Category Archives: Supply Chain Management

Interview with Mr.Jon Northorpe, Director of SCM at TTG Australia


1. Please brief us about your profile at The Thought Group?

The Thought Group is a niche supply chain consulting company based in Melbourne Australia.  With extensive experience of operating across both Australasia and Asia we seek to provide a more practical and hands-on approach to supply chain issues ranging from project management and procurement through to interim management.

2. What are the significant milestones achieved under your leadership at The Thought Group?

We have been operating for over five years and have an established base of national and multinational clients.  During this time we have provided services for strategic network re-design, the design, development and delivery of several distribution centres and facilities and the improvement of supply chain costs.

3. What are the key challenges that companies face today in their supply chain?

We see that few companies are able to differentiate between cost and value.  Typically most companies believe that the establishment of best cost in the components of the supply chain means that ultimately this will deliver best value.  In most cases our experience shows that when the factors of best cost combine they rarely deliver best value.

4. There seems to be lot of buzz that cloud computing may replace traditional ERP tools used in supply chain? Do you see any benefits of cloud computing in supply chain?

The key benefits we see in cloud computing is the ability to share more data, more freely, more easily.  Typically data collation has been difficult working in multi-site, multi-region environments.  The use of cloud based technology for supply chain analysis assists in better data collation that ultimately delivers more accurate results in a timelier manner.

5. Do you use any tools to manage or monitor Supply Chain Risk?

We use traditional supply chain network and forecasting tools but rarely utilise them to manage risk.  People are sceptical about the ability of these tools, especially inventory forecasting tools, to manage supply chains regularly manually intervening and over stocking supply channels.  Whilst conscious about lead times and inventory levels supply chain risk, in our region, appears to relate predominantly to relationships with end-customers and retailers purely based on DIFOT measurement.

6. SAP acquired Ariba, IBM acquired Emptoris and Oracle acquired Endeca. Do you think this trend of acquiring spend management companies will continue?

ERP companies believe that these type tools will better assist with spend management processes.  The key issue however is that they typically, given the “lag” nature of many supply chain functions, only record the spend after it occurs and our view is that if the correct processes are in place within a business these systems become a further step in the process rather than a useful management tool.

7. Do you see any significant changes happening in the near future in supply chain management?

The supply chain industry is a world full of buzz words and technology.  RFID, route optimisation, network re-engineering are all currently hip and trendy but ultimately everything comes down to hard-nosed operational logic.  In many cases the fundamentals lie with the people inside the business and the knowledge they retain.  Companies often choose to run supply chain re-engineering processes that disengage these people in favour of technology.  Our experience has shown that, without relevance to the knowledge that many of these people hold inside a business, the tools used in the processes rarely deliver a viable outcome and become expensive toys.  We believe more human interactive tools will need to be the way of the future to better assist in planning and maintaining the supply chain.

8. There was a lot of hype and buzz about the usage of RFID in tracking consignments but it really never took off since scalability was a problem and not many companies could afford it. Do you see that changing?

How much data can an individual/business collate and use?  RFID technology generates significant volumes of data much of which is worthless.  RFID, in specific applications, performing specific tasks, is of value however there is a need to decipher the real need versus the supposed want for the application of the technology.

9. Do you use services of any of the firms listed below to analyze your spend or optimize your supply chain?

  1. Zycus (
  2. Ariba (
  3. Endeca (
  4. Emptoris (
  5. Global eProcure (

We are a small consultancy that typically sees these tools used by large corporations to manage spending through PO Management systems.  Our limited exposure to several of these systems has not been good

10. Currently Green Supply Chain Management and Carbon credits seem to be hot topics within Supply Chain. What are your thoughts?

We have seen and heard of green initiatives in the supply chain for the last 15 years.  Our view is that, until recently, these were buzz words that, when push came to shove in negotiation, were discarded in favour of lower cost.  The introduction of a carbon tax here in Australia has changed thinking, potentially only temporarily, but ultimately a customer’s propensity for green comes down to cost, nothing else…

11. In today’s scenario, Companies scramble to achieve cost savings in procurement and use market research to help in their decision making process. Have you used any of these companies that are known to offer procurement intelligence services?

  1. Smart cube (
  2. Denali Intelligence (
  3. Infiniti Research (
  4. Global eProcure (

We have not worked with any of the above companies nor seen much evidence of them in the Australian market.

12. Today it’s all about saving costs in procurement. Companies are aggressive in achieving cost savings. Due to this supplier’s profitability has dropped. Do you think this sets a bad precedent for new suppliers to enter the market?

