to be licensed.” Having a CEO with a supply background could be an advantage for a firm. Noble says some of the world’s top companies with successful supply chains have CEOs with experience in the industry. According to Noble, Apple has such a great supply chain because Tim Cook was a buyer before he became CEO.

“The smart companies are recognising that how you execute supply chain management is a real differentiator for success in the corporate world,” Noble explains. “Companies are realising this at the board level – that it is something so strategic it makes a difference to what the company looks like.” In Noble’s discussions with CEOs he has found the best way for them to add value to their business is through the supply chain. “People copy things very quickly,” he says. “You might come up with an all-singing, all-dancing widget [but] it lasts about a month before someone has copied it. You can be the best marketer in the world, but as we move into the service world it is all about execution and efficiency of your supply chain.” It is very difficult for a company to keep up to date and have full knowledge of everything that goes on in a supply chain. Noble believes there are no guarantees something like the horse-meat scandal will not happen again, as it is impossible for a company to have control of its supply chain

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t inspectors wal of products horse meat last year

down to the most distant tiers. This is why it is important for companies to be licensed and self-regulated. He says: “Unfortunately I see a lot of this, where buyers are outmanoeuvred by invidious practices further down the chains. What we are saying to these people is, look, what you have to be able to say is I have done everything in my power to mitigate that sort of disaster happening. I therefore have licensed my professionals, I have put in place procedural controls and data analysis and all the things you would expect that are good practice because the media is quite ruthless.” According to Noble some sectors are more advanced than others when it comes to understanding supply chain risk. Sectors he believes have a weak link are retail and wholesale. “They still struggle to recognise supply chains as different from product management. That to me is a big mistake,” he says. “It is a very competitive world we live in. A lot of it is driven by consumer behaviour, ultimately. You have the retail and the wholesale industries that work on razor-thin margins. Consumers are demanding low cost.” Noble is all for helping companies that need improved supply chains. At CIPS there are numerous certification processes

to help supply and procurement departments to assess themselves on process and performance. “We now have an online ethics test,” Noble reveals. “If you do not pass it then you have to retake it – if you do not get through then you do not get a mark from the institute saying you are ethically qualified for the year. This has to be done every year, because the sad thing about the world we live in, the world of fraud and all these things, is that they morph into something different. It is a tough test and it is designed that way because it is a tough world where you can be taken to the cleaners. We ask corporates to target anyone who is engaged with suppliers to take this test.” What companies are demanding the most is to how to avoid fraud in the supply chain, Noble says. “Demand for it has gone through the roof because companies are getting worried about fraudulent practices. How do they mitigate against them?” The most advanced sectors when it comes to understanding supply

chain risk are the c om mo d it ie s , Noble believes. “The oil, gas and mining industries are the ones that stand out for us. We have the most engagement with those industries. They have a social role to play in countries and they are far ahead in supply chain management. “The other sector that I think is very competent is the automotive sector – they invest heavily because they know their reputation is on the line with supply chain management.” In a world where supply chain management is becoming increasingly relevant, the CEO that understands the risks within their own supply chain will stay ahead of the game. The big players are starting to get involved – perhaps a move towards licensing the industry will see public scandals become a thing of the past.

