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January2014

VOLUME 19ISSUE 1The international magazine for supply chain professionals

Hari Sundaresan, CPO at BT, on leadership, stakeholder relations

and people development

2014 TRENDS

3D PRINTINGHow the technology

will revolutionise supply chains

SUPPLIER RELATIONS

ATTRACTIVE PROPOSITIONTips on becoming

a customer of choice

NEWS FOCUS

GOCO NO-NOWhat next for UK

defence procurement?

Ringing the

changes

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10 SUPPLY MANAGEMENT | JANUARY 2014

GLOBAL NEWS

The Australian government is accused of preferring cheaper, imported products over domestically produced goods.

The criticism comes from trade bodies, including the Council of Textile and Fashion Industries of Australia (TFIA) in submissions to a government

inquiry into the nation’s procurement procedures.

The TFIA said although the Australian Defence Force has said it will source combat clothing from Australia, business investments could be “easily undermined by a decision made on a cheaper

import. There is a risk that we spend a lot developing capability in Australia and then it loses out to a price and quality inferior item from overseas.” The TFIA pointed to the Berry Amendment in the US which requires the government to use local

providers for most defence purchases no matter the perceived cost.

TFIA said Australian companies have to go through a “severe regulatory process” to show they trade ethically but this is not required for international vendors.

Australian Paper, which owns the Refl ex brand, added the government buys 55 per cent of its copy paper from Europe and Asia. “That’s 1.2 imported reams of copy paper for every Australian-made ream,” it said. The Australian Manufacturing Workers’ Union said the government was acting “with a short-term and limited focus on cost minimisation” and the Australian Council of Trade Unions called for contracts to small and medium local suppliers, where applicable, to be “maximised to support the growth and capacity of these businesses”.

The Department of Finance said 93 per cent of its services are provided by Australian suppliers, worth $60.2 billion (£36.6 billion), over the last three fi nancial years. It said that 60 per cent of its goods came from Australian suppliers, totalling $28.7 billion (£17.5 billion).›› bit.ly/SMAusgov

COTTON

30 TEXTILE COMPANIES ACTNIGERIA

ICPC INVESTIGATES COMPANIESThirty textile companies

across the US, China, Taiwan

and Europe have signed up to

a programme that sources

responsibly-produced cotton.

Cotton Leads is committed

to improving farm production

practices, environmental

stewardship and “the dissemi-

nation of best practice

information broadly through-

out the world’s cotton

producing countries”.

By signing up to the

At least 156 companies have

forged tax certifi cates to bid

for government contracts in

Nigeria, according to the

Independent Corrupt Prac-

tices And Other Related

Offences Commission (ICPC).

It follows a preliminary ICPC

investigation and trebles the

number of fi rms initially

suspected of fraud. Last

month, the Bureau of Public

Procurement reported 50

companies to the ICPC and

scheme, the brands will only

use cotton sourced through

Cotton Leads. Its cotton

accounts for roughly 17 per

cent of global production.

Cotton Leads, launched just

over two months ago, is a joint

initiative by the Australian and

US cotton industries. The

companies included: Fruit of

the Loom, Central Textiles,

Tuscarora Yarns, Mount Vernon

Mills, and the Esquel Group.

›› bit.ly/SMtextile

the Economic and Financial

Crimes Commission.

Folu Olamiti, ICPC spokes-

man, said: “Preliminary

investigations indicate about

156 of these companies may

face prosecution for using fake

tax clearance certifi cates.”

The ICPC advised tax

authorities to learn good

practices from states that

have tamper-proof tax

certifi cates.

›› bit.ly/SMNigeria

Australian government accused of favouring foreign imports

Decisions to buy Australian produced clothing, such as army uniforms, could be undermined

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11JANUARY 2014 | SUPPLY MANAGEMENT

GLOBAL BRIEFS

Namibia

Anti-corruption gaps must closeA think tank says Namibian

government procurement is

“not always based on

transparency, competition

and objective criteria”.

The Institute for Public

Policy Research (IPPR) said

the government needed to

“close anti-corruption gaps”

to bring it into line with the

United Nations Convention

Against Corruption (UNCAC).

The IPPR identifi ed where

there were “weaknesses” in

terms of compliance with

UNCAC, to which the govern-

ment is a signatory, including

a lack of laws covering

whistle-blowing, declaration

of assets by public servants

and access to information;

and fi nancial transparency.

