Cost cutting is a huge priority for 2012, and with cutbacks looming, procurement teams will need to make savings wherever possible.

‘Procurement contract Lifecycle: assessing the value of contract automation’, a report conducted by research company Aberdeen Group, highlighted that organisations are missing out on making savings by ignoring the benefits of automated contract management.

The report, based on a survey of 130 organisations, found that many of those questioned are limiting their visibility of spend and contractual commitments by instead relying on old-fashioned, labour-intensive, paper processes.

Missed cost savings, poor compliance and failure to meet legal and business obligations are all implications of a poorly managed contract management system.

Automated contract management systems can deliver control for any type of business agreement by providing the functionality for buyer and supplier collaboration, leading to consistent, easy to reference documents that deliver transparency throughout the entire contract lifecycle, as well as helping in monitoring supplier performance.

Both the public and private sectors have reported benefits including cost savings, improvements in quality of services and achieving better value for money since implementing automated systems.

Aberdeen Group’s report has recommended that companies should adopt more technology to automate contract management and establish a central repository for all procurement contracts, a move which would undoubtedly help organisations in increasing visibility of agreed commitments while providing further opportunities to monitor savings across the business.

Supplier relations have always been important to buyers but it seems that in the present economic climate, it is more crucial than ever to ensure that relationships between businesses and their supply chain remain healthy and free from corruption.

The Supply Management Reader Research Survey 2011 concluded that procurement professionals will be concentrating on cost cutting and supplier relationship management as key priorities throughout 2012.

Some organisations have already started to introduce new measures to help create more transparency in their supply chains.

The notoriously secretive software company, Apple, recently published a list of its suppliers in an effort to tackle criticism over how workers are treated; proving that unsatisfactory supplier relations can certainly generate negative publicity.

The company has also announced that it will be handing over auditing power to independent, non-profit organisation, the Fair Labour Association (FLA) in an attempt to provide unbiased audits across the whole of Apple’s supply chain.

In another example of a company striving to improve supplier relations, builder’s merchants Travis Perkins recently announced that it has invited staff from key vendors to work alongside the head office team. This is a move not too uncommon, with retailers Tesco and Walmart both reporting supply chain improvements since inviting suppliers to work in-house.

With enhanced supplier relations proving to benefit businesses, more may start to look in to increasing communication across their supply-chain.  Where it is not possible to work alongside suppliers, buyers may find eProcurement, eSourcing and contract management software to be beneficial, providing online supplier portals where suppliers and buyers can collaborate and control catalogues, contracts, invoices and other supporting documents.

With cost-cutting a high priority for procurement professionals this year, it seems that improving relationships, communication and trust with suppliers will prove to be a tactical move in helping to meet those savings targets.

Outsourcing has been a common topic for discussion in the procurement industry in recent weeks- this is perhaps due to the mixed bag of opinions that arise when it comes to weighing up the positives and negatives of sourcing products, services and whole departmental functions from external suppliers.

Logistics software company Freightgate conducted a study on trends for 2012 which concluded that supply chain and logistics outsourcing are set to become increasingly popular over the course of the year, with an increasing demand for better collaborative business processes said to be at the heart of the predicted trend.

Peter Smith started the New Year with an article in the UK Spend Matters blog titled ‘Why the public sector needs more outsourcing’ which has since sparked a series of discussions on the whole issue of outsourcing in both the public and private sectors.

The economics of outsourcing have long been disputed among buyers; mostly because of the costs associated with obtaining products and services from external suppliers. But there are also ethical factors to consider - unsafe oil rigs, poor railway maintenance and sub-standard cleaning in hospitals have all been associated with the culture of outsourcing, problems which can generate bad publicity as well as preventing organisations from achieving their (often well-publicised) CSR policy.

While procedures and software can be implemented to help organisations effectively monitor and measure the standards and costs of external suppliers, it is important to ensure that the right balance across quality, efficiency, responsibility and costs is achieved for outsourcing to meet the original needs and organisational objectives.

As the country prepares to hold its first Olympic Games in over 50 years, procurement teams across the UK are gearing up for the huge challenge that lies ahead.

Accelerating costs have so far been a major source for criticism with the original budget of £3.4 billion almost trebling to reach £9 billion.

Where some industries are worrying about meeting the enormous increase in demand, the food and drink sector is confident that the games will provide a much needed boost to the economy, provided effective planning is put in to place.

