May 17, 2020

Comment: Beyond bottom line - how supply chains can leverage technology to improve lives

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Marcell Vollmer, Chief Digital...
4 min
http://www.supplychaindigital.com/scm/comment-secret-making-customers-care-about-supply-chain
Technology has infiltrated and transformed every aspect of our day-to-day lives – including how we work. Artificial intelligence and machine learning...

Technology has infiltrated and transformed every aspect of our day-to-day lives – including how we work. Artificial intelligence and machine learning, along with the Internet of Things (IoT) and business networks, are creating real opportunities for us to become more efficient and strategic and engage in smarter decision making that can move our organisations forward. And supply chain professionals are in a unique position to lead this transformation – and take it to the next level. Beyond just saving money, procurement can, thanks to technology, deliver fresh insights into the inner-workings of complex supply chains that beyond saving money, can help their companies to make a difference.  

Stamping out Slavery with Machine Learning and Artificial Intelligence

Supply chain risk is often viewed through the traditional lens of equipment failure, shipment delays and supply shortages. However, supply risk goes much deeper than this.

Slavery was abolished on paper centuries ago, but it’s still happening across the globe – and it starts in supply chains. According to the International Labour Organization, there are more than 30mn forced laborers around the world today in nearly every industry. From migrant workers being held captive in commercial fishing piers, to child laborers being exploited in the cocoa and coffee industries across Latin America and Africa – slavery is very much still exists.

Unethical supply chains are a global, modern-day problem – and require a modern-day solution to solve. Enter machine learning. Machines have an incredible ability to consume and analyse massive amounts of data with extreme speed and precision.

Machines, for instance, can analyse billions of financial transactions alongside historical and real-time purchasing data – gaining insights from hundreds of global government, business, and other data sources. Technology can be leveraged to uncover the materials, regions, and suppliers that are most likely to have forced labour, or be at risk of it that humans simply can’t process fast enough. They can also map the bill of materials of products and services right down to their raw materials. This information can be cross-referenced with hotspots where there is a high propensity for the use of forced and child labor which companies can use to determine their risk, and then do something about it.

Driving Safer Supply Chains with IoT

Over 100,000 manufacturing workers suffer a job-related injury each year. Leveraging connected machines and predictive analytics to monitor equipment and drive new standards for safety, companies can drastically reduce the amount of engine and equipment-related injuries and casualties within supply chains and ultimately, save lives.

Trains, ships and planes, for instance, can be equipped with sensors that run real-time diagnostics to determine when maintenance may be needed – and automatically order parts so that they can be installed before breakdowns occur. These same sensors can also monitor speed and driver, captain and pilot behavior to prevent accidents before they happen.

Procuring with Purpose through Business Networks

Research shows that today’s consumers lean toward brands that have a higher purpose. If given a choice, most will purchase a brand with a cause over one without. But social causes aren’t limited to consumer companies. Businesses across all industries are beginning to pursue them. And in many cases, procurement is leading the charge.

One of the most effective ways to stamp out things like slavery, poverty and inequality is through transparent markets like the ones that can be created through business networks. Collectively, the Global 2000 spend $12trn on goods and services annually. And by tying their purchases to purposes, these companies can ensure they provide fair labor practices across their supply chain. They can also make opportunities available to minority and women-owned businesses. They can additionally ensure that no slave labor is being used to make their products. In other words, they can do good and do well.

Changing the Game

Technology has given procurement a new face. No longer a manual, back-office task, the function today is digital, efficient and strategic. Paper processes are all but dead. Additionally, companies are running faster, simpler and smarter than ever. However, the time has come for procurement to do more. Digitisation has given the profession the tools to go beyond streamlining processes and saving money, and take on some of the most pressing global issues of our time and impact lives. Now is the time to use them.

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Aug 2, 2021

Procurement Outsourcing: Partnering with Outside Experts

Procurement
ProcurementOutsourcing
Supplychain
Sourcing
6 min
To adapt to an unpredictable world, you can transfer specific procurement processes to outside vendors—cutting costs and re-focusing on your core products

In coming years, supply and demand will fluctuate, new technology will change the way procurement teams operate, and skilled workers will be in short supply. Outsourcing procurement is now a priority. Explained John Piatek, GEP Vice President and Thought Leadership Council Chairman: “In the face of wild swings in consumer demand, trade wars, tariffs, and lockdowns...supply chains bent and frequently broke.” Therefore, companies need to know how to recover. 

The Rise of Strategic Procurement 


The pandemic placed procurement on a higher level within business operations. Executive boards that previously overlooked or undersold the value of procurement started to sit procurement managers around the table with strategic advisors to mitigate risks, optimise costs, and drive growth. ‘‘This year has demonstrated the importance of bringing CPOs into C-suite conversations”, explained Jennifer Brown, Principal, Deloitte Consulting. “They bring significant value to the table.” 

Procurement teams now race to find skilled, third-party vendors to provide services they can neither afford nor prioritise. Outsourcing of S2C can give companies access to expertise, capabilities, and scale they may not have in-house,” said Iliana Filyanova, Partner for McKinsey’s Manufacturing & Supply Chain. For example, expert outside firms can analyse market conditions, supply specialised goods such as semiconductors or uniquely designed parts, and help develop a strong IT infrastructure. 

