What can procurement services do to prevent fraud?

on Friday, October 24, 2014

What can procurement services do to prevent fraud?

Unfortunately, intimidation, bribery and fraud can plague the procurement process if assiduous surveillance isn't in place.

At times, it's not uncommon for sourcing specialists to encounter instances in which a client was told that certain goods were manufactured with one type of material when in fact they were produced with another kind.

Although there are laws protecting companies against such duplicitous behavior, it could take years for an international case to unfold. Between the investigation and the prosecution, the process is so arduous that some may deduce that engaging in such legal battles isn't worth it because there's no guarantee the end result will be favorable.

Hitting consumers

While this situation is more consumer-focused, it's an example of how hidden procurement practices can breed falsehoods. Shanken News Daily acknowledged a lawsuit that accused Iowa's Templeton Rye of consumer fraud. The whiskey producer advertised its products as Iowa-made, when in fact it's sourcing its rye rom an Indiana distillery, MGP Ingredients.

The lawsuit was filed by Ch​ristopher McNair of Chicago, who was a customer of Templeton Rye. He maintained that the company's advertising was intentionally misleading in order to get consumers to pay more for a beverage they believed was locally produced.

Infrastructure gets hit

Consumer concerns aside, fraud can be life-threatening in regard to infrastructure. Imagine a contractor agrees to procure four tons of 4-inch perforated sewer drainage pipes, when in fact the company receives 2.5-inch pipes. To the uninitiated, this isn't much of a big deal, but a well-seasoned waste management professional would recognize that a number of factors could cause the pipe to break under pressure.

The Hindu Business Line noted a study conducted by Deloitte, which maintained that procurement fraud often occurs because expansive infrastructure projects depend on local third parties to acquire necessary materials on an ad-hoc basis. Why? Sometimes, blueprints change or unforeseen issues transpire that require additional materials. There are dozens of situations that could induce such reliance.

What's wrong with small-scale operations that claim to be procurement experts? It's more difficult to validate their relationships. Depending on where they're operating out of, it may not be necessary for them to obtain accreditation from governing bodies.

Also, it's important to point out that nearly 50 percent of survey respondents asserted they were tempted to use back channels, bribery and facilitation payments to expedite the procurement process.

The best solution? Strategic sourcing. Centralizing every acquisition endeavor to ensure unfavorable practices aren't occurring is a practical solution to this persistent issue.

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How the Ebola outbreak affects global sourcing, supply chain

on Thursday, October 23, 2014

How the Ebola outbreak affects global sourcing, supply chain

Between hazmat suits and various medications, organizations across the globe are scrambling to procure assets and pharmaceuticals that will help them in the fight against Ebola. 

In order to conserve resources and deliver much-needed materials to impacted areas, entities working assiduously to combat the virus should consider employing strategic sourcing. If multiple organizations working to find a solution to the Ebola crisis collaborate, pool their resources and coordinate acquisition plans, then the costs associated with delivering quality, consistent treatment will decrease. 

How the disease affects the global economy 

While containment strategies have proven effective, there's no doubt that Ebola is one of the world's most deadly diseases. Kewill contributor Larry Lewis noted the virus claims the lives of 90 percent of those who contract it. So far, Ebola has claimed more than 4,000 lives, and an official cure has yet to be discovered. 

Aside from the fact that Ebola is now being considered by many as a worldwide pandemic, the global economy is sure to be detrimentally affected if a cure isn't discovered. Africa is a key contributor to North American and European trade. Last year, the U.S. imported $39.3 billion in goods and exported $24 billion in materials. During the same time frame, the European Union's export and import statistics were quite similar. 

In addition to production cutbacks, numerous customs regulations are appearing in order to stunt the spread of Ebola. Lewis asserted that the following issues are impacting purchasing endeavors:

  • The International Air Transport Association recently outlined mandates on how materials should be handled, stored and shipped throughout certain parts of the world. While these may not cause significant disruptions, they are sure to impact logistics operations one way or another. 
  • Personnel working in affected areas are receiving training on safety measures. The duration of these instruction sessions likely varies, but it's probable that many air-based logistics operations will be hampered. 

Shortages already occurring 

These setbacks in the supply chain couldn't have come at a worse time. According to The Hill, a shortage of hazmat suits is already apparent due to Ebola's penetration of the U.S. Tony Baumgartner, president of DQE, a company that sells protective gear to health care providers, noted the DQE decision-makers recently chose to limit deliveries of apparel to emergency response teams. 

