5 Risks Of Decentralisation In Supply Chain Management

5 Risks Of Decentralisation In Supply Chain Management

To clarify, in business there are two types of supply chain management; the centralised approach and the decentralised approach.

Let’s first define each so you can understand the risks involved better.

The first is the centralised approach to sourcing and it’s the best way to manage SCM.

A centralised and often strategic approach to sourcing business supplies and services requires your head office to have a procurement team in process. If you don’t have the capital to invest in developing your own in-house team of sourcing experts, outsourcing to specialist providers would be the next best thing and will still help you cut costs.

The second approach that many smaller sized businesses take to SCM is the decentralised approach. With this, when you’re only operating from one location, you may be able to keep on top of things but the risk is still there that certain aspects could be overlooked leading to higher operational costs than you need be paying.

The decentralised approach to sourcing anything transfers power throughout the company, meaning that many staff are able to order whatever supplies they feel they need and worse still is when there is no pre-approval required before ordering. That will lead to increased invoices, leaving upper management with little influence over expenses control.

Beyond that, here are…

The Top 5 Risks of Operating with a Decentralised Sourcing Process

1. The risk of having too many suppliers

Even stationery can become cumbersome if it’s not managed. Can you imagine, or worse if you’re experiencing this already, getting your stationery from one supplier, your secretary ordering print paper and ink cartridges from another, letterheads from another supplier and business cards from somewhere else?

The costs will quickly spiral but the worst risk you’re putting your business through is the one of quality management. Everything you order needs to be consistent with your brand and that includes your printer ink, company letterheads and business cards, and all your stationery.

With too many suppliers in your business, you’ll have increased invoicing to deal with, which can lead to some being missed resulting in late payment fees and you’ll struggle to manage the quality of supplies across your firm.

Stay in control of quality and expenses by minimising your supplier base for each product or service category your business requires.

2. Surplus expenses

The less “expenses” your company has, the better you’ll be able to manage your accounts. This isn’t only about managing your finances, because it’s more about the paperwork that comes along with increased operational expenses. The more invoices you have, the more payments you need to make or cheques need issued. It can become a time intensive process just dealing with the paperwork involved in having too many suppliers, creating far too many invoices for your accounting/finance team or your accountant to deal with in a timely manner.

Even if you’re using cloud accounting to manage your financial records, the input and reconciliation of each invoice will quickly become time intensive.

3. Brand quality sacrificed

Your suppliers are business partners and need to be treated as such. A lack of control over your suppliers and you’ll be doing wrong by your customers.

The best approach to strategic sourcing in supply chain management for any business is to remember these three rules…

It’s about…

1.Process
2.Personality
3.Repertoire

The first is to get a process in place for strategic sourcing, letting you manage the process efficiently.

The second rule is to have a representative work closely with partners, which often means personality matches ensuring they can work together professionally for amicable business objectives. The third is repertoire between your sourcing expert and a supplier representative ensuring long-term partnership resulting in best practices for both businesses.

When you have all three, you have a process in place that can stand the test of time and could even give your firm a competitive advantage. That’s the entire reason for taking a strategic approach to sourcing business supplies and services.

4. Too much data

Having too much data from a broad range of suppliers will make it difficult for your team to scour through it to make the best decisions moving forward.

By centralising your supplier base, your team will be better equipped to scrutinise the B2B contracts in place, and then work with suppliers to negotiate better terms, pricing or both; something that’s going to be too difficult when you lack the attention of one supplier.

Today’s supply chain management is not always about buying bulk for discount. It’s more about buying into value. The supplier to provide your business with the most value is the one that should win the contract. Suppliers know this and will work closely with you to ensure you are receiving value. Some will even go as far as investing to ensure their business is in the best position possible to streamline the supplies to your company and pretty much future-proof the contracts against potential competitors.

5. The biggest risk factor is to your optimised spending

For purchasing to be efficient across a business, it requires spending to be optimised. You cannot do that without having a centralised purchasing process in place. There needs to be formal supply chain management policies in place, approval processes that all staff understand so they can divert their needs to the appropriate named contact in your business; even if that’s a named contact acting as a liaison officer between the firm and an outsourcing procurement specialist.