›› bit.ly/SMNamibia

South Africa

R206m spent on Zuma’s houseA declassifi ed report into the

costs incurred in security

installations at South African

president Jacob Zuma’s new

home shows R206 million

(£12.2 million) was spent.

The report was produced in

January after concerns were

raised about costs, but was

classifi ed “top secret” because

it “contained details related to

security aspects”, the South

African government said.

However, the cabinet

released the report, which

showed security work – includ-

ing fencing, a “fi re pool” and a

4 metre-high terraced

“retaining wall” – cost R71

million (£4.2 million). Other

works cost a further R135

million (£8 million) at the

remote complex in KwaZulu-

Natal province.

›› bit.ly/SMSApres

Asia

Group to monitor python skin tradeA group has been set up to

conserve pythons and

improve the sustainability of

the python skin trade in the

supply chain.

The Python Conservation

Partnership is a collaboration

between the International

Trade Centre (ITC), the

International Union for

Conservation of Nature

and Kering which owns

several fashion brands.

They will look to protect

two of the biggest python

species of South East Asia

that are affected by the trade

– the Burmese and the

reticulated python and will

monitor wild captures and

carry out research.

›› bit.ly/SMskintrade

Manufacturing

Kellogg’s to close two factories Food manufacturer Kellogg’s

is to close two of its factories

in Australia and Canada

respectively and expand its

plant in Thailand as part of

its supply chain optimisation

programme.

The move, part of the fi rm’s

‘Project K’, a four-year plan to

save £300 million through

the supply chain, will see the

closure of the snacks plant in

Charmhaven, Australia, by

late 2014. The ready-to-eat

factory in London, Ontario,

Canada, will also close by

the end of this year, and

Kellogg’s plans to expand

its cereal and snacks unit in

Rayong, Thailand, by

early 2015.

›› bit.ly/SMKelloggs

NEW ZEALAND

ROADMAP NEEDS ‘BEST PRACTICE’ PURCHASING The New Zealand government must adopt “best practice procurement” if maximum value is to be extracted from a construction roadmap, a think tank has warned.

The NZ Council for Infrastructure Development welcomed the National Construction Pipeline, a joint industry and government report mapping out building projects over the next fi ve years, but said “the future work programme must be project specifi c, well- sequenced and utilise best-in-class procurement capability”.

Chief executive Stephen Selwood said: “Bringing projects to market in a well-sequenced cogent programme, making timely decisions, providing transparent communication of information to suppliers and service providers and conforming with stated bidding processes and timelines is also key to unlocking value.

“Given the signifi cance of the forward work programme, adopting best practice procurement is critical if the government and council are to extract best value for taxpayers and ratepayers.”›› bit.ly/SMNzmap

Building projects are being mapped

RE

X

Kani fronts SA local purchasing campaignA new campaign has been launched in South Africa

to encourage consumers and fi rms to buy local goods

and services. Buy Back SA, supported by the Depart-

ment of Trade and Industry, includes a TV ad fronted

by actor John Kani and calls on purchasing depart-

ments to “reconsider procurement channels”.

›› bit.ly/SMlocalSA

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16 SUPPLY MANAGEMENT | JANUARY 2014

In May 2013, we reported on a case in South Africa in which a judge ruled a procurement process did not have to be perfect to be fair (bit.ly/smintllawmay13).

The case has since been before

the Constitutional Court in South

Africa, which ruled the decision to

award a tender was “constitutionally

invalid”. But the contract was not

immediately set aside, and a further

hearing will determine the remedy.

To recap, AllPay was challenging

the decision of the South African

Social Security Agency (SASSA) to

award a tender to award social

grants to Cash Paymaster services

worth R10 billion (£593 million).

While unsuccessful bidder AllPay

had been successful in the North

Gauteng High Court in 2012, this

decision was overturned at the

Supreme Court of Appeal, which

said “inconsequential irregularities”,

or minor fl aws, in the tender

process were not suffi cient to

invalidate the contract award.

But the Constitutional

Court said even if such

fl aws do not affect the

outcome, they can still

affect legal status.

