Insider Business Club: supply and demand

David Rae, Martin Williams and James Neophytou

David Rae, Martin Williams and James Neophytou

Is cost the major factor in managing supply chains?

James Neophytou, associate partner, IBM Global Business

IBM ran a survey across 400 executives around the world in 25 countries and
the biggest issue for them was visibility across the whole supply chain. With
everything outsourced to third party freight forwarders, collaboration is
becoming more and more important. Managing the visibility, speed and quality
scored much higher than cost. The top five issues were visibility, risk
management, customer closeness and demand, cost, and then globalisation.

The issue around upstream or downstream and executive board level visibility
is clear; we found that nearly half of the people we interviewed reported to the
chief executive. So 46% globally reported to the CEO, and about a quarter to the
chief operating officer. It is becoming much more a risk management role at the
board level, which is a different image to what you would typically expect.

The inhibitors to visibility and speed aren’t so much the data or the systems
– there is tons of data and myriad systems. It’s about organisational silos. The
jump that people need to make is around cross-silo, cross-process integration
and incentivising people to see the end game. You would be surprised how
infrequently people talk to each other. Getting people together is the hurdle
that people are coming to face.

Is procurement as valued as it perhaps should be?

David Rae, editorial director, Procurement Leaders Network

Many members of our network don’t feel as well rewarded perhaps as the sales
directors are. But the bottom line benefits of saving costs and improving
relations with suppliers is up there with the value of new sales. We did some
research last year, and only 10% of the 500 largest companies in Europe had a
procurement representative at board level.

Recently there have been a lot of corporate announcements about cost cutting
drives. The number of times supply chain and procurement is mentioned is off the
scale. We are really in the spotlight, it’s our time.

Jonathan Peacock, the finance director of the pharmaceutical division of
Novartis, is one of the most passionate finance directors that I’ve come across
about the value of what the procurement and supply chain can bring. He refers to
his CPO as more of a cross functional project leader because procurement has
visibility in all different aspects of the business. And with the buy-in of the
CFO and the CEO on his side it’s a really powerful combination.

There has been a massive increase in information, but there has also been a
massive increase in the complexity of business as well. Globalisation, for
example, means it’s almost impossible to keep track of whether it’s upstream or
downstream. Proctor & Gamble have got 85,000 suppliers, and they spend $50bn
a year. How do you keep track of that? Each of those suppliers is a potential
risk ­ it’s mind boggling.

How will the downturn effect supply chains?

Martin Williams, managing director, Graydon UK Ltd

In a serious economic downturn, credit departments tend to spend a lot more
time and effort checking on customer risk down stream to avoid bad debts, but I
think the Zavvi case highlights the need for purchasing managers to take similar
precautions to avoid serious disruptions to their business.

In this particular economic downturn purchasing managers and credit managers
have got to look beyond the credit scores or the financial performance of
companies, upstream and downstream. For instance, when it comes to checking on
suppliers you would have to look at the reliance upon external finance. Is your
supplier going to get refinanced by their bank when refinancing is needed? Has
that supplier got credit insurance cover?

Recently we have seen a number of organisations that we deal with appointing
people with job titles like chief knowledge officer. They’re a kind of
librarian, but people at the centre of things, who will make sure that
information is gathered in the right way then shared across an organisation. I
think that is a very healthy thing to look forward to in the future.

There are lots of stories about how suppliers are squeezing their customers
by putting in place extended credit terms. But there are one or two stories
where suppliers are actually helping their clients overcome the problems of the
economic downturn by being a little bit more lenient to help their customers to
get through the recession.

At the end of an economic downturn when business picks up again, those
customers are going to thank that supplier for helping them through.

Chaired by Andrew Sawers

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