Many companies appear to believe that “squeezing” lower cost from a supplier delivers better value. Our approach and experience suggests that most companies need to work smarter, not harder and this will drive more value than just pure cost reduction exercises.

13. Strategic Sourcing plays a key role in helping companies achieve costs savings. At the same time companies are staggering for want of new strategies. This is because they are unable to find new strategies every year and run out of ideas. So is savings possible every year?

Our broad experience has shown us that the use of smart, practical thorough processes in day-to-day operations will deliver better value than most strategic sourcing programs.  Sourcing typically relies on examining historic data and measuring it against actual and future cost, this strategy seems to be just reducing historic costs opposed to developing a better understanding of the value that can be created by looking more inwardly.

14. Reverse Auctioning is extensively used to procure products at the best cost. What are some of the other ways to reduce procurement costs?

Again, our experience is companies need to work smarter and not harder.  Better planning and analysis of the actual costs incurred rather than the costs associated with what people believe they have spent appears to deliver better benefits in the supply chain arena.

15. With global demand rising for supply chain professionals and a shortage of trained manpower, how do you think this situation can be rectified?

Employment, at all levels of the industry is a major challenge facing almost every employer and sector.  The supply chain, like most industries has a sexy and not so sexy side.  In the not so appealing areas of the industry companies have typically, at an operational level, been able to develop people from “off the floor” and train them in all aspects of the supply chain.  With these more functional areas of the industry becoming seen as less attractive places to work, the opportunity to “harvest” these staff has become harder and the need to import talent from other areas has become an even harder challenge.    At the other end of the scale, the ability to attract analysts and graduates is seemingly relatively easy, that is until they become exposed to a business environment that typically operates seven days a week, 24 hours a day.

The critical issues for the industry therefore are creating an environment that offers stability and longevity for all levels of employee.  The introduction of handling systems and operational tools is critical to this development however the maintenance of practical skills, especially in transportation and warehousing is just as critical to the development of a broader skills base.

Either way, there is no quick fix.  Employers must, to optimise their supply chains, invest heavily in their people in order to create a level of depth and retention.



Supply Chain of Bread Manufacturing


Liked by kids as well as adults, Bread is one of the most consumed food products across the world. Here is a interesting video showing end to end of supply chain process of Bread manufacturing.


How to Leverage Procurement to Realize Cost Savings

Doug Fraser

With more than 15+ years of experience in International Procurement, Mr.Doug Fraser currently works as Head of Procurement at Carribean Development Bank. He has handled strategic sourcing at Japan, United Kingdom, Vietnam, Cambodia, Philippines and Brazil. Let us watch his lecture that delves in to the different aspects of how Procurement can be leveraged to achieve Cost Savings.

Top 8 Contract Negotiation Strategies

Top 8 Contract Negotiation Strategies

There is fascinating correlation between your Negotiation and long term success of an Organization. In some jobs, the human touch and essence is essential. In others, it seems to be a drawback, and in a field of supply chain it boils down to a thin line of human emotions and business objectives and hitting the optimum tune is a serious task.

Some of the greatest success stories were fueled by robust& accurate negotiations.

Well, before we enter into what may be a robust strategy to negotiate to ensure certain tangible and intangible benefits, it is highly important to understand the true meaning of Contract, negotiation and strategy independently.

Top 8 Contract Negotiation Strategies

What is a Contract?

A contract is a legally binding or valid agreement between two parties. It is only obligatory if the agreement contains below fundamentals:

  1. offer and acceptance;
  2. an intention between the parties to create binding relations;
  3. consideration to be paid for the promise made;
  4. legal capacity of the parties to act;
  5. Legality of the agreement.

What is a Contract

What is Negotiation?

One of my favorite elements at the round table includes negotiation. The ability to negotiate powers numerous business outcomes. We negotiate for our existence, in our jobs, compensation and growth, with stakeholders, we negotiate in our personal lives as welland if you’re in a field like Procurement/Supply Chain, negotiation is inevitable.In a competitive environment it is critical to your success. Negotiation without intend can handicap your business goals.

What is Negotiation


Why Negotiate?

Negotiation is a bridge by which differences are settled. It is a process by which mutually accepted solution is reached while avoiding incomplete business deals.

In any difference, business’s aim to achieve the best possible ending for their situation. However, the objectivity of being just, pursuing mutual benefit and developing a relationship are the keys to a successful negotiation.

