Recent procurement news from around the world:
UK to Use Past Performance in Evaluation of New Supplier Bids
Bill Crothers, the U.K.’s Chief Procurement Officer (he replaced John Collington in August) has continued the aggressive government plans to reduce costs recently announced that for the first time, a supplier’s past performance would be considered as part of the evaluative criteria for its bids on new tenders [Sidebar: It is surprising to me that past performance has not been used previously]. This announcement has actually generated some controversy as has the recent news that the government is keeping a “blacklist” of suppliers who either failed to perform on contract or represent a high risk. Industry lobby groups are protesting both points on legal and what may be best described as “good faith” grounds.
With Cost-Cutting a ‘Matter of Survival,’ Alcatel-Lucent Appoints CFO Tufano as Operating Chief
Alcatel-Lucent recently appointed its Chief Financial Officer, Paul Tufano, to a newly created role of Chief Operating Officer, giving him additional responsibilities in the French company’s turnaround plan. Tufano, who will remain the CFO, will be in charge of global supply chain and procurement as well as the company’s enterprise, strategic industries and submarine businesses. The move is part of a larger reorganization that includes the elimination of 5,000 jobs and the goal of saving $1.6 billion by the end of 2013
Source Interlink Names Kevin Mullan New CPO
Source Interlink, a billion dollar plus revenue publisher of magazines, websites, and content creator for television and radio has appointed Kevin Mullan to the post of Executive Vice President and Chief Procurement Officer. The announcement I received early last month stated that “In his 11 years with Source Interlink Media and its predecessor, Primedia Inc., Kevin has successfully led the media division’s paper, print and manufacturing areas, including playing an integral role in the company’s conversion from a print-focused publisher to a multi-media company that distributes their leading brands on a variety of platforms.”
Ikea, Ericsson See Benefit to Paying Chinese Suppliers in Yuan
IKEA, the Swedish privately-held, international home products company told the Wall Street Journal last week that while it has traditionally paid its Chinese suppliers in dollars, that practice is changing. Specifically, after some regulatory changes in China in 2009, the company began paying some Chinese transportation providers in yuan and in 2012, began paying some of its other Chinese suppliers in yuan. Spend with Chinese suppliers represents about 20% of IKEA’s total supplier spend.
“The main advantage for our suppliers is that they are paid in the currency in which they incur most of their costs.” noted Raj Rai, who run’s IKEA’s Asian-based treasury operations. “Paying suppliers with proceeds from Chinese sales gives IKEA better visibility into the real cost structure of its suppliers, making it easier for the retailer to help its suppliers improve productivity.”
Meanwhile, Ericsson, the Swedish-based maker of wireless-network infrastructure, reports that it also pays some of its Chinese suppliers in yuan. Ericsson’s reasoning is a basic currency hedge – in 2011, 8% of the Ericsson’s sales and 7% of its costs were in yuan. “Generally, this works as a natural hedge for us,” said Stefan Jelvin, director of investor relations for Ericsson. “If you pay suppliers in the same currency you sell for, you avoid currency impact.” Ericsson determines the payment currency by the location of a supplier delivery – it pays Chinese suppliers in yuan for deliveries made in China; it pays Chinese suppliers in dollars for deliveries made elsewhere.
While big companies (like IKEA and Ericsson) may be better able to manage currency risk and do so at a lower cost than Chinese manufacturers can with their local banks, there are many other considerations that make these decisions complex. For example, the underlying reasons cited by each company above as the driver of their yuan payment strategy was quite different.
It is our view that while more supplier payments will be made in yuan over the next decade, we think that it is unlikely that there will be a major, global shift towards yuan payments for Chinese suppliers over the near-term. That said, as companies continue to look for every possible advantage and gain, currency and payment strategies will rise in importance with finance placing a greater focus on global sourcing/contracting strategies and P2P; this area presents a great opportunity for CPOs to engage and collaborate with treasury and finance teams.