“Irregularities in the

process, which may also

affect the fairness of the

outcome, certainly have the

capacity to affect legal rights,”

it said. The court said of the

Supreme Court’s decision: “This

approach to irregularities seems

detrimental to important aspects of

the procurement process. First, it

undermines the role procedural

requirements play in ensuring even

treatment of all bidders. Second,

it overlooks that the purpose of a

fair process is to ensure the best

outcome; the two cannot be

severed. Procedural requirements

are not considered on their own

merits, but through the lens of the

fi nal outcome. This confl ates the

different and separate questions

of unlawfulness and remedy. If

the process leading to the bid’s

success was compromised, it

cannot be known with

certainty what course the

process might have taken had

procedural requirements been

properly observed.”

But as the contract had been

running effi ciently for 20 months,

and SASSA and Cash Paymaster

claimed, “setting the tender aside

would cause disruption”, the court

said it would be inappropriate to

rule until further submissions were

made. AllPay was awarded costs.

“It [the judgment] goes way

beyond the AllPay matter and is

incredibly important in the interest

of public procurement in SA,” said

Anthony Norton of Nortons Inc,

which represented AllPay.

Cellulose Acetate Silk Co. Ltd v Widnes Foundry Ltd [1933]

Cellulose contracted Widnes for the delivery and erection of an acetone recovery plant.

The contract contained the following clause: “10. If this [delivery] period of 18 working weeks is exceeded you [are] to pay by way of penalty the sum of £20 per working week for every week you exceed the 18 weeks subject to the usual strike, lockout and general conditions beyond your control.”

Widnes completed the work 30 weeks late. Cellulose sued Widnes for the actual loss of the delay.

Widnes held that they were only liable for £600, due to the wording of clause 10.

The court held that the parties had agreed in writing that in the event of delay the damages were to be £20 per week, no less and no more. In other words clause 10 of the contract was an ‘exclusive’ remedy, and general damages (representing the actual loss suffered by Cellulose) could not be obtained.

Clause 10 used the word “penalty” – which generally at law would not be enforceable. The court indicated it must have been obvious to both parties that the actual damage would be much more than £20 per week, and so it was not really a penalty.

If you agree to a “liquidated damages” clause – for example,

in relation to a delay or other contract breach – this may be the only amount you can recover for the delay.

Liquidated damages should be based on a pre-estimate of the loss that would be suffered by the breach/delay. From a practical point of view it is important to keep a record of how this amount was calculated if there ever is a dispute.

It is better not to set the amount too high nor – despite what happened in this case – to refer in the drafting to a liquidated damages clause as a “penalty” clause, because the courts may not enforce it if it is.

Allan Wardhaugh is a partner at

Dundas & Wilson

When can general damages – the actual loss sustained – be obtained?

ISTO

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LAW UPDATE

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International law

P16-17 LAW SECOND JAN 2014 v2dt.indd 16P16-17 LAW SECOND JAN 2014 v2dt.indd 16 07/01/2014 08:5707/01/2014 08:57

NEW ZEALAND

WIRED FOR VALUE Value engineering is growing in importance in New Zealand as the drive for reduced cost and greater functionality intensifi es – and famed Kiwi adaptability is essential, writes Jeremy Kirsten

ET’S START WITH A DEFINITION. ‘Value engineering’ (VE) is a systematic method to improve the ‘value’ of goods or products and services. Value chain analysis, in my view, is looking at stages

of a process like manufacturing, design and even logistics and procurement, and asking: “are all steps a value add?” The follow-on becomes, if it is not adding value, eliminate it.

Looking at it solely from a cost perspective, not all cost is bad and it follows that not all cost is value adding. An appraisal looks at costs (or efforts) and subjects them to a test, the outcome of which is whether or not it is adding value.

Let’s assume that the cost is determined not to be a value add so steps can be taken to engineer it out. For example, take a look at value engineering in a manufacturing environment. If we examine a supply chain, we may see that goods are staying in storage for a specifi ed number of days yet we learn

40 SUPPLY MANAGEMENT | JANUARY 2014

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that two of those days is a cost that is not adding value to getting the products to our customers in the right time (or arriving late as the case may be).

Should this be the case, and the extra storage is a non-value adding cost then action needs to be taken.

