Inventing the 21st century purchasing organisation
Problematic: How can purchasing evolve so that it stays a key activity in every company ?
A – Introduction
Purchasing is a very ancient activity, Harold Ward, an American searcher, reports that a cuneiform clay tablet excavated at El-Rash Shamra and dated about 2800 BC, carries an inscription which roughly translated reads : “HST is to deliver 50 jars of fragrant smooth oil each fifteen days after (a starting date) and during the reign of AS. In return he will be paid 600 small weights in grain. This order will continue indefinitely until the purchaser or his son removes his consent.”
Despite its long history, it is only recently that the importance of efficient purchasing has become wide spread. In Europe, the public market represent nearly 15% of the Gross Domestic Product and the private markets represent about 45% of it. Including all sectors, purchasing in European companies represents around 65% of their turnover. This proportion can go from 10% in the services and up to 95% in retail and distribution.
In the nineties, the purchasing function saw itself professionalizing quickly through the impulse of the car industry where purchasing represented more than 50% of its turnover. Car manufacturers were the first to understand that as purchasing was a main part in their costs. They had to allow it a great part of time and resources. General Motors, by integrating the best buyers to its services, created a new era where the buyer is at the top of the company. The American car manufacturer optimised its supply sources by globalizing, enabling two digit percentage savings.
By looking at the 2Oth and 21th century purchasing through its different aspects I will show what are the strengths, weaknesses and points of improvement of purchasing. Through this study I will define solutions to improve the 21st century purchasing organization to make it reach its full potential.
B – What is a purchasing organization today?
1 – Definitions
1.1 – Purchasing
According to the Dictionary of business and management, a purchaser “is a buyer, a person who obtains title or an interest in property by the act of purchase.”
1.2 – Organisation
Quoting F. Rozemeijer and F. Wynstra in their book Developing sourcing capabilities, “an organization can be defined as the formal way in which a company has assigned duties, responsibilities and authority to employees to manage its activities, products, functions and markets to meet its objectives. […] Can be also looked at as political arenas, where groups of people have conflicting interests and use power in order to realize their own goals.”
The Dictionary of business and management explains an organization as “any structured system of roles and functional relationship designed to carry out a firm’s policies, or more precisely, the program such policies inspire.”
1.3 – Organisational purchasing
According to CK. Lysons, in the book Purchasing, “organisational purchasing may be defined as a function responsible for obtaining by purchase, lease or other legal means, equipment, materials, supplies and services required by an undertaking for use in production.”
CK. Lysons defines organisational buyers as “those who buy on behalf of an organisation rather than for individual or family use or consumption.”
1.4 – Three type of buyers
– The industrial buyer who buys goods and services in a productive and commercially significant purpose.
– The institutional buyer who buys goods and services for institutions (schools, hospitals…). and necessary for a commercial purpose.
– The intermediate buyer who buys goods and services for the resale or for facilitating the resale of other goods, in the industrial or ultimate consumer markets.
Within those three families a buyer can be a production buyer or an off production buyer. Production buyers are the ones who buy, for example, the raw material in order to make a product once the different components have been used and transformed to make the finished product.
An off production is the person who buys the goods and service that are used within a company in order that it works correctly. The goods and services that can be bought by an off production buyer are various. They go from electricity, cleaning and security services down to the office needs such as paper, pens and computers.
2 – Purchasing objectives
2.1 – Goals
(AM, Log Glob)
The main objective of purchasing is the procurement of goods and services to suit the company’s needs respecting the quantities, the quality and the delay asked for. The purchasing price must be the lowest possible combined with a profitable cost of utilisation.
The purchasing function has different objectives which are the price, the quality, the continuity, the risk, the flexibility and the cost.
The price, as said before, must be as low as possible. The quality must defined by the value of the product, through the control of the suppliers. The continuity in offer and demand must be defined by evaluating the suppliers and knowing the company’s needs. Risk is defined thanks to the market, the suppliers’ viability, the savings opportunity and the way that it can be avoided. Flexibility must be written on paper to enhance the company/supplier relation. The control of costs must be done by minimizing acquisition costs and carrying costs. Purchasing is concerned by the costs to be paid such as services and transport, acquisition costs, carrying costs and non quality costs.
2.2 – Ways to reduce costs
2.2.1 – Increase the supplier’s productivity
To increase the supplier’s productivity you have to work hand in hand with him to improve his machines and process so that productivity will increase. However you must make a clear distinction between the fast rotation products that can be changed every three to five year with the slow rotation products who can stay in catalogue for twenty years.
Fast rotation products can easily be improved as they are not as standard as the low rotation products.
2.2.2 – Developing synergies by standardisation
Improving the costs by developing synergies inside a company is done by standardising common functions. Volkswagen applied that strategy to all of its models by using the same platform for its Volkswagen, Seat and Audi models.
2.2.3 – Redesigning an existing product
The redesigning of the product enables a company to make it cheaper through physical or technical changes. The buyer must be able to identify the suppliers who will be able to adapt to technological evolution. Redesign can be done by changing the materials used to make the product or by modifying the specifications. The Swedish company Ikea, for example, redesigned its table model “Lack”. Sold 20 euros at the end of the nineties, this best seller is now sold 5 euros. To be able to drop the table’s price Ikea obviously plays on volumes. But the manufacturer has also changed the raw material of the table. Solid wood has been replaced by alveolar panels that are obviously cheaper. (Capital mag)
2.2.4 – Relocate purchasing abroad
This is a major axe that is complementary to the ones quoted before. As says F. Wynstra in Developing sourcing capabilities, “Sourcing in China offers foreign companies to acquire high-quality and low-priced products, at the same time. Today, the ratio between the costs of an European worker and a Chinese worker is roughly between 1 to 20-50; […] it costs between 20 to 50 times as much to pay for the work in western parts of Europe compared to China.” Taking another time the example of Ikea, the company which takes pride to say “Made in Sweden”, has more than 1400 suppliers from all over the world. A majority of them, 21%, are Chinese who for example make accessories. The Swedish company also employs Indians for the household linen, Rumanians and Bulgarians for the couches…(capital mag)
Through those four different axes we can see that purchasing affects every part of a company from the design to the suppliers.
3 – Global costs and total cost of ownership
The total cost of ownership (TCO), according to businessdictionnary.com, takes in account both direct and indirect costs associated with an asset or acquisition during the entire life cycle of the product.
The concept of TCO suggests that the purchasing price of a product is only a small portion of the cost of owning. For example (pdf TCO), a company car that costs 20 000 euros but has a lot of fuel mileage and requires regular repair will cost the company much more than the price of a car who is a little bit more expensive but who will require less maintenance and fuel. Purchasers should always monitor the total cost of ownership in order to make sure the organization is incurring the lowest possible total life cycle cost for an item.
Here is a list of factors that must be accounted in the total cost of ownership: the purchasing price of the item, the cost of acquiring the item, the cost of operating the item, the cost of maintaining the item, the expected useful service life of an item, the cost of insurance/warranty, the cost of financing, the cost of disposing of the item and the cost of time.
http://www.purchasing.com/article/214313-Focus_is_on_total_cost_of_ownership.php
4 – Purchasing status
4.1 – High and low status of purchasing
CKL
Purchasing’s status in organizations can vary from one to another.