Stages of Negotiation:

Strategies of Negotiation

What is Strategy

The term strategy has been getting the center stage for many years in a row with various corporate leaders and research institutions, yet, there is no decisive definition.

Nodoby really knows what strategy is


Major reason being different organization’s/people echo different views about most acceptable definition of strategy.

For instance, for some people it is a method of evaluating the forthcoming to safeguard against the uncertainties of the future, accordingly plan your present and develop a roadmap to march on it according to designed blueprint.

According to Gerry Johnson and Kevan Scholes, authors of “Exploring Corporate Strategy,” say that strategy determines the direction and scope of an organization over the long term, and they say that it should determine how resources should be configured to meet the needs of markets and stakeholders.

Additionally, according to Michael Porter, strategy is a framework to define and communicate an organization’s unique position, and determine how organizational resources, skills, and competencies should be combined to create competitive advantage.

All explanations can be summed up to explain strategy as a high level plan to achieve business/personal objectives under conditions of nebulousness.

Well, so what it takes to engage into meaningful, efficient and a contract which fosters long term mutually benefit relationship??

I have broken down this topic in two segments i.e. legal/commercial aspect and Pricing factors which forms the heart and soul of a contract.

Below I have listed 8 of the most strategic contract negotiation tactics. Some of these may seem little complex and advances strategies, but they’re proven to work across all commodities, components, products, services and industries.

Legal/Commercial aspect of a Contract:

The business world revolves around contracts. If you do not effectively understand a contract detailing the terms and conditions of your agreement, sooner or later you will be outwitted.

a)      Know your Contract terms and Conditions:

I strongly believethoroughly understanding terms and conditions of the contract you are getting into gives you immense competitive advantage when you sit at the negotiation table.For e.g. you pay one time fee and use the terms and conditions again and again.

Below are few important clauses on the agreement which directly or indirectly has a positive impact on your financials/business/goodwill.

a.1) Ownership/title- For all software, documentation and other intellectual property developed under the Agreement which is not Supplier Owned Modifications (“Buyer Owned Modifications”), Supplierneeds to transfer all rights, and title and interest hence saves recurring expenses otherwise which a company would have paid for using the same services which was developed/procured by the money funded by them.

a.2) Limitation of Liability –I can’t stress enough how important it is to make your supplier liable to pay under the agreement for indirect, punitive and consequential damages arising from fines & penalties, any breach in obligation. It definitely reduces the risk of uncertainty for the buyer.

a.3) Assignment Clause -The Agreement should be assignable or otherwise transferable in whole or in part by buying organization to any one of his subsidiary hence avoiding paying for the same scope of work being used by the parent company, hencesaves lot of cash flows.

a.4) Pay Terms -More number of days to pay your dues, higher is the money saving factor which can be calculated using the formula,

[(Total PO price/Contract Amount )/365 ] *  No of days saved

b)Kraljic Matrix – No business can allow its procurement to lag behind than other departments in recognizing and modifying to global markets and highly volatile economic changes where reducing cost is a necessity. Kraljic model can be used to change your traditional procurement practices to a strategic business unit.

Kraljic's Supply Matrix

The model involves four steps:

1)      Purchase classification.

2)      Market analysis.

3)      Strategic positioning.

4)      Action planning.

Start by categorizing all of the commodities, components, products, and services that you procure according to the supply risk and potential profit generation of each,

Strategic items (high profit impact, high supply risk)

Leverage items (high profit impact, low supply risk)

Bottleneck items (low profit impact, high supply risk)

Non-critical items (low profit impact, low supply risk)

This model helps you to distinguish where your products/services are classified in terms of supply risk and revenue contribution and also recognizes the level of competitive advantage between you and your supplier. Once you know this, you can select an apt purchasing approach.

C) Emotional Intelligence:

What is Emotional Intelligence

One of the biggest blunders Buyers make is to assume that the course of negotiation is easy and logical one. But the spirit of negotiation is emotional essence. Generally, decisions are made out of fear, ego, attitude, need, future actions and so on. Successful negotiation materializes only when you clearly distinguish business and personal objectives, based on facts and not feelings. Always use language which displays mutual concern such as “we should” or “we can”, instead using statements like “I want this pricing by hook or crook”.