"We have historically been open to anyone who wants to call and buy their own suit," said Baumgartner, as quoted by the news source. "In this case, the supply chains for the garments are starting to become strained."

Baumgartner acknowledged that two weeks before he was interviewed (around Oct. 2), no shortages of materials persisted.

In order to mitigate this issue and allow DQE and other protective apparel providers such as Lakeland Industries to provide adequate support to those who need it, health care associations with personnel operating in regions that have been impacted by the virus should seriously consider working together and pooling their procurement resources. Such a tactic ensures that no hidden acquisition endeavors are purchasing more materials than required. Of course, consideration for those with critical needs is important. 

Reacting to demand 

Even companies based in countries that have yet to register infections are stocking up on influenza medicine. Fujifilm, a Japanese enterprise, announced on Oct. 20 that it would increase its inventory of Avigan, which was provided to a number of patients who were transferred from West Africa to Europe. 

Although Avigan is not a licensed treatment, Fujifilm says that it currently has enough to help 20,000 people. The World Health Organization recently noted that France and Guinea intend to carry out clinical trials with Avigan in the middle of November. The entity maintained that if the tests prove save and effective, Fujifilm can expect "to receive requests to provide the products for large-scale clinical use."

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Spend management and cloud computing: Private or public?

on Wednesday, October 22, 2014

Spend management and cloud computing: Private or public?

There's been a lot of hype surrounding cloud computing over the past few years - so much so that some business leaders are unsure of the differences between public and private cloud deployments. 

It's a consideration spend management analysts take into account when deciding which solution to choose: What are the long-term costs associated with maintaining a private cloud architecture versus the enduring expenses companies typically incur when subscribing to a public cloud service? 

The cloud: What's needed, how it works

Network World contributor Sam Bosma noted that many companies maintain they already have private cloud infrastructures in place. However, he discovered that these assertions are skewed by varying definitions. For example, one company may define a cloud array as being a rack that holds virtualized servers. Every "-as-a-Service" provision is supported by a basic architecture, which is detailed below: 

  • A business possesses a collection of computers, servers and storage devices. 
  • These machines are then virtualized, meaning that multiple "machines" can run on single servers that aren't using the optimal amount of power. 
  • Each VM runs an application. For example, if one bare-metal (physical) server is operating five VMs, then it's also running five programs. 
  • Automation software is implemented across the VMs, allowing administrators to provision them from a central command hub. 
  • A software-defined networking solution fully synchronizes all VMs across the array, creating a converged infrastructure. 

How the private cloud can be deployed

The private cloud can be managed remotely, because it's delivered to and accessed by users through the Internet. However, the infrastructure itself can be hosted by a third party, a colocation facility (which stores servers purchased by a company but isn't on-premise - colocation is often confused with cloud services, but it is of a different ilk) or an internal data center. 

In this regard, businesses can either:

  • Outsource to cloud specialists to construct such environments for them and host these in off-site facilities
  • Hire temporary cloud architects to built the infrastructure with pre-existing commodity machinery, migrate applications, stored data and other assets into the system and train internal IT departments on how to manage the architecture after it has been implemented
  • Contract a private cloud provider to transition all in-house solutions and digital information to a pre-created infrastructure maintained by a third party. 

As one could imagine, the costs vary considerably. Little hardware investments are required for enterprises to build their own cloud environments. However, the procurement of licensed software needed to construct such infrastructures must be heavily considered, as well as whether or not companies possess the talent required to fully optimize and maintain their functionality. 

Public cloud expense and usability considerations 

When one initially compares the private cloud with its public counterpart, the latter appears to be the clear winner in regard to costs. There are so many labor and operations costs associated with setting up a private cloud array that purchasing an infrastructure, software or platform as a service appears much more attractive. 

However, CIO contributor Brandon Butler noted a study conducted by a colocation company, a cloud management vendor and a network operator that discovered if an organization is spending more than $7,644 on Amazon Web Service's Infrastructure-as-a-Service provision, it's more affordable for that entity to run a private cloud. 

Yet, it must be noted that this is a very specific measurement. The cost may vary depending on whether a company or public authority is using Microsoft Azure or if it's simply accessing one Web-hosted application, for example. 

