In this fifth edition of Gunpowder, our trusty European correspondent,
Stuart Burns, ignites a bit of a controversy by offering a perspective
on what sourcing professionals can learn from commodities
traders. Having run a metals trading desk for over twenty years,
Stuart has a unique perspective on how traders approach direct materials
sourcing. Back on this side of the Atlantic, Lisa Reisman offers
some candid perspectives on how automotive
suppliers can increase their attractiveness to outsiders, especially
OEMs and Tier 1’s. Last, we have adopted a few of Jason Busch’s
entries from Spend
Matters, a blog dedicated to Spend Management. In this edition,
Jason tackles the future of spend
visibility and analysis.
Disagree with us or got an idea for an article?
Let us know: email@example.com.
Tricks of the
Trade—A Commodity Trader’s Approach to Sourcing
Based on having spent twenty years of my career
moving direct materials around the world on my account, I can
honestly say that traders view the world differently from many
procurement professionals. While I would not propose to anyone
that a trader’s approach to purchasing is a desirable way
to run a major manufacturer’s supply side, there are certainly
a number of lessons that a professional purchasing manager could
learn from trading to secure his or her aims.
First, true traders tend to look at the world globally; they are
never focused on one market either for buying or selling. Theirs
is a highly opportunistic approach to business driven entirely
by the need to arbitrage transitory opportunities as they arise
(from basic metals to complex fabrications).
Consequently, traders will always have their finger on the pulse
of foreign exchange movements and commodity markets. A good trader
is incredibly sensitive to how a shift can open or close purchase
or sale opportunities in different countries. Likewise, traders
know from experience which ports have direct shipping services,
which require transshipment, which are prone to congestion delays,
strikes, and where container availability is at a premium. A good
trader knows that shipping rates can vary significantly among
ports which are even within relatively close proximity. And they
know that this is driven by the global flow of products into buoyant
markets where thousands of buyers and suppliers are competing
for space. They also know that price variance can manifest seasonally
as well (e.g., variability of truck rates into and out of Russia).
Second, a traders—instinct is to sort supply decisions for
semi or fully manufactured products by engineering complexity
rather than product. For example, a trader may intuitively search
for manufacturers of products requiring medium to high degrees
of machining but in small production runs from India, regardless
of whether they are made from Steel, Aluminium or Plastic because
he knows that similar drivers will influence the comparative competiveness
of suppliers handling those different materials. A trader knows
how the underlying structure of each country’s industrial
base can be used to gauge pricing even before sending up an RFI.
And traders are also always ready to “cream skim””
and take savings where they can, whereas a purchasing professional
will tend to take a more disciplined approach, only looking to
re-source larger volumes and complete categories, often missing
Third, traders are an impatient breed and are often driven by
short-term time scales and a realization that they need to maintain
momentum if they are to seal a deal before a competitor appears
(which often leads them to create fictitious deadlines to speed
along a deal). As a result, their offers will be time limited
with short validities. And they’ll often tell stories of
competing demands on the material or the supply source. This may
sound like a game, but the result can create rapid closure on
a situation that could otherwise possibly unravel over time, or
take months (or years) to come to fruition.
Last, like the merchants of old, traders are sometimes branded
with having a cavalier approach. But while there are certainly
some who would qualify for this badge, their willingness to often
look outside of the box is also an asset. From personal experience,
I can say that traders have very little regard for multinational
corporate sales hierarchies or global sales networks. If a trader
is not getting the price he needs from the sales channel of a
multinational in his own country, then he’ll often look
to a sales channel in another country.
A good trader also keeps his cool under pressure and knows that
the majority of sales networks within suppliers are loose and
uncoordinated (and that a supplier will rarely discover that he
has been had by an internal market a trader has created within
his organization). I once purchased chemicals from the 6th floor
of Shell Petroleum’s headquarters in London and sold it
back to the 9th floor. But let’s keep that between us!
Stuart Burns is
Managing Director of Aptium
Global where he leads the firm’s
practice in Europe and Asia.
Your Value: An Automotive Supply Approach
In today’s increasingly transparent markets, it’s
no longer a black science for outsiders (including customers)
to predict the financial and operational performance of other
organizations. Thanks to companies like Open Ratings, which rely
on external and internal information feeds, buying organizations
are now able to continuously evaluate the stability and ongoing
performance of their suppliers.
But this does not imply that suppliers need to sit idle. In the
automotive environment, they’re a number of things that
suppliers can do to improve how customers perceive them. A short
list of these factors should always begin by looking at lean.