Business Reporter · July 2014

Supply chains

CIPS brings case to bear on modern slavery AROUND 29.8 million people are forced to live in slavery around the world, according to the Chartered Institute for Purchase and Supply (CIPS), while every day 6,000 people around the world die from work-related accidents or disease. Corruption can add 10 per cent to the cost of business and 25 per cent to public procurement in developing countries. The Modern Slavery Bill is presently going through its second reading in the House of Commons. Once it is passed it will create two new civil orders to prevent modern slavery, establish an Anti-Slavery Commissioner and make provision for the protection of modern slavery victims. Earlier this year CIPS submitted written evidence to the committee on this bill. CIPS has called for procurement and supply professional to address modern slavery through putting in place policies, processes and planning – the “three Ps”. In its written evidence CIPS outlined by companies putting policies in place they should help prevent, detect and eradicate modern slavery within companies own operations and the operations of suppliers and business partners. It recommended establishing a code of conduct which sets out the essential standards of personal and corporate conduct and behaviour expected. In doing this, CIPS called for companies to make statutory declarations and contractual provisions to ensure existing suppliers and incoming new suppliers understand the company’s approach to modern slavery in supply chains. These should be cascaded as far down the supply chain as is reasonable. According to CIPS, whistleblowing should be encouraged to identify breaches of policy and contractual provisions. Systems should be in place to ensure that whistleblowers’ identities are protected and that they have board-level support. CIPS also outlined that firms should establish processes to identify vulnerabilities in the supply chain. Although it is impractical for a company to audit and monitor each and every supplier in its entire chain at all levels, businesses should be able to work to identify key vulnerabilities and take a risk-management approach to ethical procurement. Rigorous, independent auditing of key supply sites is invaluable in determining whether standards set by a company have been met by suppliers, says CIPS. Firms should also plan for situations where corrective action is needed. The feasibility of remediation will depend on the buyer’s relationship with the supplier and the supplier’s willingness to make improvements. CIPS says as a last resort it may be necessary to leave a relationship with a supplier, provided this is done ethically, and CIPS recommends buyers should check workers have been and will be paid correctly if their work ends before any final payments are made.

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Supply chains

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New standard for operational risk developed By Joanne Frearson SECURITY professional firm ASIS International has released a new standard to help organisations address operational risks in their supply chains. Risks addressed will include tangible assets such as human, physical and financial and intangible assets such as brand, reputation, competitive position or intellectual property. The new standard can be applied to any type of organisation and its supply chain regardless of size. Developed by a global, crossdisciplinary technical team and in partnership with the Supply Chain Security Council, the Supply Chain Risk Management: A Compilation of Best Practices Standard (SCRM) will serve as a practitioner’s guide to SCRM and associated processes for the

management of risks within the organisation and its end-to-end supply chain. This guidance standard is a compilation of current best practices. It presents a generic approach to risk and resilience management that is applicable to all types of risk and all types of organisations. Supply chain risk management is vital for organisations that rely on extended operations, both internal and external, for their success. It involves the assessment and control of risk events, from sources of raw materials to end use by customers and consumers. Dr Marc H Siegel, commissioner of the ASIS Global Standards Initiative, said: “In today’s global economy, all organisations have critical dependencies and interdependencies. Therefore, to build a resilient

organisation it is essential to understand that organisation’s supply chain, and how risks within the or g a n i s at ion a nd it s s upply chain impact the achievement of objectives. “This is the first standard to provide practical guidance, based on the experiences of both large and small

organisations, about managing risks in their supply chain to increase their resilience capacity and create value.” The SCRM Standard will help practitioners anticipate, prevent and protect, mitigate, manage, respond, and recover f rom potent ia lly undesirable and disruptive events, as

well as identif y opportunities. However, the best strategy for addressing risk events will be determined by the organisation’s context of operations, its risk appetite, and results of risk assessments. Adoption of this standard should build on rather than supplant existing specialised risk programmes.

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Supply chains

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Inspector Dogberry

Companies might be undervaluing the importance of investing in new technology areas such as supply chain analytics, according to a report by MHI and Deloitte. Although more than twothirds of companies surveyed

By Matt Smith, web editor

The Clinton Giustra Enterprise

a fan of nuts, he is excited about

enterprises we have launched

expected supply chain invest-

Partnership, founded by President

The Enterprise Partnership. It

in India and Latin America and

ment to increase, in many

u Editor’s pick Logistics Viewpoints

Bill Clinton and philanthropist

will provide a network of service

illustrates a replicable solution

cases these were just enough

logisticsviewpoints.com

Frank Giustra, has launched

depots throughout parts of the

with the potential to alleviate

to get by and not enough to

the Acceso Peanut Enterprise

country, facilitating the delivery

global poverty. We’re very excited

drive innovation and competi-

Corporation, a supply chain

of quality inputs and training to

at the potential it has in Haiti,

tive advantage.

enterprise in Haiti

farmers as well as the collection

not only to increase the yield and

that will improve

and safe storage of peanuts. Five

productivity, but to scale up Haiti’s

chain investments was the

the livelihoods

of these depots have already

Commitment to supply

peanut supply chain to meet

highest among retail and

of more

opened, and 35 are planned

growing regional demand without

wholesale and transportation

than 12,000

throughout the Central

relying on imports.”

and warehousing firms,

smallholder

Plateau and the North.

peanut

Giustra says: “The

farmers.