Food Manufacture reported that the food and drink supply chain has already started to implement these proposals-by making preparations with logistics companies to ensure the successful transportation of goods during the predicted gridlock of traffic that will impose upon London over the summer.

In a recent interview with Supply Management, John Armitt, chairman of the Olympic Delivery Authority, described the job of the Olympic procurement team as ‘one of the biggest challenges of any project in the UK’. The fact that the project is in the public spotlight and has a large number of stakeholders means that it will be under tight scrutiny which will no doubt increase the pressure upon the procurement teams to ensure that they perform.

Supply chain disruption has also been cited as a major cost implication on the games. The Financial Times reported that 93 per cent of UK businesses are expecting the games to have a negative knock-on effect which includes experiencing problems in their supply chains. 

Purchasing teams will be looking to rely on eProcurement functionality and features such as supplier portals for rapid and effective selection and communication with suppliers and reporting and forecasting tools to help tackle the increase in demand and disruption that the games could cause.

With such an opportunity for all industries to benefit from the surge in demand and substantial increase in revenue, it is important that procurement teams are well prepared for any problems that could arise.

Over recent weeks the price of oil has been increasing at an alarming rate and with no sign of it slowing down, experts are predicting it could be a major cause of economic disturbance in 2012.

BBC News reported (03/01/2012) that Brent crude closed at $112.27 a barrel, up $4.89 on the day, while US crude was up $4.13 to $102.96.

Encouraging economic data published from the US, China, India and parts of Europe boosted hopes for global recovery and is being partially blamed for the shoot up in prices.

Another damning factor is the possible embargo on Iranian oil exports which was suggested by EU foreign ministers in an attempt to persuade Iran to halt its controversial nuclear programme. It is likely that the tensions in Iran will further increase pressure on governments and businesses to enhance fuel efficiency and seek alternative energy sources.

Supply Management reported last year that investment banking firm Goldman Sachs predicted that a barrel of oil would cost $140 by the end of 2012- the current price is worryingly, not too far from this benchmark. The implications of such a significant price increase would no doubt have a dramatic impact on the logistics sector which would then have a knock on effect for many industries across the world.

With oil costs rising at an astounding pace, money needs to be saved elsewhere –this may mean buyers reducing margins on products and services or a more likely scenario of buyers passing the rising costs on to their suppliers. Making savings wherever possible will be high on the agenda for procurement professionals in the coming months, as businesses fight to keep costs down and minimise the effect of soaring commodity prices.

Helping to reduce the effects of climate change has become a huge responsibility for big businesses and in recent years companies have been looking deeper in to their supply chains to source the most eco-friendly products in an attempt to minimise their impact on global warming.

The toy manufacturer Hasbro has recently published its core list of suppliers in an effort to encourage transparency and to address corporate social responsibility principles in its supply chain. Other large companies such as Nestle and Coca-Cola are also planning ways to decrease their carbon footprint.

The Drinks Business Review reported that Coca-Cola will be investing £50million into three of its UK facilities to help reduce water consumption and to provide new machines that will help decrease the need for cardboard packaging. Nestle Waters has splashed the cash too, spending £35 million on a new eco-friendly factory in Derbyshire. The company aims to significantly reduce the site’s total energy output and to also reduce the amount of water used in manufacturing.

So many big names are making a conscious effort to ‘go green’ and it is likely that more will follow suit over the next 12 months. With energy and water consumption becoming a major concern around the globe, there is no better time for companies to focus on managing their supply chains to enable them to purchase from the most environmentally-friendly sources possible.

According to a report published in Food Manufacture, the food and drink manufacturing sector has seen a fall in orders since the start of this year and with festive food prices set to soar in the weeks leading to Christmas, it could be a difficult season for the industry.

The turkey is already the dearest food on the traditional Christmas menu, but the cost per unit is set to rise even further, with the average price of a 12lb turkey increasing from £40 to £50 in just one year.

The Food & Drink Innovation Network reported that the rapidly expanding middle classes of China and India have had a big part to play in the price increase. Because there is a higher demand for meat, turkey feed costs have doubled since the same time last year and this has had a direct impact on the price of fresh meat.

With feed prices increasing substantially, it is inevitable that the price of meat will carry on rising. At times like this it is crucial that buyers dig deeper in to their supply chains to get the best deals on products to ensure that it isn’t the consumer who is left with an empty plate. 