Only when you have standardised approval processes for purchasing in place, and professionals to oversee the procurement process of all supplies across the entire company will you be able to mitigate the risks of operating with a decentralised procurement process.

Dealing With Shadow IT In Your Business

Dealing With Shadow IT In Your Business

There’s a reality that businesses of all sizes need to acknowledge. That’s the existence of Shadow IT. If you don’t know what it is, read on because it could be putting your corporate data at risk. Yet at the same time, it could be so disruptive to your sector, it could be the edge your business needs.

As you may well already know by now, the IT sector is fast-paced and the early adopters of new and often disrupting technologies are often the winners in the long-haul. That being said, they also know how to take back control of Shadow IT projects.

Shadow IT is information technology that’s used in the background without the approval of IT or upper management. It’s either through software or a platform as-a-service; SaaS and Paas. To understand what’s happening from an IT perspective, it needs acknowledging of the BYOT (bring-your-own-device) trend.

For some employees, they know a little too much about the technology available that can help them be more productive in the workplace. Instead of going through dedicated channels within your company, which can be a lengthy process, they choose to invest their time into running specific software or using platforms that help them to be more productive in the allocated hours they have within your organisation.

Before too long, without careful control of the situation, you could have multiple departments implementing their own technology solutions without the approval or knowledge of the IT department.

It’s a bottleneck waiting to happen because when things go wrong your IT personnel are not going to be happy providing support for technology implemented without their approval. Instead, your staff will be passed over to third party providers for support and that is when projects get delayed.

IT divisions must always be in the know about any technology being used in any department. It’s easy to assign blame, however, what’s best is to ensure your IT people are aware of the Shadow IT problems and work with departments to ensure that they are always in the know about the right technology that could assist with productivity. It’s better to manage projects in-house than it is to outsource, provided you have the technical expertise on hand to provide the solutions.

If not, you’re next best solution is to use a dedicated provider to outsource your IT requirements to. Many projects and entire infrastructures can be managed through cloud applications, which can bring costs down, and even lower the periods of time you’re under contractual agreements.

What used to be five plus year contracts to outsource IT, is now closer to three years.

Should you terminate Shadow IT Projects when they’re discovered?

Probably not however it will depend on the individual situation.

One of the finest examples of a successful shadow IT project was right out of Harvard University and that was Mark Zuckerburg when he created what we now know to be Facebook.

Therefore, going by that example, you can see that it’s not necessarily a bad thing to have engaged employees working with technology to improve their efficiency in the office or even just tinker around to see what they can make reality. Just be careful you don’t have people working on projects they shouldn’t be on company time, as you could wind up with a scenario where your employees are pretty much beta testing different technology and not getting on with the work you’re paying them to get done.

With that being said, it’s also never a good idea to let go of full control over technology. There are data protection laws and you must be providing security to your customers and clients’ data, no matter the cost.

So what do you do when you identify non-standard IT solutions in place?

Acknowledge it and discuss solutions with your IT division. They are the people there to help you manage all technological solutions either through platforms or systems developed in-house or by working with cloud partners to bring aboard the right systems for the right processes at the most cost-efficient pricing.

Involve your IT and ensure they are working with each department and aren’t oblivious to Shadow IT.

It is a good thing to embrace but only in the short term and when compliance staff and technology experts are on hand to oversee projects, ensuring things stay on track. Should third party developers have solutions available that are proving a hit for your company you can either partner with them or see if your IT people are able to develop a tailor made solution more appropriate and better placed to provide the best solution to end-users.

Should you choose to trial run any new technology, the safest way to embrace the innovation is to use dummy data. Never use your accurate data records to test run software developed in-house.

Budget for technology

The higher a budget you can assign to your IT division, the more they can work with Shadow IT projects on a small scale to find out if they are proving successful, and if so, they can work with teams to roll out longer term solutions within a budget you assign.

It’s the only way to regain complete control over the technology used in your business.