The Enterprise Partnership

with close to 75 per cent from

Describing itself as a source of clear and concise analysis for logistics professionals, Logistics Viewpoint is a straightforward and regularly updated website featuring the views of a selection of industry experts. It also has a resources section, where you can find logistics-related podcast and videos for more information.

will sell peanuts to regional buyers,

these sectors expecting

Acceso Peanut Enterprise

including manufacturers

to increase investments.

Corporation is modelled

of peanut-based nutrition

SCC Blogs

after the success of similar

supplements for children.

supply-chain.org/blog

www.supplychainnetwork.com

The Supply Chain Council is a global non-profit organisation that works to help its members improve supply chains quickly and sustainably. On its blog you can find the thoughts of its team on subjects including why it’s important to report to the CEO, the merits of different industries’ supply chains, and the history of logistics.

Supply Chain Network is run by Jeff Ashcroft, director of business development at the SCI Group. Ashcroft specialises in retail and e-commerce in Canada, but there are insights on the site that could prove useful for businesses in all regions and sectors. The blog’s sidebar also serves as a handy index of supply chain analysis on the web.

Although Dogberry is not

A new board game, designed to teach young people about the role and importance of supply chains in everyday life, has been launched with sponsorship by the Chartered Institute of Logistics and Transport. Called Business on the Move, the game’s objective is to help children understand how supply chains deliver products to shops and homes. It is also designed to help them gain business skills and acumen to help them in their future careers in a fun and stimulating way. It uses real-life information, tasks and problem solving to help players to deliver goods from a factory in China to the UK in a timely and costefficient way.

The human factor The British Retail Consortium

All companies, including those

(BRC) is working with its members

in the retail sector, need to make

to produce a document on how

sure that they are giving the right

the industry can take steps to help eradicate human rights abuses in their supply chains. The publication will

Twitter: @dogberryTweets

information to their customers and are being open about their supply chains. We will see progress as a result.”

Supply Chain Network

look to help companies address abuses such as forced labour and

Supply Chain Matters

dangerous working conditions

www.theferrarigroup.com/ supply-chain-matters

within their suppliers abroad. They will also include a framework of human rights reporting requirements, information on ethical auditing and the various accreditation schemes available. MP Jenny Willott says: “Transparency should always

ExpertInsight

be at the heart of every business.

Supply Chain Calculator (FREE – Android)

Twenty-one of the most common supply chain equations in the palm of your hand, enabling you to calculate on the move.

Supply Chain Hub (FREE – Android)

Brings news, events, trends and statistics: an essential app for supply chain leaders wanting to keep their finger on the pulse.

This blog is run by Bob Ferrari, an independent supply chain industry analyst with experience working both in global supply chain management and in research. As well as updates on supply chain news, you’ll find Ferrari’s thoughts on global supply chain business processes and technologies.

Need experience? Then offer flexible working INDUSTRY VIEW

hy is it that, with an increasing number of people wanting to return to work following maternity leave or voluntary redundancy, so few companies are prepared to adapt their employment policies to embrace these “flexible workers”? Some highly successful corporates feel the need to create space for the progression of their bright rising stars. As such, they feel that they can retain a healthy balance of experience and dynamism without investing in more flexible working practices. However, for SMEs that struggle to attract bright and experienced talent in the first place, the returning parent or balance-seeking veteran offers huge opportunities. It may be argued that, in some business functions, part-time or project-based working is simply too much of

