September 15, 2011
by Michael Power
Purchasingb2b: July/August 2011
The 86th annual Purchasing Management Association of Canada (PMAC) National Conference in Whistler soared high among Whistler’s mountains, and hit the heights in terms of attendance numbers.
The event drew more than 600 delegates, kicking off with the PMAC golf day June 7 followed the next day by pre-conference seminars and the Your Voice members’ dialogue.
Board chair Keith Carruthers began the conference by referencing the event’s Reaching New Peaks tagline. While the slogan referred in part to Whistler’s still snow-capped mountains, “it’s also all about our profession”, he noted. The field had seen several changes in recent years, he said. “We’re getting our rightful place around the boardroom table.”
The conference boasted several inspiring keynote speakers. Amanda Lang, senior business correspondent for CBC’s The National and co-host of The Lang & O’Leary Exchange, treated delegates to a review of business and economic issues.
While many economic factors remain outside control, Canada can work towards increasing its productivity, Lang noted. While supported by government policies like low corporate tax rates, the country’s productivity isn’t increasing as much as it should, she said. Since there’s a link between innovation and productivity, organizations should strive to foster a culture promoting innovation.
“If you challenge the status quo you’re going to screw up occasionally,” she said. “But you’re going to get things right.”
Also sharing his inspirational story as a keynote speaker was Ray Zahab. Zahab walked, ran and crawled his way to the finish line of the Yukon Arctic Ultra, a 160-km adventure race, in the winter of 2004. Halfway through he wanted to quit, he told delegates; unprepared, with poor equipment and little training.
But he decided he needed to see it through, and plowed through the snowy cold night. To his surprise, he won the race. But his journey from pack-a-day smoker to ultra-marathoner wasn’t easy.
Reaching his 30th birthday Zahab realized he had no direction and decided to make a change. He quit smoking and started hanging out with his athlete brother. Shortly after, they went ice climbing, and Zahab “never went inside again.”
He’s since completed ultramarathons around the world, and finished a 7,500 km run across the Sahara in 111 days in 2006. A documentary, Running the Sahara, details the expedition. Zahab now runs a charity, impossible2possible (i2p), to inspire, educate and empower young people through adventure.
During one of the conference’s many seminars, Dan Georgescu, global purchasing, Ford Motor Company, outlined how the company reformed a previous image problem. Between 2002 and 2005 its suppliers ranked the automaker (along with GM) the lowest in terms of supplier relations in any industry, let alone the auto business, Georgescu said.
Ford and the other US automakers were perceived as focused on cost reduction, having little regard for supplier survival and not caring about supplier intellectual property. To combat that image, the company in 2005 introduced several initiatives to revamp its supply chain. Ford brought in the Aligned Business Framework (ABF) in order to render long-term strategic partnerships with suppliers. Among other characteristics, ABF agreements include:
• Extended relationship with the supplier for the life of a vehicle;
• Improved commonality of parts around the world;
• A bilateral commitment to achieving competitive cost;
• Supplier commitment to bring leading edge technology to Ford; and
• Supplier commitment to accelerated achievement of competitive cost structures that will be maintained over the life cycle, leading to less emphasis on cost reduction.
After introducing these and other initiatives, Ford’s ranking in the supplier opinion survey climbed significantly. Ford has gained marketshare to the point where it now outstrips Toyota. In 2010 Ford climbed from 13th to 7th in a global supplier opinion survey.
Nicola Raycraft, Jones Packaging's director of supply chaing management, with Keith Carruthers, the chair of PMAC's national board of directors. Raycraft won PMAC's outstanding achievement award.
During one session, Patricia Moser, Grand & toy's vice-president of supply chain, discussed how procurement managers can offer more value and savings to their corporations.
PMAC president and CEO Cheryl Paradowski speaks with conference delegates.
Low-cost country sourcing
Meanwhile, low-cost country sourcing was the topic of another seminar. After close to 10 years of looking to low-cost countries for sourcing opportunities, attitudes may be changing as organizations realize disadvantages of the practice, said University of British Columbia professor Garland Chow.
Chow noted that organizations are seeing late deliveries, intellectual property loss, poor quality and other challenges that are offsetting the advantage of lower labour costs abroad. Those at the C-level are re-sourcing manufacturing from off shore. As well, over half of shippers and logistics service providers surveyed are planning for an increase in nearshoring, bringing back some sourcing to the US, Mexico and Canada.
Chow noted several reasons for the shift. Labour costs in China have risen 19 percent since 2003, and studies suggest the labour cost advantage in that country will continue to erode. China’s labour force continues to become better educated, wages are climbing and unions are gaining strength. China’s one-child policy is also contributing to a shrinking labour force, Chow said. The US cost of labour is growing slower, while transportation costs from Asia have increased. There’s no question the cost of fuel will continue to rise, he said.
Meanwhile, the relative cost of nearshoring from Mexico is declining. The country offered advantages such as a lower cost of labour, quick response time and a similar time zone. Disadvantages do exist to nearshoring from Mexico, he noted, such as the potential for border delays.
Chow plans to do a web-based survey to evaluate the total landed costs practices in Canada, as well as develop a total landed cost template.
Pulling the levers
Also presenting during the conference was Patricia Moser, Grand & Toy’s vice-president of supply chain. Moser, who said procurement managers need to reconsider how they do business, gave a packed room a lively overview of methods they can use to continue offering more value and savings to the corporations they work for.
Procurement managers have a limited number of levers they can pull in trying to get the best deals, she says. To avoid adversarial relationships with suppliers, it’s important to re-think how RFPs are presented, as well as looking for different methods of getting what is asked for. The levers that Moser advocates procurement managers adopt are framed around six pillars:
• Demand management / demand shaping;
• Process streamlining;
• Spend disaggregation;
• Compliance and risk mitigation;
• Volume and supplier consolidation; and
Moser said it’s time procurement managers put their foot down to ensure employees comply with contracts rather than engaging in rogue spending. According to a DNA analysis that Grand & Toy conducts on behalf of its large and enterprise clients, roughly 38 percent of spend is off contract.
Everybody should ask suppliers for a service like this, Moser said, as it provides a look at metrics like order sizes and distribution costs. It also allows you to find alternate methods of ordering to increase efficiencies.
“Never think for a moment, just because it’s invisible doesn’t mean it isn’t costing you money.”