For example, in the pharmaceutical industry, purchasing’s status is low. The cost of the ingredients weigh nothing compared to the cost of marketing the product. In opposition, we have the car industry where the price of materials forms more than half of the price of a vehicle.
Purchasing for the car manufacturer Renault represents 25 billion euros which is 60% of the constructor’s turnover. This is a clear example on how strategic can be purchasing for a company. (Renault.fr)
4.2 – The contribution of purchasing to profitability
Purchasing is likely to be critical when:
– Suppliers are frequently changed
– Short run prices fluctuate
– Judgements relating to fashion are involved
– Markets are highly competitive
4.3 – Price and value in purchasing
(CKL)
When buying goods or services, a distinction must be done between price and value.
Purchasing can aim to secure the value of money by:
– Initiating value analysis with designers and end users. This will enable to reduce the costs by modifying components or substituting materials without detriment to the end product.
– Investigating the scope for standardisation and simplification.
– Negotiating of benefits not directly indicated in the price, for example being able to hold stocks in the supplier’s warehouse until required.
Price and value are not the same thing, there is no relation between them, a distinction must be done.
Price is the result that emerges when offer and demand meet at a precise period. A price can be negotiated whereas a cost is defined by the value of the whole product. A buyer negotiates prices and also costs by integrating them to the price. This is when global costs appears (part 3).
C – Technologies and innovation in purchasing
1 – Communication technologies
“A l’�re de l’informatique en nuages” Herv� Le Crosnier – Mani�re de voir.
Today, the model of the computer stocking every data from information, to mails and photos is over. Nowadays, the computer storage is moving to servers who belong to the internet giants such as Google, Electronic Data Systems and others. The users get access to their personal data through the World Wide Web. This implies an overwhelmed dependence from the companies but enables to stock their out numerous data outside of their walls. More and more companies are converting to the numeric era. Unsurprisingly, this will affect purchasing.
First, we could define the fact of stocking data outside the companies as dematerialisation. This means that there is a separation between the physical support and the substance. Saying that, all data must be stocked somewhere. Instead of seeing the support disappear we see it evolving. Data is now stocked by gigantic severs who belong to International Business Machines (IBM) or Google for example.
1.1 – Cloud computing
Another new word which has appeared is cloud computing, it means that the data is stocked in different computer servers by making a copy of it. This will enable to calculate and give fast response to a request. Cloud computing makes the computers servers interact between them avoiding congestion when computers start calculating. Cloud computing is also creating new forms of outsourcing.
For example, Amazon offers to the public and professionals a free space to stock data and information, more memory space and an access to other web browsers. The New York Times has put under portable document format (.pdf) the whole of its archives from 1851 until today and stocked them outside of their offices. This enables its readers to have access to an enormous amount the newspaper’s information. This archiving would have been impossible if the New York Times had chosen to keep their information in between their own walls.
Up to today, a computer needed heavy softwares, a gigantic memory and important calculators. By outsourcing those characteristics, the computers have become much lighter y turned in to a simple terminal that provides you the information and softwares you need from wherever you are in the world. When a user wants to work on a document, the software needed is activated on a server and not on the proper computer. We defines this as Software as a Service (SaaS). The positive points are also that those software offer stability, smaller costs and a worldwide access even if you don’t have your proper computer.
Today, cloud computing has been majorly adopted by the private customers through music (deezer), photos (flickr) and stocking (megaupload) softwares. The challenge is now to get it massively adopted by companies. Firms understand that the management, the stocking and the availability of data is a true benefit for them. However companies still fear the fact of letting critical data out of the company, which can be understood.
1.2 – Visioconference
Another transformation of technology can be seen by phone calls done through the internet. The company Skype has completely transformed the act of phoning. Four hundred million phone calls were done through their medium in 2009 through the P2PVOIP (peer to peer voice on internet protocol). Companies and individuals can do phone calls and videoconferences for free to anywhere in the world as long as there is an internet connection. Skype enabled the internet broadband and the cell phones to explode on the market while offering high quality services to the companies at the same time.
1.3 – Smart phones
The last but not least major change in technology is cell phones. Through the past years, they have mutated from a simple phoning tool to a multimedia device nearly as powerful as a laptop. In 2010, you can surf the internet, reply to mail, open excel documents and obviously phone from the most updated. This has, as you can imagine, changed the reactivity and the work of many professionals.
2 – Innovation
2.1 – The Harvard study
The innovator’s DNA, Dyer, Gregersen, Christensen, Harvard Business review 12/09
Innovation is the key to business success. In most companies, top executives do not feel responsible for coming up with strategic innovations. However the Harvard study underlines the fact that senior executives of the most innovative companies don’t delegate creative work. This study led to five discovery skills that distinguish the most creative executives: associating, questioning, observing, experimenting and networking. They found that innovative entrepreneurs spend more than 50% more time on these discovery activities than do CEO’s with no track record for innovation.
As Peter Drucker said more than 50 years ago: “The important and difficult job is never to find the right answer, it is to find the right question.”
Through observing, innovators detect small behavioural details – in the activities of the customers, suppliers, purchasers and other companies – that suggests new ways of doing things. By experimenting, innovators try new experiences and explore the new world. Through net working with individuals from diverse backgrounds, they gain radically different perspectives. Those three patterns help innovators associate to cultivate new insights. Associating can be defined as the ability to connect questions, problems or ideas from different fields to see new ideas appear.
2.2 – Change agents
Les ateliers de l’achat 2000, Hohn Hugues vol 1
John Hugues through a study he conducted, categorized three types of change agents.
2.2.1 – Improvers
Improvers think in tactical terms. Their interventions in how companies do business are almost always oriented toward cost-savings. They are functional in the short term. Hugues found that this is something of a starting place for change agents. As they develop, their viewpoint changes. They then become leaders.
2.2.2 – Leaders
They think strategically. They change programmes and question the logic that guides a business. To implement their visions, they require business leadership and executive sponsorship.
2.2.3 – Pioneers
Those are the last type of change agents. They could be defined as the person who uses the five pillars of the Harvard study which are associating, questioning, observing, experimenting and networking. Pioneers are not afraid of forging ahead with new ideas, and are willing to test the unfamiliar. It is essential to determine whether the changes brought within an organisation are driven by changes in the nature of purchasing or by broader business concerns.
3 -Reverse auctions and E-purchasing
3.1 – Reverse auctions
Reverse auction is defined as a type of auction where sellers offer their items for bidding, and compete for the price which a buyer will accept. The buyer usually has the option to accept any bid or reject all of them. Reverse auction can also be called business to consumer auction.
(RA provide good chemistry for shell)
Royal Dutch Shell, the energy and petrochemical group has been testing over the past decade online reverse auctions. The Dutch company produces fuel, chemical feed stocks and a range of petroleum based products. Through those different activities, the company has to acquire chemicals to do transformations. Buying those chemicals at the right price is one the key of the company’s success.
