The most essential aspect about purchasing is having all the data and information about the product. Many companies have gone ahead with extensive data mining activities and had some amazing results. There is lots of examples with organizations adopting spend analysis projects at regional as well as global level to reduce spend and enhance savings.
However most of the spend analysis project simply put the readily available data like spend involving a particular category of product through a period of time and then analyze it to create value in terms of consolidation and savings. This method is very effectively used till now but organizations have to move ahead from here to tap in large about of information that is available in the system apart from simple numbers and data sheets.
To understand this concept it is very important to understand the difference between data and information. Data is essentially any kind of number i.e. part price, part number, supplier name, share of business, yearly spend, raw material / foreign exchange prices and trends etc. Information is knowledge about supplier base and part. Generally there are key suppliers in every organization and there is a continuous negotiation and interactions which takes place with them. These negotiations don’t happen only with one dep’t or person but with different persons and departments.
The reason why I defined data and information is that data analysis is becoming increasingly common but at information level even the first step of compilation has not begun yet in most organizations. Data analysis was the first step of Consolidation which has been on since a decade now. Now organizations should move ahead with information management and analysis.
The essential aspect of data and information management is that buyer should have each and every bit of information with him during its sourcing process. This will take science of purchasing to next level. I would talk about details about this thought in my next blogs and will try to explore the topic in full detail. Also I would like to involve my reader’s participation to refine my thoughts on this topic.
Sunday, November 8, 2009
Tuesday, November 3, 2009
Buyer Role in Managing Strikes
There have been lots of new aspects about purchasing that I am learning lately. The latest is understanding of handling of strike at supplier end. This is a nightmare situation for a buyer when his supplier, who is single source for many critical components, is hit by strike. To start with once the strike has started the buyer has very little time to react but there are lots of steps which can prevent the strike or give advance warning signals of the same and also prevent the line stoppage at his end.
Buyers are the eyes and ears of an organizations supply chain. They are the one who are at constant touch with the outer world and they have to keep looking for clues of any impending catastrophe. Understanding the enivornment at supplier end is possible on frequent supplier visits. There is a popular saying that “Prevention is better then cure”. Not only looking minutely at the process and raw material of the supplier it is important to keep on communicating with workers at supplier end. Machine operators, dispatch workers and other shop floor workers provide many clues of distress related to salary or working culture. Immediately this should be discussed with the supplier management at the highest order and necessary corrective actions should be placed.
Although despite of best efforts strikes do happen like the current strike in labor sensitive North Indian Auto Hub around Delhi / NCR. It is also important to deal with the crisis by moving to alternate source and planning your inventory accordingly. However it is very difficult to completely negate the effects of these strikes and almost impossible to prevent such occurrences but detail and thorough planning can reduce the downtime at the manufacturing organization to certain degrees.
Buyers are the eyes and ears of an organizations supply chain. They are the one who are at constant touch with the outer world and they have to keep looking for clues of any impending catastrophe. Understanding the enivornment at supplier end is possible on frequent supplier visits. There is a popular saying that “Prevention is better then cure”. Not only looking minutely at the process and raw material of the supplier it is important to keep on communicating with workers at supplier end. Machine operators, dispatch workers and other shop floor workers provide many clues of distress related to salary or working culture. Immediately this should be discussed with the supplier management at the highest order and necessary corrective actions should be placed.
Although despite of best efforts strikes do happen like the current strike in labor sensitive North Indian Auto Hub around Delhi / NCR. It is also important to deal with the crisis by moving to alternate source and planning your inventory accordingly. However it is very difficult to completely negate the effects of these strikes and almost impossible to prevent such occurrences but detail and thorough planning can reduce the downtime at the manufacturing organization to certain degrees.
Monday, October 26, 2009
Indian Automobile Industry: A story of success
The emergence of India and China has been synomanus with two different terms manufacturing and service. If you compare manufacturing infrastructure in China and India then China dwarfs India . But now, India has proven that its manufacturing Industry, specifically auto-manufacturing can surpass China with its quality and low cost. While China 's auto exports plunged 60% between January and July to 1.65 lakh units, India exported a total of 2.30 lakh cars, vans, SUVs and trucks in the period, representing a growth of 18%.
China has become a great auto exporter because of huge subsidies, an undervalued exchange rate and dirt-cheap credit. The amazing success of Indian story could be attributed to two big factors one is very competitive and open Indian auto industry and innovation success of Indian auto industry.
