IBM: Logistics Costs Can Eat Up Procurement Savings from Low-Cost Areas
Given the expanding complexities of global operations, including sourcing and procurement, information about logistics costs and capabilities is crucial to evaluating whether and how to leverage emerging markets as a means for increasing profit margin. So writes, Quentin Wedan, program manager in the Global Logistics unit of IBM's Integrated Supply Chain in a paper called “Transforming Global Logistics for Strategic Advantage in Emerging Markets.”
“Globally, there has been a trend to source from or manufacture in low-cost jurisdictions and emerging markets. This trend, however, is often offset by increased logistics costs and delivery times, along with a growing number of complexities that need to be managed. Senior management has begun to realize that lowering unit procurement costs does not translate directly to lower per-unit total landed costs -- the total costs associated with importing goods or parts from distant emerging market locations.
“The complexities of managing logistics in emerging market locations ultimately add to the total landed costs of the associated goods. Therefore, the process of redesigning supply chain operations to establish logistics management capabilities in emerging markets is a fundamental dimension of a long-term business strategy.
“Components of this strategy should include a focus on end-to-end integrated operations design and sound process discipline. Further, this focus should include a means to achieve flexibility, responsiveness and resiliency to enable more effective competition in today's environment of increasingly dynamic global business conditions. To leverage opportunities in emerging markets, companies must transition or expand from managing logistics in a limited number of local geographies to managing them in emerging market geographies worldwide -- in a very efficient, agile manner that supports the responsiveness and flexibility associated with an on-demand business.
“Companies can leverage specific approaches to transforming their global logistics capabilities and better support the business goals of lower cost sourcing or fulfillment by taking advantage of emerging market jurisdictions. IBM's own experience in transforming its logistics operations offers some insight into the performance benefits gained from a strategic focus on logistics. The capabilities developed during our own transformation effort now enable us to realize benefits associated with emerging market operations.”
http://www.ibm.co/

Open Ratings: You Must Integrate Purchasing, Supply Chain Functions
A supply risk management solution from Open Ratings was featured in a recent case study issued by AMR Research outlining a major aerospace and defense manufacturer's experience with a new approach to risk management. Open Ratings, a D&B company, says the study addresses the powerful potential of integrating purchasing and supply chain functions to reduce the financial impact of disruption in the supply chain.
By combining D&B's descriptive financial and performance information on more than 100 million global businesses with Open Ratings predictive alerts and supplier performance monitoring solutions, manufacturers can access actionable insight about potential risks in their supplier base. In addition, the supply risk solution combines manufacturers' own information about service, quality, procurement and third-party data--such as EPA and OSHA violations--with the aggregated experiences of Open Ratings' customers, enabling companies to develop more comprehensive and competitive corporate supply risk strategies.
“Supply assurance ranks among the top operational responsibilities,” said Jim Lawton, Open Ratings' vice president of marketing. “We're putting the intelligence and actionable insight in the hands of those on the front lines--allowing them to reduce exposure to instability within supply chains and ensure a dependable source of critical materials and services.”
Supply risk shows up in many forms and the complexity of managing distant suppliers across multiple aspects is only growing as the outsourcing trend continues. Most manufacturers measure suppliers regularly on quality and delivery, as well as financial stability. But reliance on suppliers further removed from manufacturers' own operations, and emphasis on choosing suppliers on a widening range of characteristics, such as diversity, environmental soundness and percentage of spend, makes it difficult to stay ahead of shifts that could signal trouble.
With increased collaboration between the purchasing group that selects and manages suppliers, and the supply chain group that works with suppliers on a day-to-day basis--companies can significantly reduce the likelihood of a disruption caused by supplier instability. The full AMR report is available at http://www.openratings.com/
http://www.openratings.com

ICG Commerce, Timken Enter Into Long-Term Procurement Services Contract
Procurement services provider ICG Commerce has entered into a long-term extension of its strategic procurement engagement with the Timken Company, a $5.2bn industrial technology company. The renewal extends through April 2011 and includes a major expansion of the initiative in which ICG Commerce will provide full business process outsourcing (BPO) services to help the company manage transportation, plant services and maintenance/repair/overhaul (MRO) buying categories for the company while also supporting sourcing-related activities in the areas of travel and packaging.
The new agreement builds on the results of a partnership that began in April 2002. By moving from regional to national sourcing and taking a comprehensive approach to procurement via ICG Commerce, Timken was able to accelerate the realization of savings while creating centralized purchasing capabilities to support its expanding global manufacturing operation.
“Timken has realized significant savings through ICG Commerce's strategic and comprehensive approach to procurement,” says Glenn Eisenberg, executive vice president of finance and administration for the Timken Company. “We look forward to the next step in our partnership with ICG Commerce and achieving even greater results over the next five years.”
Mike Hill, senior vice president of supply chain management for the Timken Company, says: “In order to fully realize the savings goals set for the company, we recognized that we would have to evolve our procurement initiative from a series of sourcing events to a more comprehensive, holistic program including implementation, transaction management and category management services as well as process and technology improvements. ICG Commerce has played a key role in making that happen.”
The procurement synergies gained over the past four years have led Timken to fully leverage ICG Commerce to help them manage a large percentage of its indirect spend. In total, the agreement covers nearly 25 buying categories feeding into 40 plus facilities across North America.
The Timken Company is a leading international developer of highly engineered bearings, alloy and specialty steels and components, as well as a provider of related products and services. With operations in 27 countries, the company employs about 26,000 people worldwide and recorded 2005 sales of $5.2bn.
http://www.icgcommerce.com.

Aberdeen-Capgemini: Outsourcing Procurement Can Cut Costs
Companies that are outsourcing procurement work are lowering costs and easing the workload in their organization, according to a new Aberdeen benchmark report, 'The Procurement Outsourcing Benchmark Report', sponsored by Capgemini.
The survey examines the reasons companies outsource procurement and the benefits they receive. In addition, the survey reveals the reasons many companies are not outsourcing procurement; chief among these is a perceived loss of control. The Aberdeen survey also found that--at least among companies that are already outsourcing some of their procurement work--more functions and processes will be outsourced over the next 12 months.
BPO procurement is a powerful tool for many companies that are trying to focus their efforts on strategic initiatives, increase their flexibility and aggressively deliver savings. The findings of Aberdeen's research confirm these benefits as well as the ability to use outsourcing in a pointed manner to avoid disruption and provide a platform for further expansion, Capgemini says.
To download a copy of the report , visit: http://www.aberdeen.com/


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