Butler also noted that the research was based on sporadic workloads, which are defined by anomalous increases of computing or memory power. When deciding on which deployment is best for them, enterprises should consider contracting business process specialists and benchmarking experts to assist them. 

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What’s going on in Contract Packaging?

on Tuesday, October 21, 2014

The Contract Packaging Association recently reported that the contract packaging industry has doubled since 2008. Between the ongoing surge for more sustainable packaging and the increased demand for cost and process efficiencies, those within this industry must continue to strive for innovative and cost effective solutions. With that said, here are some key trends and highlights in the industry today that are driving that innovation and growth.

• Collaboration within the supply chain among the contract packagers and their manufacturer clients have spurned new packaging concepts that provide more innovative designs at improved cost margins. Within arrangements like this the contract packagers can reap the benefit of new designs while the manufacturers can reduce costs by relying less heavily on internal R&D efforts. Not only are their customers reducing costs through these efforts but they are able to reduce their risk.

• Industries that continue to see the highest volume from contract packagers are food and beverage, personal care and pharmaceutical segments are expected to see a significant increase in the coming years. • Since between 73% and 85% of purchase decisions are made at the point of sale, innovative and attractive packaging designs are critical to a brand’s ability to sell to new customers.

• The service offering of contract packagers has expanded in recent years to include more end to end processes such as early stage design capabilities through the management of the product throughout its lifestyle. This trend lends itself to more streamlined activities from their customers allowing them to focus on fewer suppliers to produce their goods. • Even with the above trend noted, some industries, such as pharmaceutical, still rely on various suppliers to fulfill their needs throughout the packaging process.

• Contract packagers that have adopted progressive technology are leading the growth within the industry; technologies include serialization concepts, advanced robotics, and digital printing.

• While serialization is at the forefront of contract packaging processes, there is a lack of clarity around the regulations surrounding this process ultimately leading packagers to question the value of implementing such services.

• Packaging consumers are not only concerned with sustainable packaging, they want to be more involved in how the products are developed and want to know where they are coming from. The functionality aspect of packaging has also become a greater concern for consumers.

• Social media and technology have led to increased transparency in products including ingredients, prices, and reviews, thus alleviating some of the need to label packages differently. Social media sites like Pinterest have led to a substantial increase in visibility into products that otherwise would not been found by the average consumer base.

Overall contract packaging will continue to grow as companies using their services reduce headcount and budgets for these services. The need to outsource this stage of the supply chain will increase in the coming years along with the industries that use the services. It will be key for the different segments of the business to partner in order to maintain innovative and cost effective solutions that meet the fluctuating demands of the consumer.
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Software migration from a strategic sourcing perspective

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Software migration from a strategic sourcing perspective

Strategic sourcing is all about centralizing material acquisition and purchasing, relieving localized departments of procurement responsibilities. 

Centralizing assessment 

The concept of migrating an assortment of disparate systems to a single, cloud-based solution is quite similar to consolidating sourcing efforts, in many respects. Addressing the needs of professionals working at offices distributed across an entire continent requires assiduous attention from those in charge of obtaining licenses to use software. 

Of course, assessing these needs is no easy task. TechTarget contributor Lauren Horwitz noted challenges Condé Nast International's Director of Technology Projects Victoria Willis encountered when migrating the company's on-premise applications to the Salesforce cloud. 

"Before three years ago, all technology decisions were made locally," said Willis, as quoted by Horwitz. "Now, we're trying to implement systems across the global company." 

Taking the initiative

If an enterprise's leaders deduce that investing in cloud-based software is needed, there are a number of considerations they must take into account when choosing a provider, such as:

  • Options: Out of dozens of providers, which one can deliver cloud-based software that fits the needs of enterprise employees? 
  • Defense: Which implementation delivers a strong data protection and user authorization framework? Does the developer have security credentials? 
  • Support: Will staff have to undergo extensive training after the solution is online? Is it necessary to hire consultants when transitioning on-premise tools to the cloud service? 
  • Relevancy: Is it possible that the new system will grow outdated after five years? If so, would it be smart to hire a software engineering team that can adjust the deployment as the years progress?

The last point in particular deserves a bit more attention. Onboarding experts to conduct maintenance and regularly make improvements is a good decision, but it may not be possible. For example, a request for proposal may state that a company can manipulate the software's coding under the condition that such changes be made by professionals who have received accreditation from the vendor. 