D) Don’t reveal your lower an upper limit -

Looking to Negotiate

It’s critical to know your margin ahead of time. You need your research to be based on accurate and precise facts and figures, this will only provide huge moral support with added confidence, making you look more well-informed at the negotiation table. It also reduces the chances of you over committing and under delivering. By realizing your boundaries it will definitely help you make educated decisions and you can leverage your maximum range of spending/saving to you benefit, so it is very vital to know where to stop & where to push.

If supplier gets a hint of your lower and higher budget, supplier can easily manipulate the contract in his favor and may you lose out on the competitive advantage.

Pricing Factors of a Contract

a) Spend Analysis to get better pricing- Organizations should use spend analysis to fuel their buying practices, reduce costs, and provide leadership with improved overview of their spending habits and patterns, which in turn can be used to develop a well-studied purchasing approach and develop an extremely advantageous pricing contract system. Spendanalysis should include the identification, automation, cleansing, grouping, categorization, and analysisof all spend data forthe goods and services procured by the organization.

With the operation of regular Spend Analysis, purchasing should aim to use the data to:

Spend Management

  • Improved contract obedience
  • Eliminate duplicate suppliers. (Reduction depends on previous efforts.)
  • Use contract pricing to create savings
  • Reduce material and service costs through informed strategic sourcing strategies based on the data
  • Meet regulatory reporting rules

b) Always ask for Breakup/split cost – This may sound and look like a very basic strategy, but it primes to lot of financial gain and generates liquid cash. Request the supplier to give a comprehensive cost breakup of the good/product/services being procured. This opens up a big window to identify cost saving opportunities. As a company, search and identify your supplier base if another supplier can provide the particular good/product/services which is going to be used in the original purchase at a reasonable price, then it totally changes the way you negotiate with your preferred supplier. Additionally, it does put pressure on the preferred supplier to offer his best price and the fear of losing a contract, suppliers tend to come up with best suitable alternatives for the buyer to choose from.

Also, it gives an opportunity to the Buyer the leverage or share the risk of a single contract with two or more suppliers.

C) Benchmarking your prices- Benchmarking can be used as a valuation tool, which measures the prices of a particular goods or services by taking into consideration quantity, value and time. It can be used to understand level of rates or prices can be charged for a particular goods and services.

Besides discovering the genuine criteria in terms of the purchase price, price benchmarking also includes ascertaining all the reasons behind the price.

There are four striking features of price benchmarking,

i)   You do not over pay for any goods or services being procured.

ii)  By benchmarking your prices, you can make sure that you are offering your final end users prices at or near the industry standard.

iii) Helps you to understand what consumers are willing to pay for a particular goods and services and what are the crucial traits creating the value.

iv)  Study what prominent companies within the industry are able to charge to for the same goods and services.

D) Always ask for add on services - It is okay to ask your supplier for add on services for any given purchase.  For e.g. you are buying a new software you may ask supplier to train you on it for free. It doesn’t impact your original pricing but leads to additional cost avoidance.

However, it may be subjected to size of your contract, product goods/services being procured.

There are several different formats and styles of negotiations, and which one you use depends on a multitude of factors such as the strength of the relationship, the urgency of the situation, the complexity of the issues, and the content of the negotiation.

Finally, always answer this questions before you start negotiation – What end result you want? How important is this collaboration for your success? What are you willing to give up in return? These are important thoughts and beliefs that may evolve over time.

Always use your judgement and keep your organization objectives in mind, it might help you to know and understand things which you can let go and things which are non-negotiable.

Interview with Mr.Shyam Rao, Head – Center of Excellence at Infosys

IIPMR Certification Reviews

Please brief us about your profile at Infosys?

Head of the Center of Excellence for Sales and Fulfillment Practice at Infosys and lead business development through thought leadership in domain and value added services both within the practice and to external clients.

What are the significant milestones achieved under your leadership at Infosys?

Anchored the development of “Sales and Fulfillment” as a mature practice by building and implementing service offerings and transformation initiatives in the Supply Chain covering the “Procure to Pay” and “Order to Cash” value chains. Initiate best practices, benchmarking, domain training and continuous improvements within existing engagements. Developed industry specific supply chain strategies and delivered business value through benchmarking and optimization of operations of Fortune 500 clients

What are the key challenges that companies face today in their supply chain?