Indian auto industry has expanded heavily from mid 1990s when only cars available were of Maruti Suzuki (a Suzuki group company). Now with heavy duties on importing cars and exploding domestic car market saw world leaders like GM, Toyota , Honda, Hyundai entering Indian auto space. Also local players like TATA and Mahindra benefited from increased spending power from Indians working in successful IT industry. The Auto companies competed by constantly producing new models with improved features like fuel efficiency and increasing their capacity in India for domestic market. The cheap and highly skilled Indian manpower helped these companies t o not only increased their footprints in India but the low cost of production with high quality is making India a favorable destination for all major auto OEMs to make India their export hub.
India is also increasingly becoming synonymous with innovation. It is already becoming hub for small car and is home of world cheapest car i.e. $2500 Nano from TATA Motors. Also big R&D centre is being planned by Suzuki to enhance development of new generation models of his existing portfolio of Swift and Alto which is buoyed by latest Suzuki success of indigenously developed A star which is a big hit in export market for Maruti Suzuki. Others players like GM and Ford are also ramping up there R&D centers in India to develop small car concepts faster and effectively.
With all this development India has shown the world of its success in competitive market and answered China’s manufacturing might with new innovative concepts and designs.
China has become a great auto exporter because of huge subsidies, an undervalued exchange rate and dirt-cheap credit. The amazing success of Indian story could be attributed to two big factors one is very competitive and open Indian auto industry and innovation success of Indian auto industry.
Indian auto industry has expanded heavily from mid 1990s when only cars available were of Maruti Suzuki (a Suzuki group company). Now with heavy duties on importing cars and exploding domestic car market saw world leaders like GM, Toyota , Honda, Hyundai entering Indian auto space. Also local players like TATA and Mahindra benefited from increased spending power from Indians working in successful IT industry. The Auto companies competed by constantly producing new models with improved features like fuel efficiency and increasing their capacity in India for domestic market. The cheap and highly skilled Indian manpower helped these companies t o not only increased their footprints in India but the low cost of production with high quality is making India a favorable destination for all major auto OEMs to make India their export hub.
India is also increasingly becoming synonymous with innovation. It is already becoming hub for small car and is home of world cheapest car i.e. $2500 Nano from TATA Motors. Also big R&D centre is being planned by Suzuki to enhance development of new generation models of his existing portfolio of Swift and Alto which is buoyed by latest Suzuki success of indigenously developed A star which is a big hit in export market for Maruti Suzuki. Others players like GM and Ford are also ramping up there R&D centers in India to develop small car concepts faster and effectively.
With all this development India has shown the world of its success in competitive market and answered China’s manufacturing might with new innovative concepts and designs.
Wednesday, October 7, 2009
Some Update
I have been missing on the blogsphere for quiet a while due to some changes in my current job and location. Though changes are part of life and most of the times changes open you towards new experiences and horizon. Due to this specific reason I have decided to shift. But still I will be back on my blog to share new and exciting things about Purchasing soon.
Wednesday, August 26, 2009
Contract Renegotiation Tips
Every Contract which is finalized comes for renegotiation whenever there are changes in business environment. Jamie Liddell recently wrote a very good article at SSON on contract renegotiation titled as “Top Ten Tips for a Smooth Contract Renegotiation”. The article contains ten tips to smoothly renegotiate the contract. Excellent article and must read for buyers. Here is the summary of these ten steps:
1. Know what’s right for your business.
Have complete data about your Contract. Discuss internally with your stakeholders and leadership and clearly define goals and objectives you hope to achieve in the renegotiation.
2. Have clear rules of engagement.
Set out and agree fair rules with your supplier. Define time lines and people involved in the negotiation. Make your discussion fair and just in order to maintain a long lasting relationship with your supplier.
3. Make sure it’s worth everyone’s while.
It takes two to tango. There needs to be an incentive for the supplier to renegotiate specially in case it’s a midterm negotiation, you must offer him some reward to conduct a smooth renegotiation.
4. Bring the right people to the table
Assemble the right team. The team should have people who can make long term decisions. These teams also need to preserve an effective relationship so that they can work well together after the revised deal has been struck.
5. Aim for success, plan for failure
Every negotiator should be prepared for the BATNA (Best Alternative To Negotiated Agreement). Should the parties not be able to come to agreement, what happens? Both parties should understand the floor and the ceiling boundaries.