Guy Frankling, the Shell e-sourcing manager at Shell says that the Dutch company uses about a hundred reverse auctions a month because they have helped the firm save a lot of money. Shell has been using reverse auctions since 2001 and is on the Emptoris platform. Emptoris is part of a software used by the Shell buyers, whom are free to use reverse auctions if they estimate it will add value to their strategy. Shell especially uses reverse auctions for commodity purchasing. Frankling declares :”My overall view is that if it is something you can manually put out for a sealed tender bid and are intending to award the contract to one supplier, you can do it online because the evaluation process is primarily the same as if it were a manual process”.
By giving suppliers the opportunity to adjust their bids in real-time lets know where they stand in the bidding. Before suppliers couldn’t know from how far did they had missed the bid. A tool such as Emptoris enables them to know their rank from the beginning to the end.
To do a good reverse auction, specifications must be clearly defined when bidding out a contract. You must know what you are buying and check if there is a true competition on the auction, otherwise it will increase risks. If there are only two suppliers on the auction and one decides to leave, the buyer could be left stuck with the other supplier at a non advantageous price.
Add Pfizer 12 tips?
3.2 – E-purchasing
pdfWorking together on the web
Buyers and manufacturers must take initiatives to develop internet business. The internet site Thomasnet.com for example helps linking sellers and purchasers through the World Wide Web. This helps industrial company’s leverage internet technology to achieve their business goals. The ThomasNet.com website has a distributor content syndication technology that aims to improve industrial buyers’ online experience. The technology enables manufacturers to replicate their entire online catalog for each of their distributor sites, improve speed-to-market by introducing new products, efficiency in product positioning and an access to manufacturers’ complete online catalogue content.
4 – Key performance indicators
Purchasing in the 21st century, J. Schorr, 2nd edition
Performance measurements provide a view into areas that can or must be improved in the future.
In successful companies, continuous improvement becomes an endeavour for employees, suppliers and customers. It is also a key tool in maintaining a competitive advantage in today’s manufacturing and purchasing environments.
4.1 The examples of Palm and the University of Pennsylvania which are using metrics
Obviously, metrics must be done in terms of quantitative results and goals. This is why a subjective and generalized feedback cannot lead to improvement. For example, when Palm. Inc based in Milpitas, California decided to reengineer its supply chain, the firm realized that metrics would be a key success. With the help of PRTM, a supply chain consulting firm, the personal digital assistant manufacturer was able to go live with project results in four months. They reengineered all supply chain systems and processes, including demand planning, master production scheduling, and customer order management.
The project involved four key groups:
The manufacturing partners which were the external outsourcing partners who included manufacturing and distribution centres.
The key internal stakeholders included planners, master schedulers and buyers. The indirect stakeholders were composed of the members of finance and the executive staff.
The fourth group was made of external sales channel partners such as retailers and distributors.
The outsourcing partners were the first group to be assessed. Consequently Palm introduced two types of metrics.
The first one scheduled attainment and supply chain rhythm. Karl Braitberg, the senior director of the supply chain planning and fulfillement declared “An example would be our ability to publish master production schedules on time, then measure the response times and rhythm accuracies of our partners.” It also involved the duration of outsource partner response time. “For instance, we send on Tuesday, the partner responds on Wednesday, we publish back to customers on Thursday,” he continued. The second metric involved more traditional metrics based on manufacturing variables, such as factory on-time percentages, inventory return, yield data, etc.
The two most important metrics were on-time performance/fill rates to retailers and inventory turns. To date, this had improved from 55% up to 85%, and the company was working to reach a 100%. Concerning inventory turns, Palm reduced inventory by 60% and improve turns by the same rate.
http://www.purchasing.com/article/227211-Metrics_help_Palm_deliver_results_in_just_four_months.php?q=metrics
Focusing on institutions, the University of Pennsylvania (UP) through the work of the purchasing services and senior leadership aimed to place supply management on the leading edge of the University costs containment. They leveraged their buying power and enabled a financial return on investment that impacted the institution’s bottom line. The UP started using different metrics in relation with cost containment, strategic sourcing, spend management, compliance, supplier enablement etc.
The metrics composing the strategic sourcing were the purchasing, travel and electronic sourcing. Those metrics enabled to rise the UP’s annual buying power and cost containment opportunities without imposing restrictions on manufacturers or products required by faculty and staff. Prior to July 2008, electronic sourcing was conducted by Procuri’s strategic sourcing solution designed to help the sourcing teams. The software makes it easy to engage and qualify suppliers, involve international stakeholders in sourcing projects and negotiate on multiple factors.
http://www.purchasing.upenn.edu/supply-chain/performance-metrics.php
4.2 – Areas that must be covered by metrics
Purchasing in the 21st century
p178 et 192
Listed down below are the eight different areas that a good performance measurement system should cover: Delivery, quality, price, lead times, inventory investment, schedule completions in the plant, cost reduction/value analysis and inbound freight cost reduction.
Delivery must be gauged on need dates not replenishment dates, otherwise, on-time becomes meaningless.
Quality must be at the highest the company can go. It must strive for a 100 percent. A 2 percent defect rate may seem like a good performance. But 2 percent means 2000 defective parts out of every one hundred thousand, which is clearly unacceptable.
Price is important, it shouldn’t be denied in comparison of delivery and quality. The price metrics must compare the actual performance rather than standard costs.
Lead time should be measured before and after using an MRPII.
Inventory should drop when items are delivered at the date needed.
5 – Manufacturing resources planning 2
http://fea-upcam.fr/data/document_collections/99/doc_380_1174755352_fr.pdf
Companies must implement manufacturing resources planning 2. First internally, so that it finds out how to correctly use MRP2 and the just in time (JIT). Then the company must show its suppliers how to use it. This way the suppliers will see the result at the buyer’s company and will understand the positive points of that kind of process. First of all, suppliers must be trained to work on MRP2 and get valid schedules. Then they must learn just in time management by eliminating any waste in the supply pipeline. To finish, they must learn to have a total quality control.
The classic stock management is based on the independent management of each item of the company. This supposes that the consumption of each item will be repeated in the future and that the company doesn’t bother itself to know at which date it will need those items.
Those boundaries have brought the professionals to create manufacturing resources planning. MRP2 enables companies to forecast their exact needs with a time lapse/gap. From the prevision of the demand and client orders, the MRP2 method manages production, from very short term to long term, based on five levels of forward planning that will be explained later on.
On every level of forward planning, clients’ needs must be satisfied by integrating the resource availability. This method responds to the questions “what should I make, in what quantity, when and with which resources?”
Joseph Orlicky, in his book “Material requirement planning” published in 1975 made an important discovery. Orlicky stated a fundamental distinction between two needs: the independent needs and the dependent needs.
Independent needs are those who go outside the company/plant, independently of its will. It is essentially composed of finish products and spare parts bought the clients of the company.
Dependent needs are those generated by the independent needs. They come from inside the company. They can be parts, raw material or supplies who enter in the composition of the sold product.
The difference between those both needs is fundamental, independent needs can’t be estimated by previsions. On the other hand, dependent needs can and must be calculated. This was the aim of the material requirement planning (MRP0).
