To all of you with Welsh roots, I would like to wish you a very happy St David’s day .

My own celebrations were shared with a friendly group of vocal Welsh expats in an Irish pub in Hong Kong. Not sure if the Welsh men's choir will be knocking on our doors any time soon, however our rendition of Hen Wlad Fy Nhadau seemed to be a hit with the locals.

For everyone celebrating, I hope you had a wonderful day, lechyd da!

For any company looking to implement a spend analysis solution then this afternoon’s webinar on the subject, “Spend Analysis: A European Perspective”, would have made interesting listening.

According to Andrew Bartels of Forrester, the use of automated spend solutions has increased hugely over the past 12 months, and as more and more companies search for a solution that gives them clear, simple and manageable data, it’s easy to see why.

Although Bartels was keen to stress there is no ‘quick fix’ to spend analysis issues, he did outline the main ways in which many multi-national companies would benefit from implementing an automated spend analysis solution.

He believes for companies with a high volume of complex spending the benefits can be seen in several ways. Firstly, it makes the consolidation of spending easier – or as Bartels put it: “you know what you’re buying and you know who you’re buying it from”. Secondly, he believes categorising spend means you can concentrate valuable time on sourcing. Finally it assisted those companies that have to comply with SarBox, by making the identification of rogue spending a simpler task.

Add to these increased supplier compliance and improved procurement satisfaction and you’ve got a number of very good reasons why automated spend analysis is one subject most procurement professionals just can’t get enough of right now.

Bartels’ insight was swiftly followed by a great example of what spend analysis can do for a large multi-national company. Edgar Heitmann, a senior project manager at Orkla ASA detailed how a spend analysis solution has helped Norway’s largest public listed company achieve both huge savings and increased transparency.

If your company thought it had a big job on its hands, the tale of how Orkla managed to consolidate data from fragments of 50 companies into a system that now offers the company up-to-date spend analysis data on a monthly basis, should offer everyone hope.

After been slightly disappointed with the 'look and feel' changes to Vista, I am pleased to say on the productivity side it looks like Microsoft have made some great leaps forward.
 
The new search functionality which can be accessed through the 'Start' menu is a great addition to the Vista experience.  Taking inspiration from the Google Desktop Search tool, the new search creates an index as documents and emails are added to your PC, enabling very quick access to the files you are after.
 
In addition to the main search feature, they have also added a similar search function to Outlook 2007 which is a giant step forward from the search capabilities of Outlook 2003.  Microsoft has added some great functionality, enabling you to manage tasks a lot more effectively. The functionality reminds me of the Franklin Convey Plan Plus task management module in some ways, which I previously used on Outlook 2003. 
 
New to Outlook 2007 is the 'To-Do Bar' which allows you to quickly view up and coming appointments and tasks.  I have to say the new version of Outlook is great, the search facility is wonderfully quick and the new task management functionality is making my life much more organised. Watchful that I don't sound like an advert for Microsoft, I would suggest reading Jason Busch's account of his Vista experience ‘Vista, Office and Outlook 2007 are a Nightmare’ which is the exact opposite to mine; resulting in Jason requesting a downgrade back to Office 2003 and XP!

It does seem strange our accounts are so polarised, especially as our two machines are virtually identically in spec. To tell the truth I was expecting to have more problems with the Vista and Office 2007 combination myself and was very surprised to report that my blue screen count is still sitting at ‘1’…

I am heading today to the China Sourcing Summit, in Shanghai, so look forward to giving you an update on the presentations and my thoughts on the supplier visits.

After a week the airline industry would like to forget, most executives probably wish they could jump on one of their planes and get away from it all.

Firstly, as ELP reported, Airbus announced ambitious plans to reduce costs to the tune of €5bn through a mix of procurement cut-backs and the outsourcing of production and aircraft assembly. British Airways CEO, Willie Walsh, then awoke to a letter from the Business Travel Coalition (BTC) expressing “profound concern” at reports BA would try to both impose new surcharges and withhold content from global distribution systems (GDS) in another cost-cutting exercise.

BA’s current system allows customers to purchase tickets and then make bookings for airlines, hotels and car rental in one place. However, in a move that has left the GDS incandescent with rage - the company are now rumoured to want 50% of their customers to buy directly through them, completely bypassing the GDS.