Our initial defi nition further suggests that value is gained by increasing or improving ‘function’ – a simplistic way of looking at this is to strive to get more for less. Not so long ago in New Zealand and across Australasia, there was a drive to pitch suppliers against each other in bidding wars. This caused suppliers to cut their margins to the bone to win the order. Thank goodness we have moved on.

There are many ways of cost-cutting and increasing function. One of the ways is to approach our suppliers to help. I believe that the ‘us and them’ type of relationship belongs in the past. Our suppliers are an ideal place to look for value engineering action plans. There are probably many instances where savings gained can be shared

L

JEREMY KIRSTEN

is procurement

manager at Carter Holt

Harvey, the New

Zealand-based, forest

products company

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41

between the parties. Sourcing events can also bring about many value add opportunities by building these expectations into the scope of the sourcing process. It invites initiatives from vendors in a sourcing process that can set their proposal ahead of someone who has not demonstrated the ability to provide value adds in their proposition.

Increasing ‘function’ is an ideal path to follow if you’re looking for increased revenue. It will, of course, also help if your customers’ needs are being properly met with an increased functional capability. Now, increased function may not be something a customer needs or wants. But if we are able to cut down manufacturing costs as a result of our plant machinery increasing production, and as long as this is quicker, cheaper and prone to fewer breakdowns, then the increased function option is something to look very closely at from a value engineering perspective.

A common platformLet me share some examples of value added engineering I have been involved in. The fi rst was a business process that migrated from a paper-based to an electronic form process. It was plain that this was an improvement – even on the most basic level of paper forms no longer going missing. Essentially, what the transition did was provide a common platform that all stakeholders bought into, in terms of format and authority levels – a huge plus that allowed a clear monetary value to be established.

A second related to free product training from our suppliers’ qualifi ed engineers and the waste disposal of disused product. These were two categories of maintenance, repair and operation products so the value add was essentially free training by qualifi ed engineering specialists on the use and application of their products as well as root cause analysis and stoppage management. The benefi ts were spread over multiple sites.

We took care to ensure that the training exercises did not degenerate into revenue generating exercises for these contracted vendors. After all, which vendor would resist that opportunity to sell when so many end users are gathered in one room?

Care also needed to be taken to vet the training material to ensure it was appropriate. As well as upfront discussions, we checked this regularly through post-training evaluations to establish whether the information was value adding from a knowledge-gained perspective.

On a similar note, I was involved at one of my previous companies with creating real added value

through very focused training on the use and application of business tools. This provided some challenges in terms of value realisation. During the implementation and roll-out phase of the software, the budget was found to be very limiting in terms of end user training. We needed the training in order to ensure business continuity if the production line failed, which was a distinct possibility. So we paid for the extra training but managed to negotiate a reduced cost. The value add was that while a cost was incurred, there was a specifi c gain in terms of the cost that was very likely to be incurred had business continuity and specifi cally production been threatened – more specifi cally for maintenance and shutdown planning.

I agree that this exercise certainly stretches the defi nition of a value add. But the reality was that the expected cost of the production loss was dire, so averting this was indeed a real value add.

It’s been my experience that the top procurement professionals are always looking to identify new opportunities where value can be engineered. For example, at another company I was involved in evaluating steel fasteners. The opportunity here was created by examining the functional requirement and whether we could use either galvanised or mild steel. It was not a case of being right or wrong but there was a cost differential that was unnecessary.

New Zealanders have an expression that sums up our attitude to value engineering. It’s known as the No 8 Wire Approach, and it relates to a gauge of wire that was used for fencing around our many farms but which could be put to many other uses. It’s become a symbol of Kiwi adaptability, which is an essential quality for problem resolution and the creation of added value.

Value engineering as a concept has been around for some time, but it’s really come to the fore in this day and age where the spotlight is constantly on cost optimisation. Its importance can only increase, the more the squeeze goes onto costs. It is an essential weapon in the arsenal of many professions but particularly in procurement. Removing cost and increasing function goes further than mere cost cutting exercises; much of it has to do with successful stakeholder engagement and management.

Procurement practitioners are not engineers or designers but value engineers. And their enquiring minds and practical approach help identify many opportunities that result in verifi able gains.

Watch out for some very creative solutions and value add arenas coming out of New Zealand in 2014.