The Material Requirement Planning (MRP0), invented in 1965, responds to the questions which product, when and how much.
The Method of Regulation of the Production (MRP1), integrates management and forward planning. The questions that can be added are “Have I got the capacity to do it?” and “How long will take me to make it?” An important concept is also introduced at that time, the feedback loop.
In 1979, manufacturing resource planning also known as MRP2 was invented. In MRP2, quality control is integrated at the same time as priority management.
Five levels of forward planning compose MRP2, which are the strategy, the Manufacturing and Sales Plan, the master production schedule, the calculated needs and the workshop management.
The strategy defines the general objectives of the company in term of market share, choice of product, production site and/or general organisation. Strategy is based on long term market studies and integrates the evolution of technologies. It also includes obligations and objectives in marketing, finance and production. Strategy is updated every 6 months or every year looking at a two to five year horizon.
The Manufacturing and Sales Plan is the key element to forward planning. It’s made up between the sales executives, the production and the head offices. Its goal is to have a wide angle view on every family of products. It enables to forecast the problems which can occur, especially an inadequacy between the company’s capacity and the charge/load/burden of the commercial needs. The control of the Manufacturing and Sales Plan to a limited number of product families (between 5 and 20 depending on the size of the company) must be a clear focus.
The Manufacturing and Sales Plan is the global contract between the production service and the commercial service. It relies on the sales previsions done by the commercial service and the production forecasts done, obviously, by the production service. Logic concludes to define the stock at each period to work out how much has to be produced at the next one.
The master production schedule, from the manufacturing and sales plan defines the quantities to produce for each product. It gives the order to make the products, follows the sales and calculates how much are going to be sold and the stock evolution. The master production schedule works on a week basis or a day basis.
The calculated needs are the “heart” of MRP2. They aim to define from independent needs, the forecast of the finished products, and from dependent needs, the firm orders for the upcoming period.
The calculated needs have created orders that now must be transmitted to the workshops. Workshop management focuses on the optimisation of the use of available resources which are the workers, raw material and machines. It also focuses on priorities, improve productivity, minimise stock and improve the customer support. Workshop management touches four principal activities: Organisation, ordering, coordinating and controlling.
Those are all the main characteristics that compose the manufacturing resource planning. To be coherent MRP2 uses three feedback loops. The first one concerns deadlines; it is double and links the results of the capacity forward planning with the two levels which are the needs and the master production schedule. The second one checks the charges and capacities and connects orders to the forward planning of capacities (charges). The last feedback loop concerns the execution; it links the workshop management to the calculated needs.
D – Evolutions in purchasing
1 – Globalization
One of purchasing goal is reducing costs. In the beginning, going to low cost countries usually meant selling products in those countries. Nowadays by investing in low cost countries such as China, Eastern Europe or India, major companies enable themselves to subcontract or purchase at competitive prices.
Different techniques are used to penetrate the market. The first one is external growth; a company buys one of its suppliers who is situated abroad. Subcontracting and relocating the industrial units of the company usually shows a strong commitment. Only a few companies are in that position. For example, in China it’s very difficult to have both low cost and quality. Most of the companies still go and outsource to China with an intention to sell on the market in the future.
Due to international competition, more and more firms have, and must outsource to countries such as China, India or Eastern Europe especially in the car industry for example.
A few years ago, companies started making a distinction between their purchasing offices who are orientated locally and the ones specialised in exportation. Those offices, who export, adapt their purchasing to the occidental needs and are associated to design offices who assess the quality and the specificity of the parts. For example, the Boston Consulting Group has three sourcing teams in Shanghai, Bangalore and Budapest. They work for European companies. On the other hand, Schneider Electrics has purchasers who buy local components for the local market.
This organisation aims to reorganize purchasing by balancing the origin of the purchases though the Asian countries. To fulfil the goals, purchasing must be affected by activity, location or by added value. Schneider Electrics’ purchasing director declares “We give to China and India the strong added value markets and to Eastern Europe the heavyweight products.”
Today, to venture in a low cost country, barriers clearly identified must be taken in account. Quality and conformity must be adjusted to the demand, especially when the industries don’t yet suit the needs of the purchaser. Then cultural environment is not always at his best, countries such as China have a strong language barrier, spirit of concealment or, or as in eastern Europe, a bit of disorganization. In Russia, the multiplications of intermediates between the purchaser and the supplier have to make you focus on strong communication skills, management or negotiation.
To sum up, a strong investment must be previously done before entering a market. Profitability can only appear when buying important volumes. The best thing to do is to implant the plants the closest to the customers. For example, build your plant in Romania if you are planning to sell in the Eastern European countries.
1.1 – China
(Faut-il acheter en Chine � tout prix? LDA Juin 2007, Desni�)
With a two digit growth rate since the past few years, China comforts its position as the world’s workshop. Even if Chinese products are more sophisticated than they used to be, prices are still very competitive. For VVR International, China still offers unbeatable quality price products. Suppliers always pull down the prices on the clients’ demand which makes products very competitive. Lots of international companies, such as Vodafone, seduced by the benefits, increase their purchasing quantities. The Telecom Company, as well as EADS, have opened a central purchasing office in the eastern country a few years ago. The operator has decided to double its purchasing in China up to 1 billion Euros in 2010. EADS was purchasing 120 million euros of goods this year.
1.1.1 – Precautions about China
Even if China may seem very attractive, companies who aim to supply in China must be careful. Accenture Shanghai reminded that a company must think further up and define what China is going to play in their worldwide strategy. A big error would be to buy in China only to save money. Setting up a new industry in China can be very expensive financially and humanly. Experts are all saying the same phrase : ” To buy in China you must be in China”. First of all, to check the quality of the production process, you must be in the country to be able to control the production, see the plants and check how the staff works.
A big problem is the language barrier, it stresses the need of a good relation between purchasers and suppliers. Another inconvenient is that the Chinese suppliers who are working with Europe or the US know the market prices and pull prices up. It’s not a surprise when you see that only one third of purchasing is done by 100% Chinese companies, the other part is mixed companies composed of half Asian half European societies, more familiar with the European or US business environment.
Another fact to take in account is that logistics can be very important as China is seventeen times bigger than France.
1.1.2 – Conclusion
To conclude, we could say that it’s very interesting to buy in China if you are aiming to sell on the Chinese market. On the other hand, buying in China to export to Europe is not always profitable. For example, the car manufacturers and suppliers who buy in China use their purchases for the local market. With the influence of the Eastern Europe, working with China can be very expensive due to the expensive transport which is less and less helped by the low costs. In definitive, the purchasing price is cheaper but the total cost is higher due to the communication, logistics and delivery times.