Embrace what your employees do when you’re not looking because the IT projects taking place in the shadows may be the innovative solutions that could prove disruptive to your sector and give you a leading edge over any competitor.

4 Ways You Can Approach Procurement For Best Value From Suppliers

4 Ways You Can Approach Procurement For Best Value From Suppliers

For any business transaction, you need to scour the market for the best possible outcome. You need to know the pricing options available and then be able to get competitive quotes so you get a great service at an affordable price.

There are different ways to approach any market, but you’ll find that in general, the more time you allow for the procurement process to roll out over, the better you’ll be able to scrutinise the bids put to you and assess them for overall value.

The four ways to procure services within budget

1. Competitive Dialogue

The public sector is always a good place to turn for advice and learn about how large government contracting authorities go about procuring services for maximum benefits.

Within the EU public sector, there are regulations for using the Competitive Dialogue approach for procurement. This guide here gives some solid information on how it’s achieved and why it’s done.

The best way to use this approach is to have a good understanding of what you need from your supplier, but are open to suggestions on how the offering could be improved upon. When you want the input from other experts in a field you’re ready to outsource to, this approach will allow the tendering process to develop a two-way dialogue where suppliers are able to put competitive bids in and include suggestions on how they could be serving you better.

This approach is the only one that will work when you don’t know what’s available in an industry, or you don’t have the time to devote into research. Instead, have the experts in the sector come to you with their input.

The simplest way to describe the best use of this approach is when you really need expert input from suppliers. Print fleet management would be a good example as you could invite experts in the field to pitch you possible solutions at competitive pricing.

The most appropriate responses with suitable pricing would be the ideal candidates to engage directly with in a final stage of negotiations before deciding on a preferred partner.

As you can imagine, this is going to take you the longest time to get your services put in place. The advantage though is that through the dialogue with your supplier, you’ll be able to have worked out all the kinks needed to get a contract for service underway including everything you need taken care of at a price within your budget.

Expect this to take at least a couple of months and plenty of dialogue between your business and potential suppliers. Even those you aren’t considering to include in the final stages, you still need to acknowledge their input, respond to them and keep them updated as any one of the potential bidders could come back with a more appropriate solution for your needs.

If you are going to use this approach, you’re best to appoint a project manager to oversee the tendering process and engage with interested suppliers to find out what each can offer.

2. An Open Approach to Invite Tenders

Taking an open approach to tendering invites is a two-part (minimum) process. The first stage is advertising your need to the market, and the second is assessing the proposals you receive.

To put this method to work, you need to know how to prepare and evaluate tenders. The Chartered Institute of Procurement and Supply has a guide here outlining what’s involved.

This approach works best to get competitive quotations, however, you can expect it to cost you in time and project management as all participants involved in the tendering process will need to be responded to.

However, there won’t be as much dialogue involved as you’re not asking for expert input. For this approach, you need to state your exact requirements, inviting those who feel they can deliver what you need to put their quotations to you. You aren’t asking for input, just the price and terms of engagement.

3. A direct approach to inviting proposals

This method involves you identifying suitable candidates and directly approaching them to invite them to submit their interest in your business and put their proposals to you.

To get this method working in your favour, you are best to have a list of suitable suppliers you’d like to partner with because you are going to lose some competitive advantage as your invitation will not be in the public domain, but instead will only be open to those you identify and approach. Aim for at least a half dozen suppliers.

With an open approach, you can expect to get a lot of responses, each needing replies, whereas the direct approach, only those you invite to submit their interest will be the parties you deal with. The more you have the more quotes you get to pick from but it will take longer to identify candidates to invite directly.

4. The least competitive approach and likely your most expensive

There’s what’s known as a non-competitive approach to procurement and it is likely only best used for emergency use and is not advised for long-term contractual arrangements. The reason being, your supplier is in the driving seat. When you go direct and don’t have others involved in the tendering process, there is no competition for potential suppliers. Never let any company know they are the only firm you’re in discussions with as you will not get competitive pricing.