Preparing for deployment 

After RFP agreements have been established, enterprises should outline timelines for the implementations to abide by. Horwitz maintained that this not only gets the initiative rolling, it gives developers a concrete idea of where in the deployment process they should be. 

In addition, businesses must reach out to employees who are known for using every tool solutions have to offer. Introduce them to the software before rollout occurs, and prepare them to train their colleagues when the time comes. 

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WhyAbe, Free e-Sourcing Platform 9 Years Better

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A little over 9 years ago, Source One launched the web's first and only free e-sourcing platform, dubbed WhyAbe.com.  At the time, we were widely regarded as a fluke and journalists/bloggers/competitors all loved to jump on the bandwagon and make comments about how it is not sustainable; and that WhyAbe would have to start charging fees if it wanted to remain afloat.   Some of those folks have even attacked our solution over the years, simply because it didn't fit into their mold of a typical software provider, didn't look like the tools they've used in the past, or as we suspect in some cases; because we refused to participate in their pay-to-play journalism.   Yet here we are, nearly a decade later, and WhyAbe.com is still the ONLY 100% free e-sourcing solution available on the web.

WhyAbe.com is still here and is better than ever.

Not only are the WhyAbe.com tools still free; they are much more robust than they've ever been before.  We recently announced the release of some long-requested features: the ability to import event line item detail directly in from Excel and automatically populate your RFX template.  Similarly, suppliers may now download line item event detail in Excel, work offline, and upload their bid responses back at their leisure.  Elsewhere in the WhyAbe tools, we've improved the ability and format for exporting data.  Now, if you want your own records, or you want to migrate to a more robust enterprise solution, its as easy as a few clicks.  Of course we've also got other little improvements here and there, and the typical bug-fixes and patches in this release too.

What is WhyAbe.com?

For those of you that don't know, WhyAbe.com is a website that hosts the world's only completely free e-sourcing tools.  Specifically, we provide a set of tools for buyers (purchasing professionals) and suppliers to communicate more easily and expedite the RFX portion of a sourcing event and also provide tools to manage contracts.  

The tools are built and maintained by the Procurement Consulting Firm, Source One.  We built the tools after we explored the market for solutions that would help our own consulting staff better manage the RFX stage of the strategic sourcing process.  What we found was that many of the existing solutions were overly cumbersome or entirely too expensive.  Many of the tools forced you down a path or process that just didn't make sense for most categories and required more maintenance than if we were to just continue a manual process.  So, we built our own tools, with ease and speed-of-use as primary factors.

Since launching our first version, our tools have grown in robustness and capabilities; but still kept the critical speed-to-adoption goal that we feel so many other tools lack.  New features, functions and enhancements are released on a periodic basis; based off of requests from our user community.

Buyer tools include:
  • The ability to create an RFI, RFP or RFQ and invite your own suppliers or pre-registered suppliers to respond to the event.  (This includes basket bidding, document uploads, line item bidding, and more).
  • The ability to conduct multiple types of reverse auctions, and have your suppliers or pre-registered suppliers compete on pricing in a real-time fashion.
Supplier tools include:
  • The ability to respond to RFI, RFP, RFQ events.  The ability to communicate you intent to participate with buyers and ask questions during the sourcing events.
  • The ability to participate in reverse auctions and see where your pricing ranks relative to other suppliers, in an anonymous fashion.
Tools for both:
  • WhyAbe includes a basic contract management repository.  Store information about your suppliers, key contract details and store electronic copies of your contracts in the cloud.  Set text or email alerts about pending contract expiration dates, and never miss a chance to negotiate your renewal.
  • Store event history for an audit trail of your communications and sourcing events.
What it's not:

WhyAbe.com is a free solution that can help companies of all shapes and sizes.   Some companies use it for select spend categories, others use it for all of their spend, and other companies simply use it a test-bed or stepping stone to later adopt a more robust solution. 
  • While WhyAbe provides the ability to export data into Excel, we don't provide any ERP or P2P system integration.  
  • We also do not currently provide optimization engines, though we are working on some cool new analysis features for a later release.  
  • We don't do field/wording/coding customizations for you in our free version.  
  • And lastly, we will NOT respond to your RFP to help you select if the tool is right for your business.  Seriously people: the tools are free; you expect me to fill out a 30 page RFP explaining our free e-sourcing tools to you so you can use them for FREE?!
How/Why is it free?