The challenges in the supply chain are an outcome of its historical development over the past few decades. Due to the rapid globalization of supply chain operations, to the continuous evolution of SCM technologies to support sophisticated global operations, we see two main Supply Chain Challenges of Visibility and Cost take center stage:

Visibility: Supply chains spread globally with myriad technologies that do not always work in tandem leading to risk of supply chain disruptions due to local factors or system breakdowns. The recent natural disasters in Japan and South East Asia showed us how fragile a globally dispersed supply chain can be. The disruption of supplies of semiconductors from Taiwan or China for instance can result in major breakdown in supplies electronic goods to the West.  Similarly the adoption of different systems for SCM in different geos as the markets expanded in the east have led to a sub optimal value chains due to lack of technological integration of the value chain. A lack of global visibility due to the disbursed nature of supply chain operations and technology mismatch leads to low efficiencies of the supply chain. In an Infosys survey with 30 high tech companies in  the US, 73% mentioned that because of lack of visibility they  cannot control unnecessary ageing of inventory; 69% mentioned that they  end up stocking high inventory  to address demand volatility

Cost: The ongoing recession has placed cost pressures on further development of supply chain investments. With low appetite for costly capital investments firms have to try and optimize their supply chain investments with little or no budgets

Both these have led to companies not being able to improve supply chain efficiencies which ultimately effect both their topline and bottomline performance. For instance, it is estimated that 30.60% of the working capital requirements of the Top Fortune 1000 amounting to almost $740 billion is locked up in unnecessary assets.

There seems to be lot of buzz that cloud computing may replace traditional ERP tools used in supply chain? Do you see any benefits of cloud computing in supply chain?

Cloud computing addresses both of the above supply chain challenges of Visibility and Cost. A solution which can integrate various technologies and geographical supply chain operations into a seamless value chain can provide the visibility to optimize the supply chain in real time as well control and predictively manage risks of disruption. This coupled with the promise of cloud computing’s pricing model of pay-per-use with almost no capital investment will certainly be the next generation Supply Chain strategy which will replace our existing set ups

Do you see any significant changes happening in the near future in supply chain management?

The development of supply chains has been fast in the past few decades leading to very sophisticated but at the same time complicated and opaque systems. This is bound to change with the new mantra being “SIMPLIFY”. We will see three changes happening over this decade:

i.     A move to cloud based platforms working on a PaaS model to integrate the supply chain and operate on an Opex model rather than an investment heavy Capex model

ii.    Consolidation of the supply chain either through consolidation in technology or via optimization of the geographical reach of the supply chain

iii.  Outcome based pricing will see renewed interest keeping in mind that both the nucleus company and its vendors have now reached a certain level of cost reductions and further improvements will need the involvement of all partners of the supply chain. This cooperation will be driven by outcome based pricing where the risk and rewards are shared by all the partners of the supply chain

Today it’s all about saving costs in procurement. Companies are aggressive in achieving cost savings. Due to this supplier’s profitability has dropped. Do you think this sets a bad precedent for new suppliers to enter the market?

The auto industry is well known for this phenomenon of contract mandated year on year reduction in prices. Even here, I see a movement to measuring the cost of the entire supply chain rather than individual supplier prices/costs. By using metrics such as overall supply chain costs together with outcome based pricing we should see better supply chain strategies and further cost reductions possible over the coming decade

Strategic Sourcing plays a key role in helping companies achieve costs savings. At the same time companies are staggering for want of new strategies. This is because they are unable to find new strategies every year and run out of ideas. So is savings possible every year?

Yes, as I mentioned earlier, due the historical development of supply chain strategy we are now saddled with a legacy of inefficient technologies, disbursed operations which are not integrated and some extremely inefficient operations. The bright side is that there is huge scope for improvement and savings waiting to be realized. For instance for every $1 billion of sales, a decrease in days in inventory (DII) by 5 days can decrease inventory costs by $10 million and reduce cost of capital by $1 million. Similarly an increase in fill rates by 1.5% can generate $15 million in additional revenue. These are big numbers and strategic sourcing, inventory management and fulfillment will be able to achieve these numbers.

With global demand rising for supply chain professionals and a shortage of trained manpower, how do you think this situation can be rectified?

Two major problems here – one is the lack of awareness of the opportunities in supply chain management and the other a lack of a systemic training program catering to supply chain professionals. The first is surprising considering the high demand and current shortage of manpower. However we still find that most graduates are not inclined or even knowledgeable about a career in the SCM. We need to popularize the opportunities available and scope of the field at university level itself and the industry must project and connect via campuses and industry forums. The second is the lack of training and exposure to SCM for the limited number of professionals who would like to make a career in SCM. It is mostly a learn on the job kind of scenario. This must change. Some measures we need to introduce are more courses at university level and vocational institutes for freshers and certification programs for professionals already in the field