When you’re in a rut and need supplies fast, this approach can work but never for the long term.

You’re always best to use this approach to get suppliers in place fast, but always take the time to consider longer-term prospects and ensure that any supplier you engage with directly without a competitive advantage, that you do not enter into a long term contract. Let them know it will be for temporary supplies or services and the contract will be going out to tender and invite them to participate in the tendering process.

The more competition there is, the better your options, quotations and value for money you will get. If you don’t even know what your options are then use the Competitive Dialogue approach to engage with suppliers and have them put their proposals to you. Then you can evaluate them and identify the best ones that will fit in with what your business requires.

The more time you have, the better a deal you’ll get. If you’re short on time, your best option is to engage directly with a procurement specialist firm that will have a list of pre-approved suppliers of vetted companies who are already known to be efficient suppliers with value for money built-in. It’s often the fastest way to procure professional services with cost-efficiency built-in.

Why The Lowest Tender Never Wins!

Why The Lowest Tender Never Wins!

It seems in every sector there’s always someone or some company looking to take the shortcut in bidding wars and enter into the tendering process competing on price alone.

Newsflash!

You can’t and nor should you.

Legislation’s been in place since ’06 and it’s further reinforced in the updated 2015 Public Contract Regulations.

There’s an issue with it though…

It’s for public contracts.

Don’t you think this should apply equally to the private sector?

In a nutshell, yes it should.

Tell you why…

When you bid on a public sector contract during the tendering stage, every company is considered.

Not just on price, but you’ll certainly make your proposal stand out if it’s considered abnormally low.

What’s abnormally low?

Hard to define but the decision makers can spot it a mile out. If all bids are in the tens of thousands and there’s you with a proposal of a few grand, it’ll stick out like a sore thumb.

When it’s spotted, the bidder is contacted to explain themselves. What the Contracting Authorities are looking for during an explanation stage of a bid that’s lowballed is satisfactory evidence that you’re complying with environmental, social and labour laws.

This brings into question supply chain management.

Will you be able to provide evidence that you’re sourcing products in a sustainable way?

If you’re using overseas suppliers for your materials, do you have audits to prove there’s no slave wages being paid to employees; that the working conditions are in line with health and safety standards, and that there are no children in the workforce?

Supply chain management is a tough battlefield. It’s easy to source cheap materials from around the world, but the bottom line is you just can’t do that.

Your suppliers are your responsibility. Funding unethical businesses overseas won’t get you any public contracts.

This is why the private sector should be adopting the same principles. There’s many a thing the government do that only bring red tape and more administration, but in the case of the updated Public Procurement Policy, they’ve took a step in the right direction.

It makes sense that to eradicate the poverty in third world countries, we source while supporting developing.

The Best Procurement Policy Should Outline Supporting The Supply Chain Long-Term

When you’re sourcing products, think about how long your supplies can realistically last. That’ll give you a good idea if you’re doing it right.

Say for example you’re in the clothing sector, bulk shipping garments from overseas and selling them wholesale or even job lots on eBay.

· The staff need sufficient wages to live on
· The factory requires sufficient profit margins to source materials
· The materials providers need sufficient margins to continue their operations
There’s a further profit margin for the shipping of goods, and you’ve packaging to consider too.

It adds up to a lot of expense, but if you get it wrong, it’ll be even heftier.

This is why it’s fundamental to get your pricing right. Sell at too low a price and you can’t support the supply chain longevity.

Business sales contribute to quite a few businesses. Often worldwide too given the nature of how the digitised businesses operate today.

Do you think your suppliers really value your trade?

Leveraging Your Suppliers As A Business Asset

Leveraging Your Suppliers As A Business Asset

Do you consider your suppliers to be an asset to your business? You should, because they really are.

All too many SMBs get this entirely wrong. They put so much focus, and rightly so, on their customers ensuring customer service is top-notch and every customer gets value for money.

Guess what?

That’s what your suppliers are doing for you. You’re their customer and they want to be doing right by you and ensuring you get value for money.