We're not going to go into all of the details, but let's just say there are a lot of ways we can keep this solution free.  Here are just a few:
  1. We build the tools for our internal use for our consulting team
  2. WhyAbe and Source One gain exposure to new companies, spend data and suppliers.   
  3. We hope that if you need specific help in strategic sourcing or cost reduction initiatives that you remember Source One and give us a call.
  4. We do sell private labeled (white labeled) versions of the tools.  Some of our clients have their own branded version, as do some other consulting firms!
Get Started

If you have't tried our e-sourcing tools, or its been a long time, please check them out.  It doesn't cost anything to register and run an event.  
Visit WhyAbe.com today.




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How does integrated reporting launch business transformation?

on Monday, October 20, 2014

How does integrated reporting launch business transformation?

Accounting and business process management professionals are discussing a relatively new concept that involves synchronizing all facets of an organization. 

According to the Chartered Institute of Management Accountants, integrated reporting consists of defining an enterprise's strategic approach, administration and efficiency. The source maintained that it allows experts specializing in different facets of a company to identify connections between the entity's financial performance and operations. 

One of the reasons why IR is becoming a more popular business practice is that it serves as an effective measure of sustainability. It's quite similar to benchmarking, or comparing an organization's general practices with what industry experts define as optimal protocols. 

IR as an investment driver 

IndustryWeek contributors Sean Smith and Roberto Cruz discussed the strategic advantages of integrating IR into company operations. They both noted that the results produced by IR initiatives (which are typically carried out on a continuous basis) provide potential stakeholders with the type of thorough information they're looking for. 

A large part of investment is all about weighing risk by observing a business' decisions and how they affect its surrounding environment, which is comprised of workforce liabilities, ecological considerations, social cognizance and other factors. Basically, will the organization in question cause residual changes that are viewed favorably by the public and will it make a profit doing so? 

Cruz and Smith maintain this is what differentiates IR from conventional financial reporting endeavors, which typically focus on dividend yields, free cash flow yield, net income, return on equity and earnings per share. In reality, this side of accounting fails to consider managerial capabilities and decisions. 

Various data sets 

To better understand the value in observing corporate governance and culture, consider the difference data scientists are defining between unstructured and structured data. The former contingency has been regarded as the driver of the big data analytics movement, and is comprised of video, written text, photos and other media that isn't easily classified by relational databases, which can organize information that is has easily identifiable components. 

Yet, unstructured data provides a plethora of information to those observing it. The saying "a picture's worth a thousand words" is applicable in this respect. The human brain can process an incredible amount of data when reading documents, watching videos and so on. 

IR considers the unstructured data that resides in every organization. Those putting the concept into practice recognize that numbers represent a relatively marginal part of enterprise operations. Culture, methods and practices define where enterprises are headed from an investment standpoint. 

An investigative approach 

Accountants and business analysts can be regarded as detectives in their own right. In regard to investment, approaching an investigation with IR in mind can allow them and their associates to deduce whether a company's decisions are negatively impacting global societies and/or economies. 

As one can imagine, this is when transparency comes into play. Suppose a professional is hired to scrutinize the procurement practices of a computer hardware manufacturer. In order to assist the auditor in his or her endeavor, the production company provides the expert with its supply chain reporting and accountability files. Once the investigation is underway, it's likely one of two situations will unfold:

  1. The sourcing specialist will notice discrepancies or inaccuracies in regard to supplier relations, such as a lack of clarity in how a factory in Southeast Asia acquires gallium. 
  2. The web of suppliers is clearly defined, enabling the auditor to weigh the impact these partnerships have on global sustainability and social events. 

It would be wrong to consider IR to be the next generation of procurement management - that's just one business facet. IR regards every component and determines how each one affects businesses on a holistic level. 

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Scrutinizing procurement concerns, practices in the automotive industry

on Friday, October 17, 2014

Scrutinizing procurement concerns, practices in the automotive industry

Conducting business with fair-minded suppliers is just as much a part of procurement as quality assurance.

When it comes to purchasing a wide variety of goods, those in the automotive industries rely on teams comprised of professionals with differing backgrounds. While one person may know what to look for in a spark plug manufacturer, another likely knows which enterprises produce the best pistons. 

The reason for a diverse buying portfolio

As an single car is made up of thousands of separate components, one can imagine how complex sourcing can be for the average car company. In addition, it's not as if these companies rely on one supplier to provide them with lug nuts, ignition coils or fuel level sensors. 

