Supply Business September 2013

RESHORING WORKING ABROAD

The supply review for business leaders

UNCONSCIOUS BIAS RIO TINTO CEO SAM WALSH

SUPPLY BUSINESS

SUPPLYBUSINESS SEPTEMBER 2013

SEPTEMBER 2013 VOLUME 1 NUMBER 4

INTO THE UNKNOWN VOLUME 1 NUMBER 4

Think you’re being fair in your decision-making? Why CPOs need to confront unconscious bias

INSIDE Rio Tinto CEO Sam Walsh | Reshoring | Top 10 supply chain trends P00 SB4 Cover 2.5mm SS1.indd 1

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BRIEFING

Rolls-Royce to drive down costs Global manufacturer RollsRoyce is planning to cut its unit and supplier costs to widen its profit margin.

In the business’ half-year results, the company reported while underlying profits had increased by 34 per cent, it had suffered a pre-tax loss of £491 million, owing in part to losses from hedging commodities. To rectify the loss, the company pledged to do more to reduce its cost base.

John Rishton, chief executive at Rolls-Royce, said in a statement: “It is clear we have a lot more to do on cost (and cash).

Fortunately we have significant opportunities to improve both, but this will take time and firm resolve.”

Photography: Bloomberg

Premier to rationalise its supply chain Food giant Premier Foods is to axe half its 3,300 suppliers and seek a better deal from those it keeps on. The move is part of a drive to ‘reduce complexity’ in the business and save £10 million in the second half of the year.

Richard Johnson, corporate affairs director, said: “We see 3,000 plus suppliers as being too many.

We appointed a new CEO six months ago and one of his priorities is to reduce complexity in the business still further. That has many parts, one of which relates to suppliers. We’re going to halve the number of suppliers by the end of 2014.

In addition, we are asking our suppliers to contribute to the ‘invest for growth’ programme. We want a signal of supplier commitment to help us to grow the business.”

Over the past six years Premier has cut its suppliers by 74 per cent as it strives to reduce its substantial debts, currently standing at £890 million – down from £1.3 billion last year.

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Natural disasters like Hurricane Sandy can test the resilience of supply chains to the limit

ROUND-UP

MAKE YOUR SUPPLY CHAIN WATER-TIGHT The seven factors of supply chain failure Companies are finding it increasingly difficult to control their supply chains and the cost of failure is higher than ever, according to Airmic, the association for risk management professionals.

It’s claimed that supply chain failures are leaving firms’ reputations in the hands of suppliers because they don’t understand how they operate or have inadequate risk management strategies in place.

Airmic technical director Paul Hopkin, said: “The relentless pressure to cut prices has led to the creation of supply chains of mindboggling complexity and business models that it seems

no-one properly understands how they work.”

The report identified seven underlying factors that tend to be present whenever supply chains go wrong.

These are: 1. Offshoring, making adequate monitoring increasingly difficult 2. Increasing complexity of supply chains 3. Cost pressures 4. Geographic clustering, making manufacturers vulnerable to a localised disaster 5. Modern communications, which can quickly damage reputations 6. Just-in-time production methods 7. Dependence on multiple suppliers.

Gartner: demand planning is key Businesses with mature demand planning and supply strategies are best placed to capitalise on opportunities from emerging markets, according to research.

Supply Chain Strategies for Emerging Markets, published

by Gartner, proposed that businesses attempting to capitalise on demand from emerging markets can gain a competitive advantage by strengthening their supply chain operations. It highlighted demand planning as key, with those businesses with accurate forecasts better placed to align their supply chain to demand.

The report said CEOs of global companies are split on the maturity of globalised supply chains, with 51 per cent believing them to be more complex and brittle than before and 49 per cent saying they have never been more resilient. The finding, according to Gartner, indicates businesses should look to build supply chains with global scale, but local flexibility.

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Corporate virtualisation Firms across the globe are spending an increasing amount on third-party suppliers as the trend for ‘corporate virtualisation’ grows.

The study, by procurement outsourcing firm Proxima, also concluded that reducing supplier costs, rather than cutting jobs, is the most effective way to boost profitability.

The survey provided more evidence of “corporate virtualisation” where companies externalise non-labour functions.