Or at least they should be. If they’re not, it’s perhaps not all on them. Some suppliers are a nightmare to work with and if you find that to be the case, it’s likely because you don’t have a good solid working relationship with at least one key decision maker in your suppliers business.

When you’re dealing with suppliers, they’re an extension of your network.

You have a network right?

We’ll assume you do because not many businesses prosper without developing a network of professionals. Some are in the same industry; some are in the finance sector, others in the fundraising, some in marketing etc.

Your business will have connections. It’s key to business growth. Without connections, you’re a standstill and not experiencing growth.

In the supply chain sector, the managerial positions go to those with experience because with the experience they’re networked.

They know the suppliers, they know the industry, and they know the value for money they can get.

The best in the game drive cost savings because they’re able to strike a balance that serves the needs of both businesses – your business and that of the supplier.

Every business needs a profit margin.

The worst customers for suppliers to deal with are the barking mad ones that want stuff at knockdown prices. Always trying to strip the fat away from the bone and eat into the profit margins of their suppliers.

Big companies might be able to get away with this strategy because they have huge volume, but you can guarantee, if the supplier isn’t getting a healthy profit margin, the customer service will be next to none.

You get what you pay for.

So the lesson is this… when negotiating with suppliers, consider the value you can bring to the table. Yes, by all means be a strong negotiator but go to the table with realistic expectations.

Everyone wants profit.

The best deals are met in the middle. Where you get a good deal and value for money and your supplier gets a healthy profit margin. Both businesses keep profits.

To get negotiations off to a good start, you need a good working relationship. It’s the same with your customers as it is with suppliers. Treat them well and they’ll reward you with loyalty.

Loyalty is what you need from your suppliers because without them, you’ll be without supplies and constantly at the RFQ (request for quotation) stage to get supplies and services for your business.

If you consider your business small to medium sized, and lacking the professional networks to get to the negotiating table, partner with someone who is.

At The Procurement Group, our specialists are well connected in a variety of verticals with years of experience networking with those in the know.

If you’re adamant on taking care of procurement yourself, we’ll give you some tips to steer you in the right direction.

1)  Before approaching, send a LinkedIn request
LinkedIn is the social network of the established experts. If you’re not known to someone through LinkedIn, you’re at a huge disadvantage.

The first stage of negotiating is not about figures. It’s about getting to know who you’ll be speaking with and the best way to do that is to enter their professional world.

Get to know them through LinkedIn first, follow them elsewhere and find out what they share online.

That’ll give you some insights into who you’ll be speaking with and help you to find some common ground.

2)  Extend your network with multiple suppliers
Don’t just target one supplier when you’re researching. Establish who the right people are that you’ll be dealing with. Once you have a few people, you’ll get a feel for who the right person is for you to speak with.

It’ll be the person you feel more confident to pick up the phone and speak to, or to meet up with at a networking event. Even if they’re not the right fit, you can keep the meetings and conversations friendly because each person in your network has an extended network that could help you.

3)  Get your pricing right
You can’t go into talks looking to get a rock bottom price. It’s not going to happen. You need to have your maximum and minimum pricing in mind. Minimum pricing for supplies because you need to be supporting your supplier’s margins to ensure continuity of service.

Drive too hard a bargain and you’ll fall flat. The only time hard bargain deals are successful is when there’s multiple thousands in profits at stake.

4)  Find the middle ground
Find a good profit margin for you and your supplier and then work out the kinks in any service level agreements. What you don’t want to do is get a lower price because the level of service is reduced so your client can retain as much profit as possible.

Both sides need to be able to consider cuts in the margins. If any party is hesitant, it’s going to be a difficult working relationship when only one side is making changes, and the other making swaps.

5)  Keep in contact throughout your agreement
You’re your suppliers’ customer and whilst it doesn’t constitute constant communication, at least keep in contact in some form such as an occasional email to find out how they’re getting on.

The best time to contact a supplier is when you have to buy anything. Even if they don’t supply it, they may know someone who does and give you advice on dealing with them.

Your supplier becomes a part of your network. Nurture them as such and your long-term contracts will see you get better value from them.