Suppliers have been asked to contribute a per cent of their income from retail giant Marks and Spencer in an effort to revamp its 700 UK stores at a cost of over £600million.

This news first came to light back in October, but as Supply Management reported last week, M&S has now moved in to a negotiation stage with their top 60 suppliers.

The request has received a cold reception from many suppliers; one major supplier has reportedly refused to contribute, whilst others are seeing it as an opportunity to help boost Marks and Spencer’s profits, which could generate reoccurring business for the suppliers in the future.

M&S has so far kept quiet with regard to how they will enforce the request once it has been agreed. They have however suggested that the funding could come through a 1.25% levy on the annual amount that M&S spends with each of the chosen suppliers.

According to the Telegraph, suppliers want to know what they will get from the deal and so far that hasn’t been explained. With a view to providing benefits for both parties, there are other options that M&S could consider including the use of eProcurement technology such as e-sourcing software to run a series of forward and reverse auctions to achieve the same result.

Reverse auctions are particularly useful when a buyer wants to purchase a product for the best price, M&S could save money on the revamps by utilising reverse auctions for the refurbishment contracts themselves rather than levy the costs from unrelated suppliers. Refit contractors would no doubt relish the opportunity to bid for a contract to refit several hundred stores, or to even win a portion of that potential business.

Forward auctions could also be used to generate funds by inviting suppliers to bid for optimum store space in the revamped stores, which again provides a benefit to the supplier. Whilst it may not raise the entire funds needed it could reduce the amount of contributions M&S request from their remaining supply chain.

eSourcing platforms such as web3 can be used as both a strategic and tactical tool to generate savings, limit cost increases and encourage competition and transparency across the supply chain. It will be interesting to see how many of the 60 suppliers opt to support Marks and Spencer and to see how well the stores will do after the refurbishments have been completed.

Are you an M&S supplier? What is your opinion on the request? Are you a leading retailer that faces the same issue? We welcome your comments.

Supply Management reported this week that state income for some universities will be reduced from 60 percent to 40 percent, which will take many below the 50 percent marker that requires EU public procurement rule compliance.

Could reductions in public funding have an upside for universities and ring the changes in sourcing and procurement?

Minister for universities and science, David Willets thinks so.

While the cuts will hit universities hard, supply chain agility will offer a real opportunity. Establishments, like our client Durham University, will be able to operate more like the dynamic buyers of the private sector rather than the public procurement teams that so often get tangled up in red tape.

Being released from EU public procurement rules will mean that the higher education sector can start a new term of bigger savings and greater local economic support.

Engaging employees during a P2P implementation is clearly an investment into the success and adoption of the solution. Yet is spending time and money on supplier adoption and engagement equally balanced?

Considering that most organisations have more suppliers using their eProcurement solution than internal users it’s unfortunate that suppliers can get left out in the cold whilst an organisation focuses on its employee engagement, especially when this can halve the impact that could be achieved. Balancing the investment across both user and supplier adoption can lead to a genuine return on that investment, evident in the P2P solution success.

In Wax Digital’s new Guide to Supplier Adoption we’ve outlined the best practices drawn from our experiences of working with our clients’ during their P2P transition. While challenges can crop up at every step of the way, benefits can also be realised at the same rate, if you get it right. So what are the critical steps to successful P2P supplier adoption?

Segmentation – dividing your suppliers into tiers based on their criticality to your organisation is an important step in segmenting your approach to communication and on-boarding so that you don’t attempt a one size fits all or risky big bang approach.

Rationalisation – expecting to rationalise your supplier list is part of the natural selection process of migrating to a new platform. It should highlight supplier weaknesses or challenges if it’s doing its job.Communication – once your migration and adoption process has been decided, consistent and continual communication with your supplier community ensures that they stay committed and engaged throughout.

Automation – leveraging the benefits of online supplier communication and control via a web portal helps you to make engagement a natural part of your supplier relationships, whereby the supplier takes control of the management of their own information, gain visibility of transactions and creates an on-going means of communication.

On-boarding – Never underestimate the power or need of an intensive on-boarding campaign to keep suppliers engaged once the P2P system and supplier portal is in use.

Exception handling – There will always be cases where suppliers don’t fit or comply with the requirements of your new process. Treating each case individually and deciding how to manage these exceptions is more effective than a ‘blanket ban’.

If you’re aiming to bring your suppliers in from the cold perhaps our guide can help. Remember that engagement must be on-going and continuous before, during and after the transition.