The study surveyed 2,000 publicly traded companies in 58 countries and 16 industry sectors. Just under 70 per cent of revenue is spent on nonlabour costs. Labour costs accounted for less than 20 per cent of revenue in nearly half of the companies. Companies have increased their external spend as a percentage of revenue by nearly 4 per cent in the last three years.

Proxima also calculated that a 1 per cent reduction in non-labor costs would equate to a 4.1 per cent uplift in EBITDA. This compares with a 0.7 per cent boost from the same reduction in labour costs.

Unauthorised IP poses supply risk Global companies are being urged to acknowledge the increasing risk of the use of unauthorised intellectual property (IP) by their suppliers.

Law firm White & Case warns patents, copyrights, utility models, software and trade secrets which have not been authorised by the lawful owner or paid for by the company are finding their way into supply chains. One of the most common breaches of IP is the use of non-licensed software.

White & Case say the risk is particularly high for firms with an Asian-based supply chain.

The region is quickly emerging as the world’s largest producer of unauthorised products, according to the Organisation for Economic Cooperation and Development.

UK optimism over expenditure The proportion of UK firms expecting to increase their capital expenditure has doubled in the space of six months, according to a survey.

A poll by Edison Investment Research of 200 medium-sized companies shows 56 per cent predicted more capital expenditure over the next year, compared with 23 per cent in January. Optimism has also increased, with 41 per cent expecting growth in the UK over the coming 12 months, against 37 per cent earlier this year.

Similarly, 69 per cent feel positive about the coming year, up 4 per cent on January.

Respondents felt most positive about growth in Asia, while confidence in the Eurozone has fallen, with 17 per cent expecting growth, down on 26 per cent six months ago.

Buyers ‘should rank suppliers’ Buyers dealing with high numbers of suppliers should rank them according to their strategic importance, according to an expert. Lutz Peichert, speaking as part of an SB webinar, said a survey of sourcing professionals showed 28 per cent dealt with more than 500 suppliers. “The volume of suppliers that needs to be managed requires a set of focused activities,” he said.

Peichert, vice president and principal analyst at Forrester Research, recommended dividing suppliers into those that are ‘substitutable’, ‘required’ and ‘strategic’.

During the Using spend analytics for supplier categorisation and management webinar – held in association with Zycus – Peichert said spend analysis provided the tools to sort vendors into those groups and then move on to demand consolidation and preferred supplier management.

View the webinar: bit.ly/sbwebinaraug13

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Executives, the public and politicians on matters of business, procurement and supply

Sound bites

“Continuing to support responsible factories with our business is the right thing to do.

Abandoning them would be disastrous for the manufacturers we have invested in and the thousands they employ, predominantly women with families to support.”

Guy Russo, managing director at Kmart Australia, explains why the retailer will continue to source and support suppliers from Bangladesh.

“Be enthusiastic about what you and your company do. If you don’t believe what you’re doing is going to make a difference, why should your supplier?”

Charles Bamlett, head of procurement at Infiniti Red Bull Racing, advises how buyers can act as the ‘face’ of their organisation.

“Tony Brown is a world-class business leader who has helped transform Ford’s relationship with our global supply partners. His leadership and dedication to working together have helped Ford and our supplier partners emerge from the recent global transformation of the auto industry well-positioned for future growth.”

Ford CEO Alan Mulally pays tribute to CPO Tony Brown, who retired in August.

“The danger is that an emphasis on near-term, operational issues comes at the expense of significant, strategic decisions that have previously exercised business leaders.”

Lloyd’s of London chief executive Richard Ward cautions against short-term thinking, as the price of inputs enters the company’s ranking of top five global risks.

“There are examples of good contracting and bad contracting. The more general point is that the civil service needs to have more expertise across the piece on this.”

UK prime minister David Cameron tells MPs that problems with public contracts must be addressed.

“As supply chains become a key differentiator and an enabler of business growth, talent acquisition and retention assumed high priority. In addition, most organisations adopted either a hybrid or local leadership model that effectively addresses the cultural differences between various countries.”

Gartner research director Debashis Tarafdar explains what sets the best Asian supply chains apart.

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OPINION

EXECUTIVE COACH

DICK RUSSILL Need advice? Send your questions to editorial@supplybusiness.com I am studying the evolution of portfolio models, starting from Kraljic’s portfolio analysis. What developments have occurred since then?

It’s been said that: “In a landscape bereft of anything to dispel the idea that procurement requires more than the back of an envelope to work on, Kraljic’s portfolio analysis has to be welcomed as a step in the right direction.”

