04 SCS:NEWS ANALYSIS DECEMBER 2008 SUPPLY CHAIN STANDARD
www.supplychainstandard.com
NEWS ANALYSIS: NICK ALLEN
PROCUREMENT
Making more of
spending less
Spending less is something we are all planning on doing over the next few
months, but it’s going to be particularly pertinent to purchasing departments
where bottom-line performance will be watched carefully in the likely absence of
impressive top-line figures from the sales department.
Procurement professionals are used to the high expectations held by finance
chiefs for continual savings in the face of all other challenges, however, how many
procurement departments have the necessary tools to enable spend visibility – a
prerequisite to being able to deliver those necessary savings?
According to a new report from Aberdeen Group entitled “Spend analysis:
Pulling back the cover on savings”, one quarter of all enterprises do not have a
formal spend analysis programme; and, of those that do, more than half fail to link
the output of their spend analysis with their strategic sourcing efforts.
Increasing the amount of spend under management is key to getting to grips
with the problem, and this requires greater automation. The report highlights the
fact that best-in-class companies are twice as likely to use web-based reporting
and dashboards to track key spend and savings metrics and are 80 per cent more
likely to link spend analysis systems with contract lifecycle management and esourcing
systems. If the savings Aberdeen Group indicates in the report are
accurate, then companies should be paying close attention to automating the
spend analysis process. “Enterprises that leverage the spend data during the
sourcing processes save 67 per cent more from the average sourcing project than
those that do not use this data for sourcing.”
Perhaps most significantly, spend visibility can help enterprises rationalise and
categorise suppliers to drive more spend through the suppliers that offer the
highest value. Understanding which suppliers deliver the greatest value could be
of the utmost importance in ensuring profitability in tough times.
STRATEGY
All change
How quickly things change. Just a few short months ago the price of oil was $140
a barrel, with alarming predictions that the figure could rocket to $200. Inflation
too, was thought of as a key concern. Now the cost of oil has halved to less than
$70 a barrel and inflation is no longer seen as the big threat.
Earlier in the year, many large companies, Procter & Gamble being one, were
looking closely at their supply networks and assessing the impact that such
sky-high oil prices might have on their manufacturing and distribution strategy.
P&G’s current model of large, single-category regional production sites with
long supply chains was based on cheap oil, but the way things were going the
cost of transport was starting to change that perception, raising the possibility
of building new capacity.
I wonder where this thinking is now following the recent return of oil prices
to $70 a barrel? Will things stay the same, or will the long-term possibility of a
$200 barrel of oil, or perhaps even, the carbon cost of a supply chain geared to
cheap oil, lead to a supply chain redesign? The long-term view would seem the
most prudent. Another interesting recent development at P&G has been the
company’s testing of its ability to sell its products directly to US consumers via
the internet. The company is supporting a web site, theEssentials.com, that is
exclusively selling its branded goods; although the web site is run by a third
party which owns the inventory.
Just where this leaves its partnership with leading retailers is an interesting
question. But the move could be a good counter to competition from retailers’
low-price, private label brands.
GLOBALISATION
Flexibility goes global
Despite world economic uncertainty it would seem that globalisation is moving
ahead unabated. According to findings from PRTM’s sixth annual survey entitled
“Global Supply Chain Trends 2008 – 2010”, globalisation is accelerating and in the
process, bringing about large structural shifts for global supply chain organisations.
The primary focus of attention no longer seems to be manufacturing and
assembly, it is now shifting to product development. But the key drivers for
globalisation are still those of cost reduction and the need to penetrate local
markets. China and India too, continue to be the main targets for globalisation,
although Eastern Europe is catching up as a major off-shoring destination. But one
of the most interesting trends highlighted by the survey is the emerging
importance of supply chain flexibility.
The report says: “By 2010, the need for greater supply chain flexibility will
overtake product quality and customer service as the major driver for improving
supply chain strategy.” This growing interest in flexibility would appear to indicate
a desire for greater control over expanding and more complex supply lines.
Whereas the survey reveals that four out of five companies plan to better
integrate key suppliers – including a need to better enforce service level
agreements with channel partners – surprisingly, 65 per cent of companies
surveyed plan to maintain higher buffer stocks along key supply chain functions.
To me, this reflects greater insecurity in regards to the supply chain’s ability to
perform. Companies may be planning to push out globalisation further, with
commensurate levels of sophistication and complexity in the chain, but there is an
underlying fear of supply failure, which can only be offset by either building
greater flexibility into the supply chain or through the more expensive option of
building in inventory.
OUTSOURCING
Challenging times for 3PLs
Are third party logistics service providers really giving the market what it wants? In
recent years outsourced logistics activity has become polarised between those
offering essentially warehouse and transport-related services and those offering
more sophisticated value adding services across a wider geography. Logistics
companies may be providing a wider range of services, but is the market looking
for something more? Or perhaps even, just something different to what is
currently widely available?
Judging by the discussion this subject generated at a recent round table for
heads of supply chain in the retail sector, it would seem there is something of a
disconnect between 3PLs and their customers.
Those around the table seemed to appreciate the value an outsourced service
provider could bring to a new operation through the speed with which systems,
processes and people could be deployed, but beyond the initial set-up many
thought drive and innovation were lacking. Several questioned the value in having
an outsourced service if the operation was essentially static.
Customers are looking for more in the way of intellectual input, suggestions on
ways of improving the processes and systems needed to deliver greater value and
service to the end customer. Others were looking for strategic input and creative
thinking. However, the central issue of this hot topic was collaboration.
I suspect, however, that those around the table were not looking at
collaboration as a cosy term for working closely or in partnership with a 3PL, but
more in a deep collaborative sense where risk is shared between the two parties.
And here I fear is the crux of the issue – customers want more risk sharing with
3PLs, but 3PLs are reluctant to engage on that basis.
As the economy continues to shrink more manufacturers and retailers will be
looking for collaborative partners who are willing to partake in risk sharing. The
question is, will the contract logistics sector rise to the challenge?
To view a Ceros magazine you need to have JavaScript enabled in your browser and have the flash player 8 or higher installed. To install the latest flash player, click the icon above, install the flash plugin and then click here to refresh this page.