For example, suppose an automotive enterprise purchased all of its camshafts from a single company. While this practice simplifies the material acquisition dramatically, what would happen if a fault were discovered with the camshafts after 2 million vehicles were shipped? The car producer would have to recall all 2 million automobiles. In contrast, if the business only bought 25 percent of its crankshafts from the original supplier, it would only have to request returns for 500,000 vehicles. 

Ideally, it's preferable for recalls not to occur at all. Yet, such situations are regular components of risk evaluation and assessment protocols. Worst-case scenarios always need to be taken into account. Ignoring the possibility that something might go wrong may cause unfavorable occurrences to become exacerbated.

Learning from mistakes 

Whenever issues with specific automotive parts arise, manufacturers can take advantage of two solutions:

  1. If faults were caused by a specific supplier, then purchasing offers can mark that company as an unreliable partner. 
  2. If the defects were caused in-house, design and development protocols can be reevaluated to identify where issues persisted. 

One particular Japanese manufacturer hopes it can benefit from the same lessons. IndustryWeek noted that Toyota recently announced it will recall 1.75 million vehicles used by customers across the globe. Assessment professionals found brake glitches and other problems that could cause components to spontaneously combust. 

In regard to the braking system, Toyota specialists recognized that one part wasn't shaped properly, which could transform the pedal over time. Although Toyota maintained that the brakes would still function in the long run, "performance could begin to gradually degrade." 

Amid other concerns regarding fuel-suction plates and fuel delivery pipes, Toyota has submitted requests for returns of an estimated 11 million vehicles since the beginning of 2014. In March, the company paid the U.S. government $1.2 billion in settlements after allegedly misinforming regulators and consumers about accelerator mishaps. These defects caused cars to speed out of control and experience brake failures. 

A level playing field 

A major concern of purchasing management teams is whether or not suppliers are committing fraud, colluding with perceived competitors or engaging in other unfavorable activities. The automotive manufacturing economy is incredibly competitive, especially when it comes to providing parts to major enterprises. Some entities attempt to change this factor. 

Business Day contributor Amanda Visser noted the South African government is investigating 80 vehicle parts production businesses suspected of conspiring to fix prices over the past 14 years. The nation's Competition Commission noted the case commenced when one of the alleged perpetrators opted for leniency in exchange for information. 

The primary goal is to deduce whether the cartel's actions hindered the progression of South Africa's automotive components manufacturing industry. Authorities conducting the examination will collaborate with officials investigating similar offenses in the U.S., Europe and Asia. 

Again, it's situations such as ones outlined above that encourage a need for thoroughness in strategic sourcing. The more professionals know about their partners, the better they'll be able to align themselves with best practices. 

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Source One sponsoring Medical Device Strategic Sourcing Conference

on Thursday, October 16, 2014

Source One Management Services, LLC is proud to announce that it is sponsoring the 1st annual Medical Device Strategic Sourcing Conference in Atlanta, Georgia this upcoming January 26-27, 2015.

New regulations, vendor qualification requirements, competition from low-cost country manufacturers, and poor international enforcement of intellectual property laws has created a challenging landscape for medical device manufacturers.  Procurement and sourcing professionals at these medical device manufacturers are often tasked with trying to deal with a rapidly changing industry; while simultaneously working to find the best possible prices, products, services and suppliers to align their businesses with.  

Strategic Sourcing Services for medical device manufacturing is one of our hottest and fastest growing areas of expertise.  Therefore, it makes natural sense that Source One will have a substantial presence at Q1 Production's 1st annual conference dedicated specifically to the topic.


  • Learn more and register for the medical device strategic sourcing conference event: here
  • Learn more about our strategic sourcing services for medical device companies: here




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What does off-shoring look like for the mid-market economy?

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What does off-shoring look like for the mid-market economy?

While nearshoring to South America is a big topic of discussion among large businesses, the mid-market economy is also regarding the benefits of outsourcing manufacturing to foreign entities. 

Cost is often highlighted as the main reason why companies choose to procure items from other countries, but mid-sized enterprises also focus on several residual benefits. Close proximity to domestic markets and the ease with which intellectual property can be protected are just two of these advantages, The Wall Street Journal noted. 