This review appeared shortly after Peter Kraljic’s paper appeared in the Harvard Business Review (September, 1983) as an oasis of cool thinking in procurement’s intellectual desert. Its genius was to hold a mirror to real life, reflecting procurement’s diverse impact on business performance.

While Kraljic may not have invented the four-box grid, he used it to stake out the importance of purchasing versus the complexity of supply markets which, hitherto, may have been regarded as flat earths where everything was competitively priced and customers were always kings. In later discussion with Kraljic it was revealing that he thought procurement’s greater purpose was to evaluate supply risk, and then to develop strategies to manage it.

Analytical models have evolved since Kraljic’s breakthrough but these have been more about refinement and broader application, aided by IT, rather than new conceptual territory. While useful, their evolution has been faster than the development of a genuinely strategic mindset about procurement in business as a whole. This remains a challenge.

Procurement is still too wedded to cost savings. While refined tools and organisational structures have helped, it is possible their sophistication has made procurement seem an increasingly complex technical function.

By contrast, Kraljic’s paper got us thinking about what we were doing when spending the firm’s money. The abiding challenge is that we must do more than just save it.

I saw that firms pay only ‘marginal attention’ to supply chain risk (bit.ly/smriskreduction).

What do you make of this?

A recent report did reveal that 60 per cent of the firms surveyed pay little heed to risk-reduction

things to luck will never impress City analysts, but being agile and better than competitors at handling the unexpected will be the next capability for mature companies to develop over and above flexible supply chain mechanics.

“It is the pain involved that makes the cure such a positive and lasting one” processes. However, more powerful revelations came from a core of ‘mature’ companies. These are mature in the sense of using highly-developed best practices, rather than being past their sell-by date.

With high-class supply chain management and risk management capabilities, they outdo the rest by several financial and operational KPIs. Notably, EBIT margins were 17 per cent better. This positions procurement risk management as a driver of superior business performance rather than as an insurance burden.

During supply chain disruptions the better firms exhibited more resilience, deriving this from flexible and focused supply chain structures along with performance measures concentrating more on what the firm is there to do rather than managing what it has become. But, in this survey and in general, little is said about how to create a can-do flexible company culture that turns negatives into positives and is more likely to ‘get lucky.’ Leaving

‘Talent, smarter growth and attaining the next level of performance are the three standout issues for supply chain leaders this year.’ Surely the first two are precursors of the third?

These are the priorities of leading CPOs as determined earlier this year, and we assume such groundbreakers seek transformation rather than incremental improvement. Their efforts so far will certainly have delivered results but they have probably gone as far as they can go as a high-impact function, connecting with others but not necessarily converting them. This requires changed egos and mindsets. The project that delivers this is business transformation.

But what makes transformation different from improvement? Primarily, it changes the culture of the company. Ambition levels increase, producing ‘can do’ pioneers. This demands less hierarchy and more trust; liberated creativity; blame exchanged for enlightened tolerance; and box-ticking replaced by intelligent accountability.

The good news is that this becomes reality when a procurement-change template is followed. Results extend beyond costs and supply chains. You can see this when person A’s behaviour is not only directed to achieving their own targets but is also considerate of its impact on other people’s. Personal agendas give way to thoughtful, joined-up performance.

As one global company’s president put it: “The procurement process is a microcosm of the business. Transforming it achieves direct cost reductions and benefits the culture and performance of the business overall. It is the pain involved which makes the cure such a positive and lasting one.”

DR RICHARD RUSSILL is a business coach, presenter and author specialising in supply, cost and relationship management (www.russill.com)

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OPINION

TOOLS OF OTHER TRADES

MIKE CARSON Football is now big business. But what can managers of the beautiful game teach big business about building a high-performing team? n football – as in business, government and all places where significant tasks fall to teams of people – leadership is a complex challenge. Whether a team is in football or a global corporation, the core leadership challenges remain the same. One challenge is creating a high performing playing team. There are seven mindsets and behaviours needed in a high performing team, football style.

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1. Collective belief Tottenham’s André Villas-Boas strives for collective belief by emphasising the equal value of every individual to the team: “At Chelsea and at Tottenham I’ve had to explain that when I encourage the group it’s not because I don’t want to praise an individual – it’s because you want the players to understand that the group is more important than anything. Within that, I want them to understand they are all important.”