1.2 – India
(LDA, Juin 2007, Une alternative en Asie)
India’s growth rate was 9.2% in 2006-2007. Even if the country is a bit behind China in terms of infrastructures and industrial development, India is very attractive for buyers. For small and medium sized orders, India has much more to offer than China where important volumes must be preferred. As long as the handiwork is cheaper than additional charges, the amortization of machines and the transport costs. Companies such as Volvo buy rubber or steal casted metal parts to small suppliers but first class Indian suppliers are coming into the game. Another good sign for the Indian economy is that Volvo, for example, is not working with global suppliers but with local Indian suppliers. Renault is also collaborating with the Indian Mahindra to build its Logan with annual objectives of 50 000 cars. International companies are also seeing more and more ISO certified Indian companies who are nearly similar contractually to Western companies. A great advantage compared to China is the language barrier which doesn’t exist. Even though, quality and process controls must be done physically.
Seeing how is acting the local market, companies such as Carrefour, Fiat and Thales are thinking of selling on the local market after being buying for years in India. One of India’s flagship is computing. Bangalore hosts Indian giants such as Infosys, Wipro and Tata consultancy. The low cost salaries and the high qualification have motivated companies such as Cap Gemini and Accenture to increase their staff in India in activities occupied by 80% of handiwork.
1.3 – The Eastern Europe countries
(LDA, Juin 2007, L’effet bas co�ts se d�place vers l’Europe de l’est)
To benefit from geographical attractivity, purchasers have been buying and working with Eastern Europe for several years. Countries such as Poland and Hungary are historically linked with car manufacturers or mechanical outsourcing. The supply chain management in much easier than with countries such as China due to the closeness of the countries and the rare quality problems.
Another advantage is that those countries are part of the European Union which means that customs don’t have to be paid anymore.
The only barrier that must overcome purchasers is innovation. Eastern European countries usually suit purchasers for products that have already been tested or have a long life cycle. Innovation capacity is a subject difficult to forecast. This is why purchasers prefer working with classic products. However once the innovation problem resolved, European countries will probably won’t be any longer low cost countries. Hungary and Czech Republic are already not anymore low cost countries. Even though, companies such as Nokia, Siemens and Philips have opened plants in those countries. To benefit from cost advantage, companies must go to Rumania or Ukraine where wages are not as high but where the investments are strongly increasing. To sum up, central Europe has quality standards and prices close to Western Europe and Eastern Europe who offers true lost cost products.
2 – Partnership, sourcing, integration of suppliers and customers
The most important group in the project turned out to present the greatest challenge, according to Braitberg. These were the retail partners. “We wanted to begin doing collaborative planning with these partners,” he explains. However, some of the retailers didn’t want to get into discussions of sophisticated planning until Palm could prove that it could deliver on time consistently. As such, the company had to take steps to improve its own performance first. “To be honest, we did not make the progress we wanted to in this area initially, but we have made progress since then,” Braitberg adds
2.1 – Partnership
Lettre des achats n�151, Juin 2007 “Pourquoi investir dans les relations fournisseur”
In recent years, the relationship between buyers and suppliers has received considerable attention. Due to the globalization of markets, corporate restructuring, and increased focus on costs, quality flexibility and technology, an expanded role for procurement has emerged (Burt, Dobler, and Starling 2003).
Rationalisation of the supplier base started off in the nineties in the United States of America. Twenty years later some companies have been much further than rationalisation and are entering an era of partnership.
Pratt & Whitney, a Canadian engine company has revised the whole process of production. In collaboration with its suppliers, P&W managed to save time in their process and design a new product easier to build.
Specialised in plane engines, Pratt & Whitney brought out in 2000 a model of engine for very light jets, the PW 600. The market was estimated at 200 units for ten years which made it a strategic market for the company who has clients such as Embraer and Cessna. To satisfy its customer in terms of time and quality, P&W had to modify its production. Purchasing and the company’s suppliers had an important role to play in the redesign of the product and process. In the end, they managed to reduce the production of an engine from eight days to eight hours once the engine was redesigned.
During one year, tests were realized to improve the design of the engine, the supply chain strategy and the production capacity. The supplier base was rationalized, from raw material to finished products. They passed from a hundred and thirty to thirty suppliers in four months. Partners were chosen early in the process, well before the design was done. The goal was to have total quality from the start of the process. First rank suppliers had to have production lines dedicated to Pratt & Whitney’s product, enough spare parts in stock and, the most important, have a 100% quality. Simulations were done with cardboard models of the different parts of the engine with the suppliers. This enabled to gain quality, save time and expenses.
The work done with the suppliers enabled to divide by two the number of parts in an engine. For example, the fuel pump can now be changed in ten minutes whereas it took twenty four hours in the past with the old models of engines.
When rationalising, each category of supplier must be defined to lead to a true partnership. Suppliers who receive few orders are either eliminated or developed. Selected suppliers have a strategic competiveness on the market. Strategic supplier brings the added value and must be in partnership with the company. In order to have a good partnership, metrics must be introduced. Those metrics will help gratify the supplier’s performance. Here’s a clear example: Nokia and an American competitor used to buy chips to the same Japanese chip manufacturer. A reduction of the production by the supplier had to be done. Nokia was served first thanks to its metrics. The American competitor had been putting strong pressure on the manufacturer whereas Nokia had perfectly analysed its production capacity and had established a trustworthy partnership.
2.2 – Type of partnerships
A study from the Arizona State University defined the company/supplier relation in two categories:
– The first one consists of collaboration for a defined project considered the initiative of a team or person.
– The second one is an integrated collaboration of the supplier into the culture and organisation of the company.
For the project collaboration, benefits come in terms of costs. The integration of the supplier in the company is much more interesting strategically and financially, it usually enables to release products much faster. Thus the goal should never be forgotten, the study showed that organizations that collaborated without keeping performance in focus, ended up with costs going up.
In this case, a good example of partnership is the one of car manufacturer Honda with an American supplier. Being forced to stop its production line, the supplier had to declare that wouldn’t be able to deliver. In one hour, Honda sent an engineering team who worked the whole night long to get the machines fixed. Another client only proposed help on the next day, once the problem had been solved. For Honda its suppliers’ problems are the company’s problems.
2.3 – Sourcing
http://www.faq-logistique.com/Communique-presse20080311-DDS-Sourcing-International.htm
2.3.1 – Sourcing at Siemens
Les ateliers de l’achat, Brandmaier and Douglas
Siemens Procurement and Logistics Services (SPLS) is a new business unit within Siemens. It procures comprehensive logistics and procurement services to Siemens divisions and regions to external suppliers and customers.
The Siemens group is made up of separate divisions in different industry branches, each of which has its own international purchasing organization. Through outsourcing “non core” purchasing and logistical functions to a professional service provider, the company recons that they can focus better on their core competence. Market analyses have indicated that there is a growing demand in procurement and logistics. Companies having to compete on a global scale need to optimize their products and services, which call for specific know how in purchasing and logistics. An analysis has shown that companies which engage in any form of electronic procurement tend to contract for an entire process from order to delivery in order to reduce process costs.
SPLS offers a complete range of procurement and logistics services in the fields of global sourcing, procurement, supply chain management and consulting. A full service approach gives the company increased flexibility in its responses to customers needs. The large volume enables to reduce costs through pooling effects, while the international market presence enables the firm to maximize its benefits in the global market potential. 70% of the business volume is generated internally, while the remaining 30% is with external customers. The typical problems that can occur in global sourcing are the problems of language and culture, customs regulations and complexity of deliveries (cf. China).