a burden on other team members, as they feel forced to juggle their already overloaded schedules to fit the needs of the flexible worker. However, this position, if relevant at all, should be weighed against the huge advantages of having highly capable staff bringing their breadth of experience and expertise to unlock what are often recurring challenges in the modern business environment. Moreover, the flexible worker often does not want the line management or strategic responsibilities from their previous roles and as such are happy to bring their knowledge to bear at a level where many experienced full-time employees are less prepared to operate. As such the business impact and return on investment can often exceed that of a full-time but less experienced employee operating in the same space. For the SME, this can mean the flexibility works both ways: balance for the flexible worker repaid with focused expertise and high RoI for the business.

So if your recruitment agency is once again bemoaning the lack of availability of top talent, why not revisit your employment policies and unlock the potential of a more flexible workforce? Nigel Scorey is founder and CEO of Procure4 www.procure4.com

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Supply chains

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Zara group wins major supply chain accolade By Joanne Frearson INDITEX, the clothing retailer behind Zara, has been ranked in Gartner’s top five European supply chains for 2014. The retailer has been noted for its ability to bring to market quickly new fashion ideas and having a reliable supply chain that can respond to changing needs of customers. “Inditex’s sourcing model, based on proximity production and small batches, allows the company to respond quickly to consumer demands,” the company told Business Reporter. “Two tiers of the company’s suppliers are located in areas close to the headquarters, mainly Spain, Portugal, Morocco, Turkey and other European countries. “The rest of the production comes from around 40 different countries in the Americas, Asia and the rest of the world. All merchandise, irrespective of origin, is delivered to each brand’s distribution hubs. Deliveries arrive in stores twice weekly and always contain new styles, to ensure that store collections are constantly refreshed and updated.

“The logistics system guarantees that the time between when orders are received at distribution centres and when merchandise is delivered to stores is on average only 24 hours for European stores and no more than 48 hours for American and Asian stores.” Each company in the supply chain must adhere to Inditex’s Code of Conduct for Manufacturers and Suppliers. These include no forced labour, reasonable working hours and the right to remuneration. In India, the clothing retailer has been a founding member of the Tirupur Stakeholder Forum, which brings together unions, manufacturers and companies to design programmes aimed at improving working and hiring conditions in the south of the country. It carries out audits to check that its suppliers in India are not using any exploitative employment schemes that do not comply with local law or their code of conduct. In India, Inditex is also involved in project with a local NGO aimed at creating awareness of labour and employment rights and community support systems.

Supply Chain Isn’t Rocket Science – Except When It is! Exostar Identity and Access Solutions Secure Business Tools: • For 98 Of The Top 100 Aerospace & Defence Contractors • For More Than 100,000 Organisations in 150 Countries Worldwide in Defence, Life Sciences, Finance and Government

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Betting on the black Organisations must be more risk-aware if they are to avoid dreaded black swan events. Joanne Frearson reports

UPPLY chains are delicately balanced things at constant risk of being upset – and what are known as “black swan” events can mean disaster for a businesses. Manufacturing could be delayed or even stopped altogether. Production targets will not be able to be met and companies could face huge financial losses by not being able to fulfil orders. Companies need to be aware of risks to the supply chain, says one industry figure. Firms could be affected by major events in the area in which they produce goods, says John Manners-Bell, CEO of research firm Transport Intelligence, and they need to know how many suppliers could be impacted, whether or not it is business critical, and to factor for these risks in their costing. “Risks could be a natural disaster, such as a flood or a tsunami,” Manners-Bell said. “It could be a security issue. If you are manufacturing goods in the emerging markets, there is more likelihood of corruption, cargo crime and even piracy. These are some of the major risks, which until recently companies did not cost in.” Manners-Bell, who also chairs the Logistics and Supply Chain Global Agenda Council of the World Economic Forum, advises the industry on potential risks in the supply chain. Companies need to “make sure they have