2. Selflessness In a high-performing team, the players play for one another. Former Manchester United manager Sir Alex Ferguson said: “The essence of a good team is recognising the qualities of each other, and the weaknesses of each other too. On a given day I always think if eight players are playing well, then you’ve a great chance of winning the match – and sometimes maybe you’ve got to carry one or two players. Pulling together when that happens is the essence of teamwork.’

Photography: Empics

3. Excellence When Kevin Keegan arrived at Hamburg as a player, he had a tough beginning, but he was struck by the club’s commitment to excellence: “The first six months were horrendous. The players didn’t really

want to know me. I knew I could play, and I knew I would get through once I was given a fair chance. I learned the language so I could communicate and have a laugh with them. Then I saw it was much more professional even than we were at my previous club, Liverpool. The German players were very disciplined. So I got very fit, and we won the championship.”

Tottenham Hotspur manager André Villas-Boas bends over backwards to stress a team ethic

4. Motivation Excellence becomes in itself a motivation. French manager Gérard Houllier said: “If that winning mentality is in you, then once you have won something it becomes like a drug – you want to win again, and again, and again. I remember when I was managing at Lyon and we knew halfway through the season that we had won the title. No team had ever won La Ligue in France with more than 80 points. We managed to do it in two consecutive seasons.”

MIKE CARSON is an executive coach and a consultant on organisational behaviour

that, you have to get the board to get rid of him as quickly as you can. If you can bring him back, then you are doing OK.”

6. Clarity Keegan again: “Everybody needs to know what’s expected of them and where the parameters are. At Liverpool it was so easy because you knew what you could get away with and you knew what you couldn’t get away with, so you knew exactly what your job was.”

5. Personal commitment In a high-performing team, individual commitment to the team is strong. West Ham manager Sam Allardyce said: “In the playing team we would have a good number of what we call ‘players’ – people the

“I encourage the group because the group is more important than anything” leadership can look to, people who will lead others. Then there are the ‘followers’ – people happy to commit to the team and go with the players.

But then there would be a couple of ‘saboteurs’. Generally, the saboteur is a good player who just has a bit of a problem. Maybe I’ve left him out for a while, or for some reason had a contract fall-out. If you can’t resolve

7. Positive response to pressure Great teams respond to pressure as one. Former Tottenham manager Glenn Hoddle recalled the 1981 FA Cup final where his side took Manchester City to a replay. “We had to learn from that first match – we knew we had to change. We had a real open discussion from that. We got there as a team, we played well as a team, but on the big occasion we started to fragment. We all wanted to be the man of the match, and in a team sport that won’t work.” His side took the pressure on board as a team and won the replay 3-2.

Extract taken from The Manager

by Mike Carson, published by Bloomsbury in association with The League Managers Association (LMA).

Sponsored by Barclays & Deloitte (Hardback £16.99; eBook £14.99).

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ANALYSIS

NEW DAWNS

10 GAMECHANGING SUPPLY CHAIN TRENDS University of Tennessee’s J Paul Dittmann reveals the key factors that will have a major impact on profit and shareholder value onsulting companies, academics, and even individual companies have their own opinions about and definitions of supply chain ‘mega trends’. Often, these mega trend lists do not match; instead they reflect the backgrounds and experiences of the people who compile them.

A recent University of Tennessee white paper defined game-changing trends as those trends that meet the two basic criteria of having a major impact on a firm’s economic profit and shareholder value, as well as being very difficult to implement successfully.

The 10 game-changing trends discussed in the white paper

Photography: Getty

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have their foundations in a research study conducted in 2000 at Michigan State University co-authored by Don Bowersox, Dave Closs, and Ted Stank - 10 Mega Trends that will Revolutionize Supply Chain Logistics. With that as a foundation, in late 2012 we surveyed more than 160 supply chain professionals to assess these same 10 trends in industry today, as well as the how they have changed. The survey included supply chain professionals across a wide range of industries (retailers, manufacturers, service providers, both large and small).

With that input, eight members of the University of Tennessee’s supply chain management faculty

Big data and business analytics is just one key area where there has been dramatic change

collaborated to write the white paper. The 10 trends aligned perfectly with the research of these faculty members. The authors also tapped our experience with industry leaders through our global forums, executive education and consulting.