6. Understand the status quo
Understand the details of contract. What is going right and what is going wrong in the contract and importantly what could be the ramifications of changes proposed in the negotiation.
7. Learn from your mistakes.
Every contract is negotiated with some assumptions of quality of service and productivity of the service. However things normally don’t go as per planned. So understand why things didn’t work out the way it was negotiated. You should think about long and hard, and work towards overcoming in this next iteration of the deal.
8. Your tone matters - a lot.
Don’t be too aggressive or weak & defensive in your tone. Present a solid, factual, respectful case to the supplier in the best professional manner.
9. Know your other options.
Always understand your options. Whether you have a source ready or a competitive source could be easily found out or you have to ensure that current service provider provide the service. It’s imperative to understand where indeed you can go in the event of things getting bogged down
10. Don’t dawdle.
Instill a sense of urgency. Clearly communicate your objectives and attempting to find ‘the middle way’ to achieve those objectives.
1. Know what’s right for your business.
Have complete data about your Contract. Discuss internally with your stakeholders and leadership and clearly define goals and objectives you hope to achieve in the renegotiation.
2. Have clear rules of engagement.
Set out and agree fair rules with your supplier. Define time lines and people involved in the negotiation. Make your discussion fair and just in order to maintain a long lasting relationship with your supplier.
3. Make sure it’s worth everyone’s while.
It takes two to tango. There needs to be an incentive for the supplier to renegotiate specially in case it’s a midterm negotiation, you must offer him some reward to conduct a smooth renegotiation.
4. Bring the right people to the table
Assemble the right team. The team should have people who can make long term decisions. These teams also need to preserve an effective relationship so that they can work well together after the revised deal has been struck.
5. Aim for success, plan for failure
Every negotiator should be prepared for the BATNA (Best Alternative To Negotiated Agreement). Should the parties not be able to come to agreement, what happens? Both parties should understand the floor and the ceiling boundaries.
6. Understand the status quo
Understand the details of contract. What is going right and what is going wrong in the contract and importantly what could be the ramifications of changes proposed in the negotiation.
7. Learn from your mistakes.
Every contract is negotiated with some assumptions of quality of service and productivity of the service. However things normally don’t go as per planned. So understand why things didn’t work out the way it was negotiated. You should think about long and hard, and work towards overcoming in this next iteration of the deal.
8. Your tone matters - a lot.
Don’t be too aggressive or weak & defensive in your tone. Present a solid, factual, respectful case to the supplier in the best professional manner.
9. Know your other options.
Always understand your options. Whether you have a source ready or a competitive source could be easily found out or you have to ensure that current service provider provide the service. It’s imperative to understand where indeed you can go in the event of things getting bogged down
10. Don’t dawdle.
Instill a sense of urgency. Clearly communicate your objectives and attempting to find ‘the middle way’ to achieve those objectives.
Wednesday, August 19, 2009
Single Source Supplier: A Buyer Nightmare
Negotiating with Single Source Supplier is always a difficult situation for any Buyer. Often these cases are common when you are buying spare parts and specialized tooling or services. Also when you are managing legacy plants there are often cases where your choice of buying from different supplier is limited. How to negotiate in these cases is difficult and finding a win-win solution are limited.
Recently there was an article at Supply Excellence by Justin Fogarty titled “Negotiating with a Sole Source Vendor”. The article refers a similar debate happen on LinkedIn where there was many solution offered and Justin summarize these solutions into 6 point summary.
1. Play to Each Other’s Goals: Find the balance of power. Establish clarity about your and suppliers goals. That is what would make you more attractive to them and can be used in exchange for cost reductions.
2. Analyze the Cost-Drivers: Best negotiation strategy in any scenario. Understand each cost drivers and suppliers logic of pricing and negotiate based on that.
3. Squeeze out More Value: In specific cases where it is forced by law to deal with service provider. Offer them more freebies.
4. Maintain Competitive Spirit: Always check the competitive level of pricing. Supplier must get the feeling they may not be the single source on the next project if they are cheating you.
5. Stay Alert: Keep on checking the pricing of whole Commodity. There might be instances where initial purchase price is high because of new technology ( Ex : Servers) and in few months down the line as newer technology comes the actual price of the same server has gone down. Suppliers generally don’t forward the price reduction. Other point is if you are buying the same item again and again from single source you can leverage and ask for discount.