Bolstering long-term strategies 

IndustryWeek contributors Amar Shah and Danielle Moushon noted a survey of C-suite executives working at mid-market businesses conducted by The Keystone Group, which found that commodity pricing wasn't necessarily their greatest concern. In regard to expenses, respondents typically weighed the pros and cons associated with certain liabilities. 

For instance, quality control, hidden logistics grievances and risks, duplicative management and lead times were top of mind for many participants. In addition, nearshoring initiatives are intensely motivated by factory proximity to raw materials and skilled labor.

The fewer assets that are needed to transport goods to production facilities, the less risk involved with transportation. A similar concept applies to the workforce: The more knowledgeable employees are in certain manufacturing techniques, the better procurement management professionals will be able to measure quality. 

Weighing risk and insurance 

One of the disadvantages of offshore production is that it's difficult for personnel to keep track of every indirect supplier relationship. Sourcing officers need to be cognizant of a number of risks, such as natural disasters, crime, long-term management fluctuations, shifting political climates and other factors. 

This is when the appeal of nearshoring to Mexico and other South American countries grows considerably. For one thing, North American enterprises are likely well aware of conditions outlined in the North American Free Trade Agreement, which translates to political understanding. Secondly, proximity to these nations means that some domestic insurance companies may cover logistics partners that frequently cross the U.S.-Mexico border. 

Available resources 

As was mentioned above, access to raw materials is a key differentiator in nearshoring. For example, if a company procures tungsten and other rare elements from Africa, it logistically makes more sense to deliver those products to a factory in the Caribbean or Mexico as opposed to China. If it chose to transport goods to the latter country, distributors would have to rendezvous several times. 

Simplification is the key to success. The more complex the supply chain, the more difficulties and risks exist. 

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Malaysian Airlines: A Thorough Approach to Strategic Sourcing

on Wednesday, October 15, 2014


Whether struggling to keep your company above water, or looking for ways to increase an already profitable operation, strategic sourcing offers a reliable platform for companies to increase or attain profitability. Commonly, strategic sourcing is mainly associated with cutting supplier costs and re-negotiating contracts. This definition and common school of thought ignores the other, oftentimes more critical, components of strategic sourcing; that being process optimization. In order to execute an effective strategic sourcing initiative, strategic sourcing itself must be thought of in a broader sense in terms of evaluating alternative cost savings methodologies attained through process improvements and corresponding soft cost savings. When traditional cost reduction methodologies such as executing RFP’s, RFQ’s, or conducting direct negotiations with suppliers are combined with a thorough evaluation of process optimization opportunities, results oftentimes exceed expectations.

In current news, this comprehensive approach is being utilized by a company who has been the subject of an unfortunate series of events and ongoing financial woes-- that being Malaysian Airlines (MAR). MAR has had their fair share of setbacks within the past fiscal year. First came the disappearance of flight MH370 in March, and then the crash of flight MH370 over Ukraine in July. Both of these tragedies compounded the financial troubles that MAS had been experiencing over the past few years. In fact, the company posted losses of £770 million in 2013 after three years of consecutive losses prior. With the brand name as of late at an all-time low, and the company at risk of bankruptcy, MAR has set their focus towards recouping losses by cutting costs and improving current processes.

One of the first steps MAR has taken to cut costs has been to eliminate 6,000 jobs across the company, which represents approximately 30% of the total workforce. This immediate cost savings approach for struggling companies is something that a thriving company would generally want to avoid, but in this case, the move made sense for MAR. Leading up to the job cuts, MAR had approximately 183 employees per aircraft (a common unit of measure in the airline industry). Considering Singapore Airlines, who is one of MAR’s top competitors, has a rate of 138 employees per aircraft; this metric reveals that MAR is less efficient than their direct competitors to begin with.

In addition, historically MAR has been known to pay a higher price than that of their competitors for equipment and services. This condition represents the opportunity to cut costs by leveraging benchmark pricing and volumes to attain more competitive prices via direct negotiations and leveraging volumes in RFX events for both indirect and direct materials. For example, Air Asia is a well-known player in the international airline market and is notorious for their low air-fare prices. It is no secret that part of the reason they are able to offer lower prices is because their operating costs are lower, and supplier contracts more competitive. MAR is leveraging this knowledge in one of their main cost cutting initiatives by re-negotiate existing supplier contracts to bring them in line with industry utilizing benchmark pricing.

