Buyer Analytics

Strategy+Business has a great article titled "Manufacturing's Make or Break Moment". The article asks the question... Can developed world economies ever become great manufacturing bases again?

There are four key factors that buyers must consider when evaluating suppliers:

1. Scarcity of raw materials
2. Labor shortages 
3. Product variety with manufacturing flexibility
4. Regulatory and competitive constraints

One of the most important characteristic of such suppliers is their persistence as attentive innovators of operations.

They treat manufacturing experimentation as a source of knowledge for improvement, and their solutions interact in a virtuous circle that reinforces its own impact. These breakthroughs require entirely new designs in process technology. Only those companies that appreciate manufacturing, invest in technology, and innovate in this field are likely to prosper.

The challenge for procurement is to figure out how to find and develop these suppliers — for they are carrying the future of your supply base.

A team of researchers have come up with interesting answers in a report published in Psychological Science. They conducted a series of experiments with150 MBA students who had just enrolled on a ten-week course on negotiations. Analysis showed that when the buyer in particular had a perspective-taking ability it could predict a successful outcome.

Perspective-taking is the ability to consider the world from someone else's point of view, whereas empathy is the ability to connect with them emotionally. What this indicates is that taking the other person's perspective can produce a better overall outcome for both sides.

You want to understand what the other side's interests are, but you do not want to sacrifice your own interests, says Dr Galinksy. A large amount of empathy can actually impair the ability of people to reach a creative deal.

How do you become a better negotiator through perspective? Try to understand what the supplier is thinking and what his interest and purpose was in selling. Don't try to understand what the seller was feeling and what emotions he might be experiencing.

So don't emphasize with your suppliers, get inside their head, you'll be a better negotiator.

A little while ago I wrote that the cornerstone of sustainable procurement was ethical procurement. After this cornerstone is in place... what's next for the procurement professional?

This is where what's important to you, your company and the industry can allow for maximum creativity. Defining the sustainable  procurement strategy should be customized based upon how the buying category uniquely impacts the environment. Here are a couple of examples to get you started.

At the World Resources Institute Ruth Nogueron writes about 10 big questions for corporate forest product buyers. Here are four guidelines that should be incorporated into the sustainable sourcing strategy for forest product buyers.

• Have forests been sustainably managed?
• Have special places, including sensitive ecosystems, been protected?
• Have appropriate environmental controls been applied?
• Has recycled fiber been used appropriately?

Another example comes from Toyota's Green Purchasing Guidelines. A couple worth mentioning.

• Complete Elimination of four substances of concern (lead, cadmium, mercury and hexavalent chromium)
• Reducing Usage of Other Substances - Toyota has prohibited the use of asbestos and other substances subject to existing regulations, and is working on reducing levels of polyvinyl chlorides and volatile organic compounds.
• Reduction of CO2 emissions and packaging and wrapping materials in logistics

As you can see both of these guidelines are significantly different. However, each one has been customized based upon the industry and the organization's objectives.

A recent article in the Telegraph titled "High commodity prices are hard to swallow" points out that one strategy for price volatility management -  just "pass on" the increase. If this were the way your business operated - you wouldn't really need procurement.

Different skills are required in this environment - classic marketing and production skills might now be less important than skilful procurement and risk management. Today's environment should help demand for procurement professionals.

Of course, what's happening today is rather timid compared to the Jimmy Carter era. Anyone remember 16% inflation with double digit interest rates?

In the past many studies may have put a low or no value on the cost of water. With regional drought and economic growth the cost of water can vary dramatically depending upon where you live.

According to an article from People and Planet, over the past five years, municipal water rates have increased by an average of 27 per cent in the United States, 32 per cent in the United Kingdom, 45 per cent in Australia, 50 per cent in South Africa, and 58 per cent in Canada. In Tunisia, the price of irrigation water increased fourfold over a decade.

Some key factors that determine the price of water:

• Distance to point of consumption. Elevation plays a role especially if water must be pumped.
• Government subsidies - actually causes higher water usage by artificially pricing water.
• Geography - including supply and demand of water

Some interesting cost comparisons from the article:

• A recent survey of 14 countries indicates that average municipal water prices range from 66¢ (34 p)per cubic meter in the United States up to $2.25 (£1.17) in Denmark and Germany.
• The average American household consumes about 480 cubic meters (127,400 gallons) of water during a year.
• Homeowners in Washington, DC, pay about $350 (£182) for that amount.
• Buying that same amount of water from a vendor in the slums of Guatemala City would cost more than $1,700 (£880).

Here is the link for the full article: http://peopleandplanet.net/doc.php?id=2969

Here are the latest links from my shared items list.

Are you willing to do what it takes to compete for scarce resources? Here are some examples from a great article in The Economist titled "A Ravenous Dragon".

In late 2007 the Congolese government announced that Chinese state-owned firms would build or refurbish various railways, roads and mines around the country at a cost of $12 billion, in exchange for the right to mine copper ore of an equivalent value.

From Canada to Indonesia to Kazakhstan, Chinese firms are gobbling up oil, gas, coal and metals, or paying for the right to explore for them, or buying up firms that produce them.

Sinosteel, a big Chinese minerals firm, has bid $1.2 billion for Midwest, a Western Australian iron-ore producer, trumping an offer of A$900m from Murchison, one of Midwest's local rivals.

Chinese firms have invested $15 billion in Sudan since 1996, largely in the oil industry. That has allowed the country to raise its production from almost nothing to over 500,000 b/d, hugely boosting government revenue.