Not surprisingly, we found the supply chain world has changed drastically over the past 13 years. In the white paper, we discussed the game-changing supply chain trends as companies face them today, and suggested how to make progress towards the desired end state. We also use plenty of examples along the way.

When a student once asked Albert Einstein if that

“Leading companies are leveraging big data and new demand sensing approaches to better forecast demand”

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Summary of observations from the study Firms have made significant and, in some cases, surprising progress in the past decade in each of the 10 areas.

Some companies have achieved top levels of performance in individual categories, although no firm has excelled in all categories. 13 years ago, no one reported a top level of performance in any category.

There are laggards in each category as well. These firms appear to be fighting the same battles in the same way.

Respondents feel most progress has been made in customer relationships and cross-functional integration. Firms seem to be better at focusing on their customers outside the firm, and shoring up the emphasis on cross-functional processes inside the firm.

Talent management clearly emerges as the linchpin required for advancement in all areas.

year’s physics exam questions were the same as the previous year’s, he responded: “Yes, but unfortunately for you the answers are very different.”

Our game-changing trends are like those questions.

We still see some of the same supply chain trends, but the real world’s responses to them have become dramatically more sophisticated.

What follows is a brief synopsis of today’s leading thinking about 10 game changing trends in supply chains:

1. Customer relationship management Leading companies are successfully segmenting their products and customers and

developing tailored supply chain solutions for each segment. This approach allowed one firm to eliminate nearly half (48 per cent) of its inventory while improving on-shelf availability from 96 per cent to nearly 100 per cent.

2. Collaborative relationships A win-win collaboration between supplier and customer may be rare, but it can produce amazing results. These collaborations should be built on a foundation of common metrics, shared benefits, and trust. OfficeMax collaborated with its supplier Avery Dennison to dramatically increase revenue

by more than 22 per cent, drive product availability to more than 99 per cent, significantly decrease inventory by 34 per cent, and save more than $11 million in logistics costs.

3. Transformational strategy Only 16 per cent of firms have documented, multi-year supply chain strategies yet developing these strategies can produce spectacular results. Whirlpool used a transformational strategy to deliver record-high service levels while decreasing inventory levels by more than $100 million and logistics costs by $20 million.

4. Process integration Of great concern to supply chain organisations is the functional silos that still exist and disrupt supply chain performance. One opportunity that can have tremendous impact is integrating purchasing and logistics. Although both functions are traditional supply chain functions, the research confirmed significant payback when these two areas align their objectives and operating plans.

5. Driver-based metrics Simply changing the performance measurement and goal-setting system inside a firm can greatly enhance the overall performance of the supply chain. Procter & Gamble applied this concept and dramatically increased customer service levels, market share and sales.

6. Information sharing and visibility Firms are changing the game by sharing and linking together masses of information from multiple sources (also referred to as ‘big data’) and interpreting the data using business analytics expertise.

7. Demand management No one buys a company’s stock

because of the company’s ability to forecast. Yet, increasing forecasting accuracy along with integrating the demand and supply functions across the supply chain can drive higher revenue, lower working capital and decreased costs. Leading companies are leveraging big data and new demand sensing approaches to better forecast demand.

8. Talent management Talent management is the number one requirement for transforming a supply chain.

Critical competencies in hiring top supply chain talent include global orientation, leadership and business skills and technical savvy.

9. Virtual integration One of the fundamentals of a great supply chain is for a company to stick to what it does well – its core competencies – and leave the rest to world-class service providers. When outsourcing, firms should create a win-win vested outsourcing framework with their service providers.

10. Value-based management Supply chain excellence holds the key to creating shareholder value. On average, the supply chain controls 100 per cent of the inventory, manages 60 to 70 per cent of cost of goods sold and provides the foundation to generate revenue by delivering outstanding availability.

J PAUL DITTMANN is the executive director of the Global Supply Chain Institute at the University of Tennessee, which recently published the white paper Game-Changing Trends in Supply Chains, sponsored by Ernst & Young and Terra Technology. The report can be downloaded free of charge from utk.edu/go/g7 SEPTEMBER 2013 SUPPLYBUSINESS 21

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COVER STORY UNCONSCIOUS BIAS

MIND GAMES

Unconscious bias affects us all. That’s why CPOs need to be aware that any assumptions or ‘gut feelings’ need to be assessed critically. Rima Evans reports Illustration by I A N D O D D S

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hat’s the link between an optical illusion and your processes for supplier selection?

