The retailer’s cancelling of contracts, after allegations of exploitation, highlights monitoring issues, writes Roland Gribben of the Telegraph

“Supply chain issues have moved higher up the boardroom agenda as the credit crisis bites deeper amid fears that the economic slowdown will accelerate into a full-blown recession. The conventional safety kit in the shape of belt-tightening and cost-cutting is being rolled out but the uncertainties about the depth and length of economic turbulence leaves most businesses facing a considerable dilemma.

The procurement function has a higher priority and suppliers are under intense pressure to cut costs and accept tougher contract terms at a time when supply chain strategy is assuming new dimensions and the Primark case - contracts were cancelled with an Indian supplier after allegations of labour exploitation - highlights the ethical and monitoring issues and dangers tied to outsourcing in low-cost countries. “I can hear other companies saying ‘there but for the grace of God go I’,” said an industry executive.”

The Mayor of London’s defines Green Procurement as part of the Green Procurement Code.

“Green procurement is environmentally responsible purchasing; it’s about using your purchasing power to promote productive use of resources and materials. This involves integrating environmental considerations into all stages of the purchasing process. . . . . .”

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Whilst searching through the Ariba Spend Management Learning Center , I stumbled upon a very interesting Aberdeen report entitled CPO Rising: The CPO’s Agenda for 2008.

“The CPO on the rise is based upon demonstrated competence: Best-in-Class companies have placed 70% or more of their spend under management. CPOs and procurement departments can adopt and expand technologies and sustainable practices, such as improving internal collaboration and systems sharing; improving supplier relationships; adopting a center-led procurement strategy; and considering Low-Cost Country Sourcing (LCCS). This report addresses many more issues facing the contemporary CPO.”

What interested me the most about this report was the section on Procurement Key Performance Indicators. The report highlights that the ‘Best-in-Class’ enterprises put a greater significance on implemented / realised cost reduction savings and supplier performance (price, delivery, quality, service, etc.), whilst the Procurement ROI (savings / operating costs) and spend under management rank higher with ‘Average’ and ‘Laggards’.

The report goes on to say

“Procurement ROI, defined as annual savings generated by the procurement department divided by the total annual investment in procurement operations, is an interesting measure and one that deserves a discussion given its recent promotion by “consultants” in the marketplace. The measure misses the larger goal of business operations since CPOs, like the enterprises that employ them, should be focused on generating the largest total net return from their department. While Aberdeen views the metric as a decent relative indicator of procurement department performance (when used in context with other KPIs on the list below), it should not be a primary goal for the CPO to maximize this number. Beyond savings and efficiency metrics, 79% of procurement”

Top 10 Procurement Key Performance Indicators (KPIs)

Source: Aberdeen Group, February 2008

Procurement KPI’s is a topic is always passionately debated at the Procurement Leaders Roundtables, Aberdeen’s view seems to make sense but I love to hear, what your thoughts are on this topic. Would there be scope to agree and industry standard?

Picture Copyright: Marcela Barsse

China Daily spotted a very interesting white paper published by Arthur D Little on Cost Reduction and Revenue Generation through Sustainable Procurement. The white paper looks at how leading businesses are benefiting from a sustainable approach to procurement through reduced costs, lowered risk levels, increased stakeholder value and increased scope for innovative products and pricing.

“.. in this paper we explore the drivers behind a sustainable approach to procurement, its influence on CEO’s overall accountability, and how such an approach can be placed in the context of the wider strategic choices facing a company. We outline the profile of a “sustainable” supplier and present a view of the spectrum of
procurement strategies taken by today’s companies.”

The full white paper ‘Green Purchasing Power’ can be downloaded from Arthur D Little

This increased focus on sustainable procurement policy is driving more organisations to partner with the likes of The Achilles Group and Avaro to manage their supplier management information.

The Achilles Group (www.achilles.com) - Achilles works to identify, qualify, evaluate, and monitor suppliers on behalf of major organisations worldwide. We build and support buyer-supplier communities in many industry sectors, creating unique and powerful global networks.  Our services for sustainable procurement help create opportunities for business and reduce risk in the supply chain.

Aravo (www.aravo.com) - Aravo’s mission is to solve complex, expensive problems for our clients without introducing unnecessary complexity and expense in doing so. Aravo’s flagship Supplier Information Management (SIM) platform was built from the ground up to solve today’s toughest supplier management challenges while delivering the flexibility to meet tomorrow’s needs as they emerge. From supply management to sustainability to risk management and compliance, Aravo SIM offers proven features and functionality to meet all of your supplier information management needs.

Arthur D Little (www.adl.com) - We are a global management consultancy specializing in strategy and operations management, serving major corporations and organizations worldwide. We are recognized as leaders in linking strategy, innovation and technology to solve our clients’ most complex business issues, delivering sustainable solutions. We are distinguished from others by our deep industry insight and technology expertise. We are proud of our creative people with their commitment to our clients.

So it’s been six months since I stepped down as editor of Procurement Leaders and I have finally succumbed to my need to share my thoughts with the world on the topics which interest my business and personal life.

So what are those topics that interest me?

Procurement - funny enough after spending the last four years facilitating one of the most influential buying communities in the Europe, the focus of Sourcing Excellence will around the procurement and sourcing.  My day job continues to be strategically drive the Procurement Leaders Network forward, by extending the reach of the membership in Europe and into new regions.

Technology - as a self confessed techy geek, technology is going to another key area that I will be regularly writing about. I am a sucker for all the new shiny technology, whether it is new web app that promises going to save me time managing my email or new type of phone to read my email.

Collaboration - this is a really exciting area for me. Over the last few years technology has provided an endless array of ways for individuals and groups to work together and moving forward it is only going to get more engrained into out day to day lives. Whether it is open sourced software like Wordpress (which this blog is running on) or the Wikipedia it astounds me what the collective group can achieve. With this in mind I am going to use the crowd at much a possible to drive sourcing excellence forward.

Sustainability - whether it’s the fact that I am new father, or my back ground in biology or the growing awareness of society as a whole about what we are doing to our planet, sustainability in all its guises is another area that I am passionate about. My day job obviously gives a lot of insight into corporate buying decisions, so sustainable procurement topic area that I will cover regularly.