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Supply Chain 2015

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P07 RACONTEUR.NET /COMPANY/RACONTEUR-MEDIA /RACONTEUR.NET @RACONTEUR 1 i f t SUPPLY CHAIN ONLINE: WWW.RACONTEUR.NET/SUPPLY-CHAIN-2015 Strategic Procurement YOU SCRATCH MY BACK AND I'LL SCRATCH YOURS T he world of the supply chain is undergoing rad- ical change. A whole new approach to the business of man- aging relationships with suppliers is evident from global brand names to national food retailers. The tra- ditional obsession with costs and price reduction is giving way to a far more constructive approach that shares power with and spreads ben - efits to smaller suppliers. "Strategic procurement used to mean driving down costs," says John Francis, a senior UK manager with consultants Accenture. This approach is now seen as wholly out - dated by the majority of businesses Mr Francis works with. In a recent survey of 225 organisations world- wide, Accenture found those that had mastered procurement by col- laborating with suppliers spent half as much on managing their supply chain as businesses that didn't oper- ate a collaborative model, yet saved 30 per cent more. What this epidemic of collabo- ration boils down to is that large businesses are establishing part- nerships with smaller suppliers and encouraging them to improve quality. US Jeans giant Levi Strauss, for example, has recently embarked on an ambitious programme to pro - vide secure finance for many of its key vendors. PROMOTING STANDARDS These suppliers, typically gar- ment makers in Bangladesh, are audited by Levi Strauss on charac- teristics such as workplace safety. Working with the World Bank's pri- vate sector arm, the International Finance Corporation (IFC), Levi Strauss then provides loans for fac- tory improvements such as sprin- kler systems. The IFC steps in to offer ongoing loans to these companies at inter- est rates and terms that reflect the credit status of Levi Strauss, rath- er than the more onerous terms that would apply to small outfits in the local market. Olaf Schmidt, who runs the IFC's global retail unit, points out that "the poorer the country, the bigger the need for supplier finance". The IFC is paying these suppli - ers as soon as they deliver goods to Levis Strauss which in turn reim- burses the IFC within two months. So the suppliers get reliable cash flow while the jeans maker's audits encourage best practice in terms of working conditions. The whole ar - rangement hums away within on- line software from GT Nexus that allows all parties to log on and see where shipments and payments stand within the supply chain. While Levi Strauss sources its denim from around the world, many of food retailer Sainsbury 's ing higher standards and sending its own retained vets to visit dairy herds, Sainsbury's sees each of the 55,000 cows in these herds produce 140 litres of milk more than the na - tional average. INVESTING IN THE FUTURE Rather than pay an unpredictable market rate, Sainsbury's has intro- duced a payments scheme based on cost of production plus profit. This has freed its farmers from the worry of dealing with volatile costs for animal feed, fuel and fertiliser. Judith Batch - elar, director of Sainsbury's brand, says long-term sustainability is what it's all about. "We've spent £60 million over eight years on vets and other assistance to dairy farmers. It is a long-term in - vestment. No one knows at what point we will see payback, but if you want a sustainable supply chain you have to work like this." Accounting for Sustainability, a body set up by the Prince of Wales in 2004 to support resilient business models, was the catalyst for this pro - ject. Sainsbury's own chief financial officer is an active member of this in- itiative. Getting backing from the top means innovative supply chain moves are far more likely to thrive and Ac- counting for Sustainability typifies a new wave of groups like the IFC that en- courage strategic supply chain thinking. National Hickman is a building supplier that grew out of a long-es- tablished Wolverhampton timber merchant. Long-standing relation- ships are the key to the business. It takes wood and related parts from its suppliers and cuts them into shapes that allow its clients, including Bar - ratt and Persimmon, to assemble key house components quickly. In order to keep its own supply chain on track, National Hickman establishes guaranteed orders from the big housebuilders. It then of - fers higher volumes of custom to its timber suppliers who can keep their costs low due to a secure order book. "We can all create a decent margin without the prices going up too much – it's a virtuous circle," says National Hickman group deputy managing director David Formaston. He recently spent £1.6 million on robots that pre-cut house parts before they are shipped out to the h o u s e b u i l d e r s. T h i s m e a n t M r Formaston's clients could use less skilled labour on their construction sites. The company had worked out that a shortage of skills was holding back housebuilders and went about solving its customers' problems, thus cementing its own suppli - er-client relationship. Through forging partnerships with suppliers, companies are able to ensure compliance with required standards and protect production, as Michael Dempsey reports TOP 5 PARTNERSHIP TIPS Ensure executive sponsorship in the form of strong backing from a board member; ideally create a chief procurement officer 4 Work together and get as many companies as possible into a virtuous circle; try to figure out what you can do to make life easier for other players in the supplier circle 1 Remember that if you see the supply chain purely in terms of pruning costs you will get diminishing returns as life for suppliers becomes tougher; then the size of the potential supplier pool shrinks, and both your choice and the quality of supplies you get suffer 5 Don't hesitate to seek outside advice and help from national and international bodies; external organisations are a great source of innovation 2 Online software products that allow different parties to share and collaborate are very affordable; establishing a common ground on the internet is a great way of encouraging communication 3 What this epidemic of collaboration boils down to is that large businesses are establishing partnerships with smaller suppliers and encouraging them to improve quality own-brand products come from UK farmers. But the dairy farmers that supply the milk have to contend with market prices which often bear no relation to the cost of producing it. Faced with the prospect of sup - pliers going to the wall, Sainsbury's decided to change its entire rela- tionship with them. For the past eight years it has run a scheme intended to create and protect a long-term source of quali - ty dairy products. The supermarket chain pays vets to teach farmers how to spot and deal with common health problems among cattle. In - dividual farmers might not want to take on this cost. But by promot- Image: Getty

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