a range of alternative suppliers in place or maybe source from another location,” he says. “They can divert a shipment in process. They can fly it instead of going by sea.” One company which Manners-Bell believes has got it right in terms of managing supply chain risk is technology firm Cisco. “Cisco has focused on resilience in the supply chain over the last five years,” he says. “It has a dedicated team of people which do nothing but look at all the issues which could impact the company’s supply chains, such as natural disasters, security and political events. They monitor that around the clock. “They will know if there is a particular disaster in a part of Asia where one of their suppliers could be impacted. They are able to quickly roll out an audit team to find out where the problems are. Cisco has done a really good job in understanding which products are made by which supplier, and consequently is able to measure and ringfence a particular risk at any one time. That gives them the ability to switch suppliers to make sure there are alternative sources in place.” According to Manners-Bell, the hi-tech sector is very exposed to risk in supply chains as these are largely located in emerging markets, which tend to be more

Below: John Manners-Bell, CEO of logistics analysis firm Transport Intelligence

vulnerable to natural disasters and security corruption issues. Manners-Bell says it is important to find a “supplier that is financially robust, one that complies with practices which are expected in the developed world. You should not expect the people that work for your suppliers to work in very poor conditions. “You should expect them to have good environmental practices. You should have a supplier that is able to comply with those expectations.” Supply chains have been becoming more localised in recent years. “It is partly due to risk,” Manners-Bell explains. “Also, as production becomes more automated – the more robotics used, the increased use of 3D printing – that is all going to have an impact and make things less labour-intensive and increase productivity, which means there will be more goods manufactured in the developed world. “If you are producing goods several thousand miles away it is very difficult to make sure those goods are being produced to the right quality. In many cases the first thing someone will know about it is when goods come out of a container at a UK distribution centre – and then, of course, it is too late to do anything about it.”

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The future Difficulties in establishing successful partnerships Freddy Heineken, beer mogul I consider a bad bottle of Heineken to be a personal insult to me

Supply chains Industry view

Business Zone

“

very business relies on its ability to trade successfully with both customers and suppliers and yet many struggle to build lasting partnerships beyond the transaction-level relationship. Industry sectors vary in their ability to manage this aspect of the business, some well, some not so. The automotive sector has learned to collaborate on engineering-based initiatives such as total quality and advanced production techniques to the benefit of all. The better suppliers have then gone on to develop better products and innovate in areas of common interest, again to the benefit of all. In this sector, suppliers also innovate and collaborate together to ensure that new technology works when integrated with other components. Without this, the modern automobile would exhibit the poor quality and reliability of vehicles made in the 1970s and 1980s and without the modern technology that’s enjoyed today. If we consider grocery retailers – businesses highly reliant on the quality, integrity and competitiveness of suppliers – they have generally built a reputation of tough negotiation on price in return for volume, thus allowing manufacturers and producers some comfort of at least maintaining a business, albeit at a low margin. Some are trying to collaborate more closely with suppliers, whether it’s to tackle food waste reduction, better delivery scheduling or promotions planning

– inevitably though conversations are hampered by commercial squeeze. For the collaboration/partnership to work both the supplier and grocer must benefit financially. There are of course risks to such collaborative working, such as in intellectual property (IP) protection, the retention of key talent and commercial confidentiality. While all are commonly protected under contract we see regular cases brought for infringement, no more so than in the hi-tech sector where the brightest screen or functionality can be a market changer. The temptation to copy rather than innovate is all around when the stakes are high. The movement of key people is more difficult to protect – a key

designer or innovator may be paid to stay and do something else rather than lose them to the competition. Keeping hold of the best people because they want to stay to make their organisation the best is tough and not only financially driven. The desire to design the best, produce the best or be the fastest is seldom driven purely by financial gain. Creative and entrepreneurial autonomy usually drive the best innovators, perhaps why large organisations rely on smaller suppliers to drive creativity and innovation. Tim Waters is senior director and supply chain lead, Alvarez & Marsal +44(0)20 7863 4743 twaters@alvarezandmarsal.com