To be clear, if your team can skillfully outsource, a whole new world opens up: you can rapidly adjust to market conditions, scale up when demand spikes, and scale down when dips hit. 

Why Outsource? 


First, you can cut costs. Suppliers in Southeast Asia and other low-cost countries can provide large amounts of materials and products at excellent prices without the political backlash that often accompanies offshoring. But outsourcing has several advantages. When you get specialists on board, you can shorten development times, hire additional staff without having to train them, and digitise your procurement systems thanks to IT experts. 

 

Additional Benefits 

  • Increases focus on core tasks 
  • Provides staff more time to fulfil their priorities 
  • Supplies next-gen technology expertise 
  • Reduces operational costs
  • Helps prevent duplicate payments 

 

These benefits only accrue, however, if your team carefully defines the scope of the operation. When you try to hit the bull’s-eye on a dartboard, you aim directly at the centre. It takes a certain angle, force, and skill. Likewise, procurement teams must figure out what and how much to outsource. Outsourcing still requires spending, and teams will want to get good data before they sign a final contract. In addition, staff members should be on board with the rationale and objectives of the outsourcing project—otherwise, your darts will miss their target. 

How To Successfully Outsource Procurement 


According to McKinsey, teams should focus on three main steps. 

 

  1. Determine which categories to outsource. Focus on non-core business areas. These are any services that support your core product, such as freight and shipping, facilities, and IT infrastructure. 
  2. Select the right metrics. Build supplier scorecards, in which your team decides upon two to three key criteria such as low unit prices, supply chain resilience, and quality of product. 
  3. Partner with the appropriate people. Ask potential firms questions to assess their domain expertise; diversify your search to take in a variety of global organisations, and consider their technical skills—even if you’re not hiring the vendor for IT. 

 

If these focus areas seem too broad, Deloitte recommends a phase-by-phase process.

Deloitte: The Seven Stages of Outsourcing


Starting the Search

First, companies should Assess and Prepare. These steps include defining vendor requirements and starting to engage. In these phases, you may do some background research but not engage with them directly. Web searches can yield initial results, and consultants can also help—especially those who know the strengths and weaknesses of your industry. After you have your list narrowed down, you can produce a strong, detailed RFP.

Naturally, your RFP will attract the relevant suppliers, and you’ll be able to move to Evaluate. If you’ve chosen strong metrics, two to three top vendor proposals should stand out. Be forewarned, Deloitte said: the next part is tricky. Committing, or negotiating your final contracts, will lock you into a potentially multi-year collaboration with a vendor. Take your time: you can deliberate over competing offers, as well as request that additional support be built into the contract. 

Negotiating the Best Deal

Advocate for your best interests! “I moved forward to negotiate with a current contract manufacturer with whom we had an important volume commitment with high prices,” said Elodie Cramer, Associate Director of Biogen. “We were in a single-source situation, with no active alternatives.” She opted to pursue dual sourcing, as well as insist on open vendor discussions. At the conclusion of the talks, she had bartered better terms: 29% lower costs, 75% less volume commitment, and improved vendor quality and service. 

Additionally, teams should discuss details such as how to optimise taxes, meet regulatory compliance, and protect ESG standards. Safety-catch measures like these may seem to extend the outsourcing process, but they’ll ensure that you don’t end up spending more over the long term. Compliance, after all, can drive 30% to 50% of savings, and talking about it upfront is for the best for all concerned. 

Closing the Case

Once you’ve reached acceptable terms, you can Transition, handing the project work and resources over to your vendor, and Optimise, following up to manage and improve the relationship. Don’t forget to dot your i’s and cross your t’s—Deloitte even recommends an end checklist. Sign the contract; create a people transition plan; complete consultations with any oversight committees. After signing the paper with a flourish, you can then rest easily, confident that you’ve followed a strategic outsourcing system. 

Companies To Emulate 

Procter & Gamble, Unilever, Slack, Alibaba, Acer: even major multinational companies seek to outsource specific systems, technical skills, or materials. When Unilever integrated its ERP platforms into a single system, outsourcing saved the company an annual €700 million. Slack outsourced its universally-known colourful design label to MetaLab. Alibaba outsourced to US firms to compete with eBay. Acer outsourced manufacturing to maintain a small, agile team. As a result, these companies improved their international reputations, offset their internal weaknesses, and built strong vendor partnerships. 

As executives increasingly turn to procurement to make their global operations less costly and more resilient, teams that strategically outsource work will stand a better chance of bringing good news to the next management meeting. Said Ryan Flynn, Principal, Deloitte Consulting: “CPOs are uniquely positioned to help their organizations navigate a historically disruptive time and build the agility required to thrive.” 

Yet to do so, they must act with intent. “Successful outsourcing—outsourcing that drives transformation and helps achieve broad strategic goals—requires companies to follow a disciplined process,” wrote Deloitte. In short: Outsourcing initiatives succeed not by luck, but by design. 

 

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