It’s not a trick question, the first really can be demonstrative of the other.

In an illusion, what we think we are seeing is not what’s there. There are unconscious interferences by the brain, which fool the senses so we see only an interpretation of the world.

In terms of supplier selection, the processes being put in place to ensure the right fit for a business may also be being compromised because of unconscious interference, or more specifically unconscious bias. The result may be that selection of a supplier is driven less by fact, but by prejudice. The supplier may not have been evaluated as objectively as

believed. In other words, what you think you are seeing is not what’s there.

The point is more effectively demonstrated in a YouTube clip (see bit. ly/1d7zcn1) about unconscious bias.

Harvard University psychologist Mahzarin Banaji shows an audience two images of a table that is identical in shape and size but where one appears to be narrower and longer than the other. “It’s not magic, “ Banaji assures the audience. “This is real perceptual illusion.”

She proceeds to prove both are the same size and shape by overlaying on both the images, in turn, a transparency with a coloured rectangular shape drawn on it.

The shape fits both images perfectly.

Banaji adds: “The image of the two table surfaces on your retina is identical but your mind overextends one of them. I use this illusion to often make the case that

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UNITED STATES

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oing overseas is not the panacea that it was thought to be just a decade ago. So argues Tobias Schoenherr, assistant professor at Michigan State University’s department of supply chain management. “Companies have realised the challenges and are moving back to the United States,” he says.

Schoenherr co-authored a study that found 40 per cent of manufacturing firms believe there is increased ‘reshoring’ from countries such as China and India. The trend is being led by aerospace and defence, industrial parts and equipment, electronics and medical supplies.

The study also found 38 per cent of companies indicated that their direct competitors have reshored. The study, sponsored by the Council of Supply Chain Management Professionals, was based on a survey of 319 firms.

Adding weight to this research, a flash poll at this year’s Institute for Supply Management annual conference found that 30 per cent of 575 attendees surveyed were “likely” or “very likely” to reshore some sourcing in 2013.

Reborn

in the

But what is reshoring?

There are a number of confusingly similar-sounding terms being thrown around regarding manufacturing returning to the US, so let’s start off with some definitions:

Photography: Getty, Shutterstock

Backshoring/Onshoring/Reshoring – the recall of jobs from cheap-labour countries back to the home country Insourcing – taking work back from contractors; domestic or foreign Offshoring – moving jobs outside the country where the company is based Outsourcing – sending work to outside contractors; domestic or foreign Nearshoring – moving work closer to customers, yet not back to the home country (think Mexico for US firms) Effectively, what we are talking about is bringing manufacturing jobs back to the US that had previously been moved to other countries for a variety of reasons.

These reasons were primarily cost. Labour costs (wages and benefits) had been so much lower in certain other parts of the world that firms thought it made economic sense to send manufacturing work to these locations.

This is exactly the economic environment the US should be reshoring in. Why? The country needs the jobs. It is estimated that reshoring will create three million jobs in

Increasingly, US firms are moving, or considering moving, their manufacturing operations from overseas back to domestic soil.

Daniel Feiman examines the arguments for and against, and if the trend will continue

manufacturing and four to five million extra multiplier-effect jobs for companies that supply materials and services. This will help to bring down the unemployment rate.

There exists a large pool of qualified and available talent in the country ready to take on the challenge. Over the past 10 years, US manufacturing wages have been relatively flat while those in China have been increasing at 10-15 per cent per year, compounded. This means by 2015 wages for Chinese and US manufacturing workers will be the same. The labour cost incentive to offshore is gone.

Additionally, there is a consistently growing demand in the US marketplace for products ‘made in America’. And it is time to give it to consumers. Another important point not to overlook is this is not a sudden change, it has been coming since 2008.

Lesser known drivers include the opportunity to expand exports using existing port capacity, high oil prices, increasing transportation costs, global political instability and bringing manufacturing close to customers to be more responsive.

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Two studies tell the story. One by Boston Consulting Group stated 37 per cent of firms with sales over $1 billion and 48 per cent of firms with sales greater than $10 billion are reshoring. The other, an MIT study, estimated 14 per cent of multi-nationals plan to reshore, while 33 per cent of them are considering it.

What are the advantages?

For those firms considering reshoring there are at least 21 compelling reasons to do so. We can divide these into four categories: operational, financial, marketing and other.