In focus: The one-stop shop for all

your infrastructure requirements

xostar’s Community Cloud model is built around an Identity Hub that combines easy access for users with high security and accountability. This Identity Hub is the foundations for complete managed identity services that operate in the cloud, enabling large, global networks comprising thousands of companies. The Exostar Identity Hub offers a connectonce architecture for organisations and their applications, providing the underlying infrastructure necessary to deliver identity

and access management services for any partners in the community. This secure access is the key to enabling solutions such as Exostar’s Supply Chain Platform, a

comprehensive, hosted solution that enables visibility of operations and supply chain performance throughout multiple partner tiers. Unlike traditional in-house applications, Exostar’s Supply Chain Platform takes information from all participating organisations, making it easier to align supply chain execution with demand. Organisations can achieve the necessary level of process integration to eliminate potential shortages, reduce obsolete inventory, track deliveries, proactively evaluate exceptions,

and automatically trigger replenishment cycles. The solution provides a real-time, end-to-end picture of supply and demand performance with built-in decision support tools. With Exostar’s Supply Chain Platform, manufacturers, integrators and MRO providers realise their globalisation and outsourcing strategies while reducing risk and improving agility with visibility of operations across their extended supply chain. 07849 829 754 stuart.robertson@exostar.com

Why your competitors might be paying suppliers early For the last 10 years the business case for supply chain finance has been simple. Take one FTSE 100 company, extend supplier payment terms to 90 days, add cheap supply chain finance to soften the blow for suppliers, and bingo: cash increases by £50million overnight. Whether or not suppliers actually use the programme is immaterial – the buyer has achieved their objective. With alternative finance offering smaller, flexible payment programmes to dynamic UK companies, exciting new uses for supply chain finance are emerging. When all the major retailers are stretching their payment terms, fast-growing retail start-ups are using supplier finance to fund short payment terms and securing an advantage through settlement discounts from global brands that most of their competitors wouldn’t believe. Switching supply contracts for raw materials from middlemen to the production source can yield significant savings. Usually this has a cash impact, with up-front payments being required. However, when combined with supply chain finance procurement savings can be achieved without upsetting finance. Finding quality artisan suppliers gives larger companies a unique offering, but how do you make sure that they can grow with you? Successful companies are partnering with supply chain finance providers to ensure that their key suppliers have the funding they need. There are those who would say that paying suppliers on short terms is simply the right thing to do, but fast growing companies are not sitting on a cash pile, they are investing for growth and this benefits the whole supply chain. Supplier finance programmes support growing supply chains. Mark Coxhead is MD at Woodsford Tradebridge woodsfordtradebridge.com

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The debate What are the biggest threats facing supply chains over the next 12 months?

Trevor Long

Toby Munyard

Stuart Robertson Director Exostar

Associate Oliver Wight EAME

Remarkably, the biggest challenge is convincing brands of the potential to shift cost-cutting efforts to focus on cost of distribution and away from cost of manufacturing. New cloud-based technologies have changed the equation. For years, manufacturers and brands have worked to reduce cost of manufacturing to reduce the net landed cost of goods and succeed in increasingly competitive marketplaces; as this strategy reaches its limits, companies increasingly turn to the often more rewarding opportunity to reduce cost of distribution. When their cost of distribution represents a significant portion of their net landed cost of goods, some of the world’s top brands are putting cloud-based automation technologies in place to quickly boost shipping efficiencies. These companies are rapidly achieving 10-30 per cent reductions in net landed cost of goods without renegotiating rates. We must raise awareness of the immense opportunity to reduce costs through the supply chain.

The conflict between supply and demand will become a key challenge for companies over the next 12 months. Since the 2008 economic crisis, the balance between supply and demand has been equalised, with the reduction in material output and produced components and the mothballing of facilities. As a result of this, and as global demand begins to increase, there is likely to be a shortage in supply and scarcity of materials. Businesses will need to manage their supply chains and relationships with suppliers early to ensure that when suppliers are making choices they are at the forefront of their minds. The development of supplier management programmes over the next 12 months will ensure that the influence businesses have over suppliers’ decisions is not only associated with price. The programmes will also aid in developing a relationship that not only brings their supplier closer to them but also manages supply chain risk.