Is your company TS16949 certified—and more important, does
your organization breathe and live its ideals? Do you follow standardized
work procedures, incorporate 5S systems, maintain visual controls,
have a best in class plant layout, and strive to eliminate inventory
(both WIP and finished)? Does your organization implement Kaizen
events as part of its standard operating procedure? From a lean
perspective, a buyer can look at these lean elements along with
others (e.g. pull/kanban, cellular flows, Total Productive Maintenance,
quick changeovers etc) and make an immediate snap judgment about
your operational efficiency.
Next, focus on quality levels. Many smart buying organizations
look for suppliers who can produce with an internal customer PPM
of less than 50. In addition, to differentiate yourself to the
Tier 1’s and OEMs, demonstrate value added capabilities
such as engineering and the ability to deliver innovative solutions
such as integrated systems.
The quality and track record of your organization’s management
team can also help convince buyers of your value. Has the team
languished in middle management in the past or stagnated in family-based
leadership roles? What are there operational and management qualifications?
What will references say about your leadership? All of these are
questions smart buyers ask in evaluating partners.
Global capabilities—and reach”can also go a long
way to convince buyers that you’re getting the best pricing
and selling into the most appropriate markets. But don’t
forget the location of your supplier facilities (smart buyers
will balance global capabilities with the ability to evaluate
how you can cost effectively deliver your parts in a lean environment).
What is your company’s on-time delivery record? Still, having—and
being able to talk about—your ““Asia strategy””
is also important to improving how buyers perceive you.
Last, buyers are increasingly evaluating suppliers on the concepts
of lean sourcing. Do you proactively bid out materials and parts?
Are you aggressively and proactively managing suppliers using
tools, techniques, and standardized practices? Suppliers who perform
these activities will not only have a greater chance of survival—they
also have a better understanding of what it means to run world
class operations. And they’re more valuable to their clients
as a result.
Lisa Reisman is
Managing Director of Aptium
Global where he leads the firm’s
practice in North America.
the potential of Spend Visibility
In my Spend Management travels over the years, I’ve had
the opportunity to work alongside purchasing organizations, consultants,
and analysts alike. And if there’s one thing everyone universally
agrees on, it’s the need to gain better visibility and insight
into what organizations buy and how they’re buying it.
Spend Management vendors agree with this as well. In less than
two years, the number of independent providers with spend visibility
and analysis solutions has dropped precipitously, as broader suite
vendors have snapped them up. Ariba acquired Softface and FreeMarkets.
Emptoris snapped up Zeborg. And Verticalnet devoured Tigris. The
only remaining stand-alone vendor of any scale is Zycus.
Due in part to this market consolidation, new approaches to supplier
and spend analysis will soon emerge that incorporate advanced
technology and information management. For example, emerging applications
will have the ability to look at spend data and understand it
with the context and clarity as a commodity manager/expert while
reducing systems complexity. These types of systems will recognize
and cleanse information based on a set of adaptive rules without
creating a new system of record. The analogy is to think of these
future approaches as a portable spend prism when you draw the
prism over information, it automatically extracts what it needs
Previously, solutions to manage spend data would also rely on
a subject matter expert to interpret it. But these new approaches
will embed expertise which allows companies to manage the classification
process while building new unique approaches to managing information.
Many of these approaches will rely on a semantic knowledge base
and natural language system. In theory, this new type of analysis
technique—which is unproven in the spend analysis field
but has already been used in other areas such as customer data
integration (CDI) and catalog information management—will
work very well for spend and supplier analysis as well. The beauty
of this is that once a system is set up—and the rules are
determined and embedded—integration with new systems (e.g.,
those of a potential acquisition target), will be a breeze—at
least in theory.
The flexibility and rules driven approaches these technologies
use will enable organizations to pull and push information nearly
instantaneously from multiple systems while applying any classification
code / structure to it—even on the fly (e.g., UNSPC, Federal,
maintenance, etc.) In essence, these future solutions will enable
organizations to take spend data from any number of disparate
sources, standardize it, and then classify it without expert intervention,
in essence providing real-time spend classification, regardless
of source and interface. The notion is that the spend / supplier
analysis will be a rules-based outcome—which can be displayed
through any interface (a portal, web-service, etc.).
In the future, visibility will not just be about improving an
organization's internal spend and supplier management capabilities.
It will also be about incorporating external information to make
more informed decisions to predict and model supplier—and
supply market—performance. Want a peek at the future? Check
out Open Ratings. They claim the ability to predict both supplier
financial and operational performance, based on comparing dozens
of external information feeds (e.g., D&B) with internal information.
Jason Busch is editor
of the blog Spend
Matters. He is also Managing Director of Azul