So will BA press ahead regardless of the BTC’s opposition? A spokesman for BA told Supplymanagement.com that a range of options were currently under consideration, but with the 60 companies who make up the BTC threatening to switch airlines if British Airways does implement these changes, and with BA’s current deal with GDSs expiring in the Spring, the company had better make up their mind soon.

With the airline industry facing an uncertain future, this particular muscle-flexing exercise by buyers could undoubtedly force BA to rethink their proposals.

Meanwhile, back at Airbus, 52,000 employees face an anxious wait to find out whether they have any part to play in helping the company resurrect itself. The plans have been announced, but whether they ever take-off is a different matter entirely.

As many procurement professionals know, commodity prices have risen substantially over the last three to four years. What’s surprising is that although it’s not the first time price spikes have occurred, many companies still seem to be taken by surprise.

As we are now seeing some commodities heading downwards, it’s a good time to take stock of the what has happened over the last few years. First of all, it’s fair to say that although there has been some downward movement in some areas, the aftermath of price hikes is still hitting many companies with a delay due to fixed price contracts. Also, there are several commodities where there is no end in sight for further hikes.

In this context, A.T. Kearney recently carried out an analysis of volatility in the energy, agricultural, plastics and metals sectors over the last three decades and found out that there is no empirical proof that volatility has increased over this time period. The initial hypothesis that globalization and hedge funds have led to a dramatic increase in volatility has been disproved. Volatility is the product of major supply and demand disruptions. This makes it even more surprising that companies are caught off guard.

The rise in commodity prices has not impacted all companies in the same way and some have handled the volatility better than others. Many companies in the primary sector have profited by increasing their sales prices quicker than the increase in price of their raw materials, while others have been severely affected. Companies need to be able to raise margins or incur smaller margin decreases in adverse times. If we look at Lufthansa, the airline has increased its fuel surcharge four times since 2004 and it is one of the few airlines that has secured fixed fuel prices in advance for more than 90 percent of its needs. This strategy has contributed to the airline’s improved financial performance.

When A.T. Kearney analysed the top-performing companies in these sectors through a survey, we found that there are basically five essential factors to minimizing risk:

• Proactively forecasting potential price developments

• Instigating strategic measures to take advantage of or lessen the impact of price movements

• Seeking margin improvements by creatively linking sales pricing to trends in raw materials pricing

• Actively communicating any positive or negative residual impact to the financial community

• Mitigating residual risk using contractual and financial hedging mechanisms under a clear corporate risk management policy

What became clear was that very few companies use scenario planning techniques to forecast prices and without a statistical projection of prices, it is difficult to calculate, let alone mitigate risk. There are a number of possible reasons for this: procurement professionals don’t always have the deep industry insights needed to analyse complex supply and demand dynamics, short-term performance pressures on companies tend to make buyers focus on the next couple of quarters rather than look a couple of years ahead and because prices are so volatile, many procurement professionals think it’s just not worth spending time forecasting them. Tiered supply makes this exercise even more complicated.

When it comes to instigating strategic measures, companies are willing to actively pass on risk to their suppliers and/or customers yet only a few consider vertical integration and strategic make-or-buy questions. Again, this is evidence of pure short-term thinking.

And if we look at the demand side, we still waste an awful lot. For example, for every tonne of raw material used to produce a car, manufacturers produce one tonne of scrap – an absolute waste, considering that raw materials are a finite resource. Creativity in finding ways to consume less and manage tight supply is of paramount importance. Unfortunately this isn’t in the genes of procurement professionals – many of whom have been trained mainly to cut costs rather than manage and secure supply.

Remember that analysts, investors and others in the financial community don’t like surprises, especially bad ones, so a good management team needs to be able to accurately predict its company’s financial performance. However, we only need to look at the press to see that the news has been full of quotes from CEOs claiming lower margins due to adverse supply market economics. The CEOs then turn to their procurement or finance functions and ask them why they didn’t know about this problem before it happened. If you’re a leading company though, you will have mechanisms in place to proactively detect developments in your supply markets and act on them, communicating your moves to the financial community.

The fifth factor to minimizing risk is to mitigate residual risks. Some companies have started to pay risk management a great deal of attention, but others are just not doing enough. Using hedging instruments to minimize the impact of fluctuating raw materials prices is a way of decreasing your company’s exposure to residual risk.