Operational Some of the operational advantages include improved quality control because you can oversee the actual production. This leads to both shorter lead times as well as the ability to react more quickly to changing customer needs. With the trends toward ‘mass customisation’ and constantly evolving customer demands this will only increase in necessity in the future.

A positive unintended consequence of the ‘great recession’ was that many firms had to learn and implement both lean and continuous process improvement

techniques to lower their operating costs and increase their efficiencies to survive.

Sustaining these improvements has resulted in some of the higher productivity levels in history in the US. High productivity equals lower costs-per-unit.

When your firm produces domestically, communication within the organisation is improved. With everyone sharing the same primary language they can discuss challenges more easily and more quickly to resolve them. Training is more effective resulting in quicker application and greater productivity. Critical processes SEPTEMBER 2013 SUPPLYBUSINESS 39

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IUNDERCOVER A N C I D CPO ER A head of procurement at a large global business gives his reflections on corporate life

Dearth of a salesman n recent weeks I have had some esoteric discussions in pubs – from supply chain risk and who should own it in corporate life, to does procurement (using the language of the boardroom) create a false impression of fit for purpose?

Perhaps more on those questions in future musings.

However, I recently played agony aunt to a sales director. His plaintive cry was a lament that could be echoed in many procurement teams. He simply didn’t feel he had enough people to do the job, to meet the next set of targets. This sounds familiar, I thought. He continued: “How can I cover the bases, increase my strike rate and lift revenue, with so few people?”

Then it all started to come tumbling out – his sales guys’ despair when they hear that procurement is running the event for a target client. “They lack the big ideas”; “It’s all process and no value”; “How often can procurement just look to slice out margin?”; “Procurement just increases the cost of acquisition”.

As he warmed to his theme, a thought flickered into my mind: was this a job for procurement? Funnily enough it was. I don’t mean trying to manage the sales director’s perception of procurement, but helping him understand what procurement is doing and how it could – in understanding this better – provide improved responses to requests for proposals.

I ended up running a series of training sessions on e-auctions, game theory and what is procurement really looking for in tenders. This had the very clear aim of helping the sales teams improve their strike rate on tender responses. Helping them to differentiate between answers that were necessary, because they addressed the hygiene factors embedded in the culture of the target organisation, and value-add responses that enabled the sellers to position themselves above the competition.

Getting it wrong means being disqualified because you didn’t answer the question in the tender. Getting it right means decision-making in your favour becomes easier.

It crossed my mind that I could create an equal list of generic and convenient truisms about sales from procurement’s point of view. I suspect it would have be equally myopic. The point I make is really about procurement’s ability to create value in some interesting ways for business, with a little imagination.

Illustration: Rob Ball

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This brings me to recent survey reported in the June issue of Supply Business. In this study on business value and profit margin, in companies where CPOs “rose to the challenge” (in the words of the study) to contributing to strategic objectives, the improvement in profit margin was 7.12 per cent, compared with 5.83 per cent for the worst performers (very precise figures, don’t you think?).

I found myself asking what on earth does rising to the challenge mean? Were they not doing something beforehand when they suddenly decided to do something very different?

Don’t get me wrong, being able to quantify the actual contribution of procurement in corporate life is great, but I wasn’t entirely convinced that the 2 per cent differential sounded impressive. But without knowing the industries under consideration, I may be missing the point.

What I would have loved to have seen was the full list of activities procurement was engaged in (in the best performers) to achieve this value creation. My guess is there were some great procurement activities because of imagination, aspiration and corporate alignment, outside what is considered the norm for procurement.

A different study referred to, stated that procurement doubled the value add – which appealed to my own sense of worth. So, which is it – 2 per cent or 50 per cent?

This does seems to leaving a huge range for movement.

I suspect in reality it reflects the maturity of procurement within the company, the position of the company in its own life cycle and the industry being operated in. Perhaps the figures represent the huge difference in imagination, aspiration and corporate alignment being demonstrated by procurement in different corporations?

Procurement has a lot to offer a company, but it takes imagination, good communication, and more than a small piece of serendipitous opportunism to make the most of all the value it can offer.

“A study stated that procurement doubled the value add, which appealed to my own sense of worth”

AGREE? DISAGREE? Email me at undercovercpo@ supplybusiness.com to share your thoughts

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