6. Bring in the Heavies: Involve Higher ups in negotiation which generally helps during negotiations.
You can read more about these points in detail from Justin’s Article. Also post any new points you think could help in negotiation better while dealing with single source supplier.
Recently there was an article at Supply Excellence by Justin Fogarty titled “Negotiating with a Sole Source Vendor”. The article refers a similar debate happen on LinkedIn where there was many solution offered and Justin summarize these solutions into 6 point summary.
1. Play to Each Other’s Goals: Find the balance of power. Establish clarity about your and suppliers goals. That is what would make you more attractive to them and can be used in exchange for cost reductions.
2. Analyze the Cost-Drivers: Best negotiation strategy in any scenario. Understand each cost drivers and suppliers logic of pricing and negotiate based on that.
3. Squeeze out More Value: In specific cases where it is forced by law to deal with service provider. Offer them more freebies.
4. Maintain Competitive Spirit: Always check the competitive level of pricing. Supplier must get the feeling they may not be the single source on the next project if they are cheating you.
5. Stay Alert: Keep on checking the pricing of whole Commodity. There might be instances where initial purchase price is high because of new technology ( Ex : Servers) and in few months down the line as newer technology comes the actual price of the same server has gone down. Suppliers generally don’t forward the price reduction. Other point is if you are buying the same item again and again from single source you can leverage and ask for discount.
6. Bring in the Heavies: Involve Higher ups in negotiation which generally helps during negotiations.
You can read more about these points in detail from Justin’s Article. Also post any new points you think could help in negotiation better while dealing with single source supplier.
Monday, August 10, 2009
Global Supply Chain vs Regional Supply Chain
Globalizatation has almost reached its peak in last decade and since the start of recession there has been a lot of talk on whether globalization will survive the new wave of protectionism specially which is done by western governments to stabilize their economy and improve their job market.
Another interesting aspect coming out from study of Globalised supply chain is that it is becoming very complex. It is becoming increasingly difficult to identify the true cost of the product (in cases Tier 1 and Tier 2 suppliers are placed across the globe), the benefits of having a globalised supply chain and overall risks associated with a global supply chain.
Due to these factors companies are now pushing for much simpler and near shore supply chain so that risks associated (in terms of cost, delivery and quality) with the supply chain can be managed easily. Procurement Leaders recently ran an article “Regional procurement the new globalisation”. The article quoted , Dan O'Regan , head supply chain of Ernst &Young as saying that "I think you will find smaller, more regional supply chains”. The same view was supported by CEO of Philips Gerard Kleisterlee.
But the fundamental question is that whether environmental issues or economic issues can force companies to abandon their Global Sourcing objective. Especially when companies across the globe have invested so much in building infrastructure for it and moving away from Globalised setup to regional setup will diminish the benefits of economies of scale achieved (by the companies) by integrating their supply chain.
The answer to the question remains a tough one to decide. There are lots of benefits of smaller supply chain as it gives increased visibility to spend, less cost to manage and more control while global supply chain provides better leverage in term of volume, access to wider supplier base and best cost across the globe. In my view the idea of globally connected supply chain is still economically superior to abandon in a hurry.
Another interesting aspect coming out from study of Globalised supply chain is that it is becoming very complex. It is becoming increasingly difficult to identify the true cost of the product (in cases Tier 1 and Tier 2 suppliers are placed across the globe), the benefits of having a globalised supply chain and overall risks associated with a global supply chain.
Due to these factors companies are now pushing for much simpler and near shore supply chain so that risks associated (in terms of cost, delivery and quality) with the supply chain can be managed easily. Procurement Leaders recently ran an article “Regional procurement the new globalisation”. The article quoted , Dan O'Regan , head supply chain of Ernst &Young as saying that "I think you will find smaller, more regional supply chains”. The same view was supported by CEO of Philips Gerard Kleisterlee.
But the fundamental question is that whether environmental issues or economic issues can force companies to abandon their Global Sourcing objective. Especially when companies across the globe have invested so much in building infrastructure for it and moving away from Globalised setup to regional setup will diminish the benefits of economies of scale achieved (by the companies) by integrating their supply chain.
The answer to the question remains a tough one to decide. There are lots of benefits of smaller supply chain as it gives increased visibility to spend, less cost to manage and more control while global supply chain provides better leverage in term of volume, access to wider supplier base and best cost across the globe. In my view the idea of globally connected supply chain is still economically superior to abandon in a hurry.
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