2.3.2 – Sourcing in the car industry
“LDA, mars 2010, Une mutation profonde doit intervenir dans l automobile.�
Quoting Claude Cham, president of the PFA (Plate-forme de la fili�re automobile): Suppliers have suffered the crisis consequences twice, first when the car sales plummeted and in 2010, the reduction of the car manufacturers’ stocks. Suppliers started the year 2009 at -50% and ended with a global -23%. Mister Cham declared that financial solutions must be encountered so that suppliers continue investing in research and development. The PFA decided to help the lean manufacturing to make three hundred companies more competitive. The second step is to train more staff to the technologies of information and communication. The target is to help the whole channel on medium and long term strategy. In the past, purchasers could have aimed to get the lowest price due to the over amount of suppliers. Today, this type of behaviour is unacceptable. Suppliers and manufacturers are sharing research and development. The purchasing relation must be backboned with a strategic dimension and an upstream partnership.
3 – Centralization and decentralization
Centralizing purchasing or not in a company is one of today’s main question. Centralising could be explained as separating the need from the purchase. Whereas decentralising aims to give parts of the organization their own autonomy.
Choosing to centralize or not for an organization can be a difficult choice, especially if the company has multiple plants and different products.
By grouping the buyers and the needs in the same global purchasing unit, a company can gain true benefits such as mass effects and leverage costs. Centralizing also enables the company to pay the same price for the same product whereas before the supplier could sell the same product to two entities of the company at two different prices.
On the other hand, a company can really have the need of being decentralised. When an industrial company is organised in different branches with its own production in each plant it can be difficult to remove the purchasing who directly concerns it. This may result as a loss of flexibility and obviously a loss of money.
If purchasing is not an important part in the price of the product, the strategic purchase can be left under the authority of each plant. Simple goods such as pens or paper for example can be bought by a centralised entity.
Quoting the Resources Global Professionals survey 52% of the companies centralise off production goods. Production goods are not as centralized with 45% of the businesses who declare that they centralize them.
The main advantages of centralizing are the normalization of the procedures, the increased negotiation power, the cost gains and the quantity of providers who is increased. Centralizing also enables to keep defined strategies and politics throughout the whole company. The strong points of decentralizing are the closeness to the suppliers with knowledge that follows and the reaction time who is increased. Decentralizing also enables purchasing to be linked to profit centres which can bring real competitiveness to the organization.
However, an important majority of today’s companies have chosen to stay in between those two formats by adopting what can be called a hybrid organization which is a structural mix between centralization in decentralization which mean that some products are centralized and the other ones are decentralized.
4 – Cross functional teams
(F.Wynstra p94) The newest organizational structure is the process structure. A process structure is based on a complete flow of work, such as the order fulfilment process, new product development process or the purchase-to-pay process.
People from each function who work on the process should be gathered into a process team and given end-to-end responsibility for the overall process. The process team reports to a process leader. The structure is thereby converted from a vertical functional structure to a horizontal process structure.
Apart from process teams, companies can also enhance cross-functional collaboration by co-locating personnel, for example by co-locating sourcing experts with their internal customers.
(Cross-functional teams, Glenn Parker. Jossey Bass Business and Management Series)
Quoting Harley Davidson’s director of supply chain management “Cross-functional teams are at the heart of every motorcycle produced at Harley-Davidson Motor Company.”
Digging a bit more, we can see that the 21st century has nothing to compare with 20th century organizations. Due to the increasing business needs and reactivity, companies must react the fastest they can and obviously, efficiently. The classic organizational are dated; fluid collaboration is the new way to get the work done in a company. This why cross functional teams have appeared.
4.1 – Teams
First we shall define a team. A team “is a group of people with a high degree of interdependence, geared toward the achievement of a goal or the completion of a task. In other words, team members agree on a goal and agree that the only way to achieve the goal is to work together. Many groups with common goals are not teams. The key is the requirement for interdependence.”
Teams can be classified in three types which are functional teams, self-directed teams and cross-functional teams.
4.1.1 – The functional team
The functional team could be described as composed of a boss and his direct reports. This type of the team is the keystone of modern business. Therefore the organization looks like a pyramid. It functions very well in stable, slow growth industries.
4.1.2 – The self-directed team
The self-directed team, quoting Development Dimensions International is “an intact group of employees who are responsible for a whole work process or segment that delivers a product or service to an internal or external customer.”
Team members are completely involved in their own work, they control it. They are their own managers. Zenger-Miller describes a self-directed team as “a highly trained group of employees, […] fully responsible for turning out a well-defined segment of finished work. The segment could be a final product […] or a service […]. It could also be a complete but intermediate product or service […], self directed-teams represent the conceptual opposite of the assembly line, where each worker assumes responsibility for a narrow technical function.” Self directed teams’ are particularly successful in start-up sites because there is no history, no culture to change and no power shift need to be negotiated, everything is new.
4.1.3 – The cross-functional team
The cross-functional team who can also be called multidisciplinary team is “part of the quiet revolution that is sweeping across organizations today”. Doyle defines cross functional team as “a team composed of individuals from departments within the firm whose competencies are essential in achieving optimal evaluation. Successful teams combine skill sets which no single individual possesses.” Parker explains a CFT by “a group of people with a clear purpose representing a variety of functions or disciplines in the organization whose combined efforts are necessary for achieving the team’s purpose.
Cross functional teams are usually composed of persons from different areas such as marketing, research, development and purchasing.
Companies such as Motorola believe that cross functional teams should be composed of persons from all level of management from operators up to the salesmen. Some organizations also include leading customers and suppliers.
“Cross functional teams are more akin to project organizations that must integrate various resource groups to achieve an agreed-upon product.”
Cross functional teams are very effective in companies with quick-changing markets, such as computer, pharmaceutical, video games etc. They value adaptability, speed and an intense focus on responding to customer needs.
If members of a cross functional team don’t know each other it usually works well. On the other hand, team members can have ready made ideas. For example a designer could be thinking that purchasers always want to reduce the costs and interfere with his own work.
Cross functional teams have three dimensions, the purpose, the duration and the membership.
The purpose could be the development of a pair of shoes or a phone for example. The duration is whether the team is permanent or temporary.
The membership as we said higher up, can be composed of an infinite variety of members.
By carefully defining the goals, rewards, training and policies, a cross functional team has much more chance to realize synergy and fulfil the objective.
5 – Behaviour
5.1 – Sustainable procurement
PPT 3 valeurs
Purchasing used to have one bottom line, profitability. Today with the ecology and matters that all concern us, companies have now three bottom lines which are persons, planet and profits.
Sustainable procurement is defined by Ms Lafarge as “a process whereby organisations meet their needs for goods and services, works and utilities, in a way that achieves value for money on a whole life basis with benefits to the organisation, society and economy, whilst minimising damage to the environment.”
Sustainable procurement is structured by global trends. More than 90% of procurement directors consider it a key priority. The key objectives are risks to the brand image avoidance, cost reduction and environmental law compliance.