Risk management shouldn’t be seen as a chore to comply with corporate policies but should be considered a competitive weapon. Those companies who choose to deal with risk management now will be rewarded when the next peak takes others by surprise.

A recent post by fellow ELP blogger Richard Edwards revved up the Everyman chant to rage against Wal-Mart's planned expansion into rapidly emerging markets, such as India. I'm an ardent free market proponent, so I view Wal-Mart's recent moves as the continued (positive) effects of globalization -- and, quite frankly, merely a response to serve new demand from a growing number Indian consumers that have new-found wealth because of globalization. However, I am not here to argue the finer points of Goliath retailer versus Mom-and-Pop shop. Instead, I wanted to point out the good Wal-Mart is doing around the world.

You heard right. While you were busy picketing the opening of another big box retailer in your town, Wal-Mart has quietly become one of the business world's greatest role models for social and environmental responsibility. Long critcized for poor supplier relations and harming local businesses, the world’s largest retailer has been quietly overhauling its business and supply practices with energy efficiencient operations, recycling programs, and initiatives to ensure suppliers use environmentally and socially responsible products and business practices.

Wal-Mart’s plan is profiled this week in a Fortune magazine cover story, entitled “Wal-Mart Saves the Planet.” The article provides an excellent roadmap for sustainable business and supply management strategies. It also further illustrates how sustainabile approaches can improve both the top- and bottom-line.

Wal-Mart says it will invest $500 million in sustainability projects and has set aggressive goals to increase the efficiency of its vehicle fleet by 25% over the next three years. Reduce energy used in stores by one-third. And cut solid waste from U.S. stores by 25% in three years.

But the biggest improvements will likely come in the sustainability approaches Wal-Mart is using with its 60,000 suppliers. Wal-Mart Chief Executive Lee Scott said simply: “If you are a buyer, sustainability is going to be your business.”

• Reduce packaging: Wal-Mart worked with suppliers of its private-lable toys to eliminate excessive packaing. The retailer found that each year these actions save $2.4 million in shipping costs, 3,800 trees, and one million barrels of oil. Wal-Mart also used its muscle to encourage CPG giants Procter & Gamble and Unilever to replace bulky plastic jugs with condensed, slimmed down versions of all its liquid laundry detergents. The smaller package saves on energy, shipping costs, and shelf space.
• Endorse organic farming methods: According to the article, five years ago global production of organic cotton totalled just 6.4 million metric tons. At such low levels, growing organic cotton cost more than conventional methods, which use checmical pesticides and synthetic fertilizer that can contaminate drinking water and are harmful to the environment. Most buyers refused to pay the premium. This year, Wal-Mart alone with use as much as 10 million metric tons of organic cotton, and have committed to buying organic cotton for the next five years. This provides suppliers with the assurance they need to increase production and improve growing methods. Wal-Mart’s organic buying has already “cut milllions of tons of chemicals.”
• Protect supply and small suppliers: Wal-Mart also took a stance against unregulated fisheries and farmed salmon by announcing it would purchase all its wild-caught seafood from fisheries that have been certified as sustainable by the Marine Stewardship Council. Wal-Mart also emulated sustainable coffee-buying methods used by Starbucks to protect tropical regions and ensure fair labor practices.

According to the article, many of these ideas came from what Wal-Mart calls “sustainable value networks,” which are teams of Wal-Mart executives, suppliers, environmental groups, and regulators that meet every few months to share new environmental and sociall responsible strategies, set goals for improvement, and monitor progress. The retailer has developed 14 of these networks, each focusing on a specific area — ranging from internal operations and logistics to alternative fuels and packaging.

Although early in its initiative, Wal-Mart could very well have the muscle and funding to encourage the supply chain to adopt more sustainable strategies.

In an era of rampant globilisation it should come as little surprise to hear that the world's biggest retailers is planning to launch an ambitious strike into the Indian sub-continent, although it doesn't look as through Wal-Mart are going to have everything their own way.

In November 2006 the US retail giant announced plans with Bharti Retail for a 50:50 joint venture that would see the Indian company operating the front-end business of direct retailing. And according to a statement from Wal-Mart today, which coincided with a ‘routine’ visit to the country by the company’s vice-chairman, Mike Duke, this still appears to be going ahead.