JANUARY 2014 | SUPPLY MANAGEMENT

The No 8 Wire

Approach relates to the

adaptable uses Kiwis found for

fencing wire and sums up their attitude

to value engineering

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43JANUARY 2014 | SUPPLY MANAGEMENT

STEPHEN ROWE, CHIEF PROCUREMENT offi cer at Parmalat Australia, won the prestigious 2013 CIPS Australasia Leadership Award at the Procurement Professional Awards in Melbourne in October.

He has represented the region on CIPS council and the global CIPS Congress for the past three years. CIPS praised Rowe, saying he “contributes to our profession by making time to give advice at routine formal sessions”.

Rowe said: “I hope this award will emphasise to senior members of the profession the importance of contributing and passing on their knowledge. It is insuffi cient to simply take a CPO role and give nothing back. Contributing to the direction of the profession, portrayal and marketing of the profession and passing on your knowledge to the CPOs of the future, is critical.”

Other winners on the night included:● Young Procurement Professional of the

Year. Brooke Fowles of the Department of Finance at the Government of WA

● Most Improved Procurement Operation: Queensland Rail

● Best Supplier Partnership: Air New Zealand and LSG Sky Chefs; Qantas and Telstra

● Best People Development Initiative: Woolworths

● Best Process Improvement Initiative: City of Gold Coast

● Most Effective Use of Innovation: Local Government National Procurement Network and Vendor Panel

● Best Example of Socially Responsible Procurement: Fortescue Metals Group; City of Gold Coast

● Best Infrastructure & Capital Works Project: Sydney Ports Corporation

● Best Cross-functional Teamwork Project: QBE

CIPS Australasia presented

six new Fellowship

certifi cates during the ninth

Annual Conference in

Melbourne in October.

Ben Shute, executive

director at eSourcing

Group, said he will continue

to act as an ambassador for

procurement. “I take every

opportunity to promote

what it means for me as a

procurement practitioner

and for the profession as a

whole, especially in New

Zealand and Australia

where procurement is still

in development,” he said.

Ian Duke, group manager

of procurement at Bis

Industries, said the honour

“adds validation to the hard

work and determination put

in over the years”. He

added: “I join a group that

is dedicated and committed

to the development and

support of the profession.”

Namejs Kins, general

manager of procurement at

WesTrac said he will devote

more time and effort in

helping other practitioners,

as well as promoting CIPS.

Hannah Bodilly, director

at Velvet Glove Consulting,

Mark Harris, head of

procurement at

Woolworths, and Ramsay

Chu, chief procurement

offi cer at Rio Tinto were

also awarded Fellowship.

Six new Fellowship certifi cate recipients honoured

www.linkedin.com/groups?gid=2978718 twitter.com/cipsnews www.facebook.com/Offi cialCIPS

AUSTRALASIAN AWARDS

‘Contribute to industry’ urges Parmalat’s CPO

TRAVEL SHOW CREDITS CIPS members attending

sessions at the Business Travel

Show conference at London’s

Earl’s Court next month will

earn CPD credits. The two-day

event, from 4 to 5 February, is

designed for procurement

managers of all levels and will

focus on supplier negotiations,

mobile apps and travel

technology. “An increasing

number of procurement

managers have responsibility

for travel management and this

has been refl ected in the

show,” said event director

David Chapple. Register at

www.businesstravelshow.com

LEBANESE LAUNCHThe Institut des Finances Basil

Fuleihan, the training and

communication arm of the

Lebanese Ministry of Finance,

launched the country’s fi rst

Certifi ed Course in Public

Procurement on 21 October.

The fi ve-day training

programme, developed with

CIPS, introduced participants to

the role of procurement in the

public and private sectors and

familiarised them with the legal

and institutional framework of

procurement in Lebanon. Those

who passed the end exam

received a CIPS certifi cate,

providing them with a pathway

for CIPS qualifi cations.

BEING ACTIVE IN QATARBuilt asset consultancy EC

Harris hosted a training event in

October. The CIPS Qatar Branch

Executive Committee presented

the work being done by CIPS in

the MENA region and the

activities being initiated by the

Qatar branch following its

formation at the end of 2012.

Members from the UK Embassy

also attended the event.

ROUNDUP

David Noble, CIPS group CEO congratulates Stephen

Rowe, chief procurement officer at Parmalat Australia

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