Sustainable procurement is based on four key drivers which are social, economic, regulatory and of course, environment.
Social procurement objectives include fair trade, local economy support, minorities support, ethical trade, fair working conditions and the respect of human rights. Economic procurement objectives aim to reduce costs, improve the supply chain efficiency, risk avoidance, competitive advantage and the customer satisfaction. Regulatory takes care of regulation compliance and penalties avoidance which are social and environmental laws. The environment procurement objectives deal with the minimisation of the carbon footprint, eco-design contribution and reduction of resources and waste.
5.1.1 – Wal-Mart’s sustainability index
“LDA, Avril 2010, Vert c’est bien, rentable, c’est mieux”
Today, sustainable procurement must and can be profitable. This is why it didn’t disappear after the 2009 crisis. Multinational companies such as Wal-Mart have, for example, introduced a sustainability index. Quoting the number one food retail store, customers desire products that are more efficient, last longer and perform better. They want to know the product’s entire lifecycle. They want to know if the materials in the product are safe, if it is well made and is produced in a responsible way.
With the sustainability index, Wal-Mart is helping to create a more transparent supply chain, driving product innovation and providing our customers with information they need to assess products’ sustainability. Suppliers are provided a survey to evaluate their company through four different areas: energy and climate, material efficiency, natural resources; and people and community. A lifecycle analysis database has been created to develop a database on products’ lifecycle from raw materials to disposal. The last purpose of the index is to provide the customers with product information in an easy way to understand so they can make choices and consume in a more sustainable way.
http://walmartstores.com/Sustainability/9292.aspx
5.1.2 – Alcatel Lucent
Alcatel Lucent only focuses on sustainable purchasing for the “end use” goods. This means, that in Alcatel-Lucent, sustainable purchasing concerns energy, office equipment, computers or buildings. When Alcatel had to buy new computers, the company bought “energy star” label computers who consume less electricity. The computers also had a recyclable and restricted packaging to limit waste.
5.1.3 – Renault
On the other hand, the car manufacturer Renault has gone a bit further by using recycled plastic for some of its parts. Recycled parts are cheaper than non-recycled plastic. The car manufacturer also added to its supplier bid offer a new criteria, eco friendly driving. This criteria enabled to see a 10% drop of the fuel consumption on the suppliers lorries. Through those examples, we can see that sustainable procurement is a real opportunity to reduce costs.
5.1.4 – The sustainable procurement’s importance
(L’achat durable r�siste encore � la crise, LDA Fev 2009)
For French companies, sustainable procurement has reached a stability level. Quoting the fourth benchmark on sustainable procurement done by HEC-EcoVadis, 90% of the companies surveyed have integrated sustainable procurement to their own purchasing goals. This shows that sustainable procurement has the same importance as reduction costs which were also quoted at 90%.
In 2005, sustainable procurement was quoted at 63% and went up to 89% in the 2007 version of the survey. Those figures overwhelm the fact that event though there is a crisis context, sustainable growth has still a central position for most of the companies and occupies an important place in purchasing.
Nevertheless, the sustainable procurements’ goals are only achieved at 29% say the surveyed purchasers far behind strategic goals such as indirect (54%) and direct (51%) purchasing. Today, the sustainable growth process is operational in most of the companies but still has to be improved. Improvement must come through team evaluation and metrics.
A positive point is that sustainable procurement budget is increasing. In 2009, 35% of the budgets were being increased and 54% stayed stable which is not so bad in a crisis context.
5.1.5 – The ISO 26000 norm
The ISO 26000 norm defines the directive lines for any type of organisation who wants to assume the social responsibility of its impact.
Social responsibility is defined as the responsibility of an organization on society and environment that can be translated as an ethical and transparent behaviour.The company helps through its transparent and ethical behaviour.
Sustainable growth, takes in account different actors, respects the law, is in accordance with international norms and integrates the whole organisation.
The ISO 26000 has two main goals:
The identification of the impact of its decisions and activities on the organisation regarding the ISO 26000 norm.
The identification of the different actors who work with the organisation and dialog with them.
The ISO 26000’s different pillars are the social responsibility, human rights, relation and work conditions, environment, good business behaviour and questions in relation with the clients.
http://www.afnor.org/profils/centre-d-interet/developpement-durable/dossier-special-iso-26000/la-norme-iso-26000-en-quelques-mots
http://www.iso.org/iso/pressrelease.htm?refid=Ref1245
6 – Business trips
(Classe �co pour tout le monde, LDA avril 2010, Maxime Rabiller)
Due to the 2009 crisis, companies have decided to cut down travel expenses. Purchasing units are giving priority to the best buy.
Buying business trips is now a case of control and cost reduction. At Sidel, one of the leaders in packaging, questioning before buying a flight ticket has become a rule and a higher control is done at the travel agency to be sure of the purchase.
The best buy approach has multiplicated by three the use of low cost companies to travel. By using low cost companies and controlling, Sidel managed to cut down 22% of its travels and the bill dropped down to 17 million euros which is a 40% saving. Sidel’s purchasing director, Yann Le Goff says that they especially focused on reduction of the number of travels, the control of reservations and the decrease of the comfort standards.
The main goal in travel savings is to comfort the reduction cost. Individual behaviour must be in focus. The people who travel for a company must be given a sense of responsibility by not buying at the last moment their tickets for example. To help, a validation must be given by a superior. Business class is less and less used but is still authorised for flight longer than 6 hours says Patricia Motta of the travel management at BASF. Due to the crisis, two third of the European companies reduced their business trips.
At Sidel, reducing cost on travel doesn’t concerns technicians who have to go to the different plants located in the world. Cost reduction has been focused on support functions; the company aims to maximize the use of new technologies via the web or by visio conferences. In 2009, 15OOO video conferences sessions were made at Sidel. When a white collar needs to go on travel an authorisation has now to be given by a hierarchic superior.
To sum up, for a company who wants to reduce its travel costs five actions must be done:
– Increase the control on the travel and the reservation manners.
– Add other alternatives, which can be technological (visio) or not (train, low cost).
– Redefine the travel policy by crossing the destination, standing and prices.
– Use softwares to increase the efficiency of the reservation and the cost.
– Use best buy behaviour without forgetting to negociate.
E – Solutions for the 21st century
Purchasing has been evolving through the past decades to reach a strategic function in an impressive amount of companies. This is what I described it in the former parts of this MEMOIRE/dissertation. Firms such as Pratt and Whitney, Renault, Shell and many others know and can estimate the importance of the purchasing function.
-Even though purchasing is a pillar function in many companies, it is too often seen to a cost reduction function which helps the firms secure themselves on their assets by increasing their own savings.
-In the 21st century, purchasing can’t be reduced to this only fact. Through the next two parts I will show you my point of view and purchasing professionals’ vision on how will purchasing change and what will it become it the next few years.