We believe one of the most important concerns in supply chains now is the issue of supplier disruption and product availability. One key to mitigating this risk is insuring seamless connectivity to all trading partners through a managed solution. Exostar’s “Community Cloud” model was designed to ensure customers have full transparency into their supply chain without compromising security. This level of integration requires a much tighter level of information security and is often subject to government standards as well as company procedures and audit controls. It means that system-level access and authentication must be rigorous and specific to the individual. Achieving secure collaboration across multienterprise supply chain platforms requires specialised technology such as extensive identity access management and multi-factor authentication.

The consumer is king, and the king is fickle. Today’s big challenge is optimising the supply chain to stay ahead of ever-changing trends. Too often optimisation is to a presumed fixed-demand pattern but planning over a 24 to 36 month horizon will reveal future changes in demand and allow businesses to prepare for them well in advance rather than trying to respond to variation in the short term when it’s too late. There’s a similar challenge with analytics, which will play an increasing role in understanding cause and effect for demand and supply variation. But beware, this only works for organisations which already have real control over their processes; the analysis is wasted if you are unable to act on it. So processes first, then analytics. Finally, aligning the supply chain to meet (segmented) demand in the most profitable way is key: it’s easy to be agile with inventory, people and transport to spare. Being profitably agile? That’s more difficult.

Growth is a double-edged sword for businesses. It consumes vast amounts of cash as debtors and stock levels grow, and if suppliers let you down it can be catastrophic. In sectors such as construction, economic growth periods can be as dangerous as downturns. This is a problem that is made worse by the availability of finance to many SME suppliers remaining tight. Innovative UK companies are now using supplier earlypayment programmes to address this risk, funded by a new breed of alternative finance providers such as Woodsford Tradebridge. Construction companies paying early to ensure they remain the “customer of choice” for the best sub-contractors. Fast growth retailers providing key suppliers with supply-chain finance to help them meet rapid volume growth. Service companies winning work on extended terms backed with a new source of working capital for their supply chain.

www.oliverwight-eame.com

woodsfordtradebridge.com

Sales director Eyefreight

ExpertInsight

+44 (0)7867 474 310 t.long@eyefreight.com

Vice president Efficio

www.efficioconsulting.com

07849 829754 stuart.robertson@exostar.com

Stewart Kelly

Mark Coxhead

Managing director Woodsford Tradebridge

Finding a better solution for SMEs How to access working capital at any point in the supply chain

ash or credit terms to bridge the gap between paying a supplier for goods or services and receiving payment from customers is vital. Without it, a business will often struggle to thrive. This is especially true for SMEs, for whom traditional solutions are increasingly difficult to find from banks. They can also tie up assets and are frequently complex and bureaucratic to operate. TradeRiver is an online funding solution that provides trade finance for SMEs, allowing them access to unsecured working capital at any point in the supply chain. It works by providing a buyer with a pre-approved revolving facility that can be used to

finance trade with multiple suppliers – allowing buyers of goods or services to become cash buyers at any point agreed with its suppliers – anywhere in the world. Payments and administration are paperless and transparent via a secure online platform. As CEO and co-founder, Richard Fossett says: “TradeRiver has attracted a fast-growing number of businesses looking for an alternative or additional source of finance and our buyers and suppliers enjoy a level of flexibility and speed that simply isn’t available from traditional bank-based finance.” While around half of TradeRiver’s transactions are between UK companies, the solution is proving particularly attractive for those with overseas suppliers and offers importers a solution which otherwise would often not be available to them at all. Fossett adds: “The advent of fresh ideas, modern technology and the recent banking upheaval has led both to an increasing

number of new solutions – and of those who need them. Our challenge at TradeRiver now, of course is to reach those who need our solution, but who are perhaps unaware it exists.” But with TradeRiver’s SME funding growing at more than 10 per cent per month, it is clear the message is spreading quickly. 020 7788 7690 www.traderiverfinance.com