However, with Duke’s visit ending tomorrow, small retailers in the country have wasted no time in letting the American’s know just what they think of any proposed expansion into the country. Around 100 protesters brandishing placards and banners marched on India’s government building to highlight the plight of small retailers, and they have strong support, not just on the street but in the corridors of power.

Last month the leader of India’s National Congress Party, Sonia Gandhi, wrote a letter to the Indian prime minister, Manmohan Singh, expressing concern at what she termed the “Wal-Mart effect”. Gandhi called on the government to properly examine the impact that transnational supermarkets could have on the ‘livelyhood security’ of small-store owners.

Wal-Mart, who alongside leading UK and French retailers, Tesco and Carrefour, already have a network of supermarkets in China, and in a country where the retail sector is reportedly worth a staggering $280 billion it’s little surprise that the three aforementioned company’s are looking to burst headlong into a market currently dominated by small independent retailers.

However, alongside the protesters, any proposed expansion plans from Wal-Mart and their competitors face an altogether larger stumbling block. Under current Indian legislation, foreign companies are only allowed to operate single brand retail outlets with an Indian partner, and, with Mr Singh’s plans to open up the market facing stiff resistance from the government’s communist allies, this doesn’t look like changing any time soon.

Money talks, however, and although Wal-Mart – who also claim they intend to increase their global operations spend on goods from India by $200m – are insisting that their relationship with Bharti currently extends no further than providing critical technology support in the areas of logistics, supply chain and back-end technology, it’s little wonder that Sonia Gandhi and the country’s small retailers are getting twitchy.

With offshoring very much the flavour of the month, a recent piece of research has caught my eye.

Carried out by the McKinsey Global Institute (MGI), “The Coming Global Labor Market”, examines the global jobs market and asks if rising salaries in Bangalore and Prague are an indication that supplies of cheap offshore talent are already running dangerously low.

The research assessed not just the number of university graduates in countries that have been the major beneficiaries of the offshoring boom – India and China, but also their suitability and accessibilities for employment by multinationals.

MGI’s conclusion – that the small size of global labour market will increasingly lead to the inflation of wage rates and employment in the developing world, is likely to set alarm bells ringing. And although MGI claim that this isn’t likely to create ‘sudden discontinuities in the developed’ world, it is certainly a warning to companies who are thinking of moving work to low-wage countries.

These finding follow the publication of a paper by McKinsey in 2005, in which the report authors of, “Sizing the emerging global labor market”, Diana Farrell, Martha Laboissiere and Jaeson Rosenfeld, argued that there was “confusion surrounding the newly integrating and still inefficient global labor market.”

Two years on it seems that this confusion still remains.

As recent ELP coverage has suggested, ‘risk’ is probably the hottest topic so far in 2007. The expansion of outsourcing in an increasingly global marketplace, alongside a marked rise in the number of natural and unnatural disasters - think Hurricane Katrina and further destabilising conflicts in the Middle-East – has left many procurement and supply chain managers understandably nervous.

Supply chain risk is rarely out of the headlines and the dangers are there for all to see. You only have to look at the recent example of three former employees at an outsourcing centre in India who, through ‘encouraging’ customers to reveal their pin numbers over the phone allegedly managed to milk Citibank customers to the tune of approximately $350,000.

Back in May 2006, Dr. Christopher Jahns, writing in Issue 5 of the ELP Magazine pointed to the rise in the number of recalled cars as evidence of a growing number of quality problems connected with increasingly global supply-chains. "Increasingly serious and threatening risks are obvious at various points of the supply chain,” he warned, before adding: “…there is a gap in adequate supply risk management strategies capable of coping with them.”

So with risk showing no sign of disappearing off the radar, ELP, in association with BrainNet, are launching a new Europe-wide survey examining the role of risk management in procurement.

The survey will cover six major topics;

Section 1: General questions on your procurement organisation.
Section 2: Risk management strategies.
Section 3: Sourcing governance and compliance.
Section 4: Supplier risk.
Section 5: Price changes and financial hedging.
Section 6: Best cost country sourcing / global sourcing.

The data will form an evaluation report, which will provide you and your companies an invaluable insight into the kind of strategies being adopted across the continent in an attempt to combat procurement risk. We hope you find it interesting.