The actions listed thus far are typical of a traditional sourcing effort and focus on reducing supplier costs, re-organizing their supplier base, and cutting operating expenses. However, as previously mentioned, by taking an all-encompassing approach to true strategic sourcing, one must consider process improvements and alternative areas of soft cost savings that oftentimes go overlooked by procurement departments, sourcing professionals, and category buyers. As an example of this practice, MAR has evaluated the opportunity to invest, despite the company’s instinct in such times to do the opposite. MAR has begun to switch out Boeing 737-400 aircraft and is investing in 737-800 models that have higher fuel efficiency and lower maintenance costs. In addition, the re-engineering of existing and new aircraft has begun to include more business class seats in order to increase utilization and general population capacity.  This tactic is being complemented by route rationalization and cutting infrequent travel lanes. MAR is instead turning focus to flying within the regions with the highest current utilization, including routes to Japan and Australia.

This recent example displays at a high level the type of approach necessary to achieve greater cost savings through multiple different channels. By not only focusing on cost cutting, and by improving their processes and operational strategy, MAR has positioned themselves to possibly avoid bankruptcy. 
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Is integrated business planning simply another buzzword?

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Is integrated business planning simply another buzzword?

Creating a healthy balance between supply and demand isn't as easy as it sounds, especially when offshore supplier relationships and a complex distribution chain are added to the mix. The more dispersed business processes become, the more difficult it is for an organization to align its operational goals.

For example, suppose an automotive manufacturing expert runs a spend analysis of how many tires the company will need to procure in Q2 2015. Because he or she did not coordinate with the enterprise's sales director, the assumption is made that factories will require 800,000 sets of tires. However, because the sales director expects demand to decrease in the second quarter of next year, the purchasing officer will unwittingly order a surplus of tires.

A symbiotic environment

Resolving the aforementioned issue requires a platform capable of combining and supporting a combination of multiple applications. According to IndustryWeek contributor Dean Sorensen, this involves merging sales and operations planning and enterprise performance management to create a single solution. IBP enables enterprises to conduct the following tasks:

  • Initiate and manage relationships with suppliers
  • Conduct demand forecasting based on real-time sales data
  • Orchestrate materials handling endeavors, whether these include acquisition or logistics
  • Develop holistic goals and assign teams to initiate those projects
  • Organize finances and accounts

An intelligent system

Supporting these capabilities requires an intelligent foundation capable of recognizing discrepancies and making smart decisions. Sorensen noted many manufacturers believe they already use IBP implementations. However, there are some who translate the word "integrated" a bit too liberally, believing that throwing a simple set of S&OP and and EPM tools into the same infrastructure creates an IBP deployment. In actuality, this is hardly the case.

Analytics and machine learning are essential to make IBP environments work the way manufacturers, health care providers and other professionals require them to. Sorensen used the term "embedded logic" to describe IBP's operational functions, which can perform these seemingly banal, but essential responsibilities:

  • Identify time-sensitive data and factor it into how it changes demand forecasts, benchmarking conclusions, etc.
  • Track industry fluctuations that affect predefined approaches to the market

The smarter the system, the more succinctly strategies will be developed.

Why the cloud is necessary

For developmental reasons, creating, deploying and supporting an IBP solution in a cloud environment is the optimal choice. Sure, cloud computing has been surrounded with a lot of hype over the past year or so, but there wouldn't be so many discussions regarding the technology if people didn't think it was useful.

To obtain a better understanding as to why the cloud (specifically, Platform-as-a-Service) and IBP go hand-in-hand, it's important to observe the kind of data and applications IBP solutions handle:

  • Web-based: Whether from Google News or social media, the Internet can provide a lot of insight into how specific industries are changing on a weekly, or even daily, basis. This consists of unstructured and semi-structured information, which can only be stored in expansive, flexible infrastructures.
  • Collaborative: Whether email or project-based, logging communications takes up a considerable amount of capacity, as well as network bandwidth.
  • Analytics: As IBPs are smart systems, they require an enormous amount of processing power to perform at an optimal level.

These sources are only three out of dozens of actions that produce more data and require a fair amount of computing power. Add this element with a company's need to customize its IBP solution, and PaaS appears to be the best option. According to WhaTech, such environments allow administrators to define security protocols, set up databases, develop software and manage networks.

Of course, IBP users don't have to contract a cloud provider to receive the operational benefits. Pre-existing data centers can be modified into cloud infrastructures, delivering the same benefits as companies that offer the technology as a service.

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