1 – First solution
As Peugeot’s purchasing director mister Quemard described it, purchasing has now new challenges which have appeared:
– Eco system logic
– Strategic partnership
– The involvement of purchasing in the core strategy
1.1 – The eco system logic
Companies throughout the 20th and 21st century have been closely working with suppliers in order to offer products at the right price and right time. In the past, if a supplier was inefficient, a firm could, usually, replace by another one. Today in the case of companies such as Peugeot or Renault if a supplier can’t produce, consequences can be catastrophic for them. Through their strategic partnership companies and suppliers must be assured of the quality, quantity and time delivery the whole year round.
In order to face that kind of problems, Peugeot has introduced a team of 40 persons who only work on the supplier risk. They provide advice and expertise to the suppliers. By providing the suppliers with performance metrics and help needed, Peugeot’s goal is to set a healthy relationship based on trust.
1.2 – Strategic partnership
1.3 – The involvement of purchasing in the core strategy
– The United Nations’ Global Compact
Launched in July 2000, the Global Compact is described as a “Corporate citizenship in the world economy”. Its objectives are to build markets, fight corruption, safeguard the environment and ensure social inclusion. The result has been a partnership between business, government, civil society, labour and the United Nations.
The Global Compact is “a policy platform and a practical framework for the firms that are committed to sustainability and responsible business practices”.
Quoting the United Nations brochure, “the global compact is not a regulatory instrument but rather a voluntary initiative that relies on public accountability, transparency and disclosure to complement regulation and to provide a space for innovation.”
The global compact’s benefits are:
An established and globally recognized policy framework
To share best and emerging practices to advance practical solutions and strategies to common challenges.
To have sustainable solutions in partnership
To link business units and subsidiaries across the value chain
Access the United Nation’s knowledge on sustainability and development issues
– Efforts to reduce the carbon footprint
http://www.purchasing.com/article/210604-Green_Buying_How_procurement_���is_managing_environmental_demands.php
Nowadays companies are going to have to reduce their carbon footprint, especially if they have the United Nation’s global compact. Purchasing is an opportunity to reduce it. At IBM, they are already using a metric called the carbon analysis tool. It can be used to calculate the impact of different choices on the supply chain operations.
LDA Fev2010 “le recyclage est une alternative de croissance et non de decroissance.”
More than 75% of the French companies recycle their paper.
In twenty years, between 1990 and 2010, the treatment of a ton of garbage has been multiplied by 10.
Recycling paper is more economical than burning it.
However there still is schizophrenia between reducing the costs and sustainable purchasing.
More than 50% of the paper produced in the world comes from recycling so as 45% of the steel and 35% of the copper. Industries are going to tend to get closer to the recycling sources rather than the raw material sites.
In 2020, more than 50% of the materials will come from recycling and at the end of the century more than 75%. This will be the opposite of the 60’s where only 25% of the materials came from recycling.
Travelling without moving
Nowadays, purchasers have to travel the world in order to find the best suppliers. As quoted before in the part D6 ” business trips”, companies are cutting down travelling costs who can appear to be astronomical. Obviously, purchasers of the 21st century will still have to travel to meet suppliers and check the product quality but alternatives on classic travels are and will continue existing. By using more and more videoconferencing, purchasers are able to meet virtually their suppliers and colleagues
Thanks to the internet broadband, a high quality communication can be done from nearly any place on the globe. The voice on IP is the technology that enables the communication. The Integrated Services Data Network (ISDN) which is a communication standard is what we can call now the telephone of the future. By using the ISDN, companies can simultaneously transmit digitally voice, video and data.
As said Professor Woudhuysen of the Leicester University “Business and social priorities will drive the development of technology – not the other way around.” For example, software such as Skype, the leader of VOIP, an add-on named Pamela enables the user to have record the video conferences and have an answering machine. Professor Woudhuysen also declared “Video-conferencing […] will be an important and useful relation-ship building tool, especially with suppliers overseas.”
A new breed of purchasers
http://www.procurementleaders.com/magazines/european-leaders-elp04/articles/11650/
Richard Lamming, director of Southampton school of management says that in a decade or two “purchasers will be replaced by improved technology and a new breed of deal shapers, young independent agents will control access to market and suppliers’ information.” In a less optimistic way, Ian Pearson declares that “Almost all procurement in that time frame will be done by machines, from machines, and mostly for machines. Manny of those will artificial intelligence.”
Being more positive, a good purchaser will need to have a good academic education, skills in strategic management and accounting and financial skills. Good communication and intercultural competences will obligatory to be able to deal with worldwide who can come from nearly anywhere in the world.
Closeness of suppliers and purchasers
To be efficient in their work, purchasers have to be delivered at the right moment which avoids the stocking time costs. The car manufacturer Smart situated in Hambach, Lorraine understood that strategic point. The industrial estate “Smartville”, the manufacturer has gathered 11 suppliers around the cross shaped central core building. By reducing delivery time, Smart optimised the construction time of a vehicle. This solution enables Smart to have a car coming out the production line every minute and a half which means 550 vehicles produced per day.
This solution is what must be done by manufacturers who are strategically dependent on their suppliers. By reducing the delivery time, quality and security increase. In the future this type of industrial architecture will be the one the most used to guarantee efficiency.
Glocalisation
http://wiki.univ-paris5.fr/wiki/Glocalisation
http://www.lecourrier.ch/modules.php?op=modload&name=NewsPaper&file=article&sid=37962
Matusitz, Jonathan1
Forrester, Maya1 matusitz@gmail.com
Source:
Journal of Transnational Management; 2009, Vol. 14 Issue 2, p155-176, 22p
This analysis looks at how Wal-Mart in Japan�what the Japanese call Seiyu in their homeland�became successful after principles of glocalization theory were adopted. Glocalization implies that a large corporation like Wal-Mart must cater to local tastes and differences and show cultural flexibility in order to boost customer appeal. Wal-Mart’s glocalization strategies in Japan revolve around four key themes: (1) cultural adjustment to Japanese-style stores, (2) cultural adjustment to Japanese consumer habits, (3) adjustment to Japanese-style merchandizing and operational systems, and (4) adjustment of work and employee practices. From this vantage point, an important premise of this analysis is that “Wal-Martization”�Wal-Mart’s blueprint of corporate culture, everyday low pricing, and intense pressure on suppliers�is not commonly accepted worldwide. [ABSTRACT FROM AUTHOR]
Biomass
Biomass Comprises fuel wood, charcoal, bagasse, alcohol, animal waste,
vegetal and other waste, such as municipal waste, and pulp and
paper waste.
http://www.biomasse.fr/
http://www.cadresonline.com/emploi-chef+de+projet+biomasse-218320.html
Pamela for skype
More partnership, integrated suppliers to the company
Reduced of the supplier base
More automatization, procurement done by machines
Closeness of suppliers and purchasers (Smart, China in China…)
Social responsibility of companies
Quemard Peugeot : Strategic partnership, in the focus with the company’s strategy, eco-system logic
United Nations’Global Compact
More standardisation linked with personalisation
Reactivity enhanced by the market
Video-conferencing reduction of costs and carbon footprint)
Martin Christopher (Director of the SCM at Cranfield University) : Pg as a function will not exist. Instead, collaborative interorganisational teams will plan across the network to optimise total end-to-end costs.
More and more use of English and